Forecasting methods for conflict situations

In 1975, a consortium sponsored by the Argentine government tried to purchase the stock of the Britishowned Falkland Islands Company, a monopoly that owned 43 percent of the land in the Falklands, employed 51 per cent of the labor force, had a monopoly on all wool exports, and operated the steamship run to South America. The stockholders were willing to sell especially because the Argentine consortium was reportedly willing to pay “almost any price.” But the British government stepped in to prevent the sale, (Murray N. Rothbard, as quoted in The Wall Street Journal, 8 April 1982). In my opinion, the actual solution in the Falklands War left both sides worse off than before. In contrast, a sale of the Falklands would have benefited both sides in the short run, and, as companies seldom wage shooting wars, this would probably have been a good long-range solution. Apparently, Britain did not predict how the Argentine generals would act when it blocked the sale, and the Argentine generals did not predict how Britain would respond when they occupied the islands. Accurate forecasting by each side in this situation might have led to a superior solution. This study examines the evidence on alternative procedures that can be used to forecast outcomes in conflict situations. I first define what is meant here by conflict situations. Next, I describe alternative forecasting methods. This is followed by a presentation of hypotheses on which method is more appropriate. The evidence is reviewed in two stages: first the prior research, then research that we have done. Comments Postprint version. Published in G. Wright and P. Ayton (eds.), Judgmental Forecasting , John Wiley & Sons, Ltd, 1987, pages 157-176 (Chapter 8). Reprinted with permission. The author has asserted his/her right to include this material in ScholarlyCommons@Penn. This book chapter is available at ScholarlyCommons: http://repository.upenn.edu/marketing_papers/12 Chapter 8, pp. 157-176 of Judgmental Forecasting , G. Wright and P. Ayton (eds.), John Wiley & Sons, Ltd, 1987. Reprinted with permission. Forecasting Methods for Conflict Situations J. Scott Armstrong The Wharton School University of Pennsylvania In 1975, a consortium sponsored by the Argentine government tried to purchase the stock of the Britishowned Falkland Islands Company, a monopoly that owned 43 percent of the land in the Falklands, employed 51 per cent of the labor force, had a monopoly on all wool exports, and operated the steamship run to South America. The stockholders were willing to sell especially because the Argentine consortium was reportedly willing to pay “almost any price.” But the British government stepped in to prevent the sale, (Murray N. Rothbard, as quoted in The Wall Street Journal, 8 April 1982). In my opinion, the actual solution in the Falklands War left both sides worse off than before. In contrast, a sale of the Falklands would have benefited both sides in the short run, and, as companies seldom wage shooting wars, this would probably have been a good long-range solution. Apparently, Britain did not predict how the Argentine generals would act when it blocked the sale, and the Argentine generals did not predict how Britain would respond when they occupied the islands. Accurate forecasting by each side in this situation might have led to a superior solution. This study examines the evidence on alternative procedures that can be used to forecast outcomes in conflict situations. I first define what is meant here by conflict situations. Next, I describe alternative forecasting methods. This is followed by a presentation of hypotheses on which method is more appropriate. The evidence is reviewed in two stages: first the prior research, then research that we have done. Conflict Situations In this study, conflict situations are those where two or more parties have opposing objectives, differing strategies, or competing claims to a given resource. Differences in objectives occur, for example, when the seller is trying to get a high price for a product while the buyer wants a low price. An example involving different strategies would be the conflict involved among groups in New Zealand over the issue of whether the All Blacks rugby team should have been allowed to play in South Africa; all of the parties were in favor of freedom and dignity, but they disagreed about strategies to achieve these objectives. Examples of conflict over resources include that between Britain and Argentina over the Falklands, between competitors such as Hertz and Avis, between labor and management, between parties involved in attempts to take over a company, or between buyer and seller. The situation becomes more difficult to predict when large changes or unusual events occur. These could be due to changes in the environment or they could be brought about by actions of one of the parties. In such cases, it is difficult to learn from experience. This chapter is concerned with predictions in situations with large changes.