Layered contract concept showing information being revealed.

Negotiating the Unknown: How to Get the Best Deals When You Don't Know What's on the Table

Rhea Morgan in Business & Economy June 2025 • 3 min read.

"Uncover hidden value and secure better contracts, even when you're missing crucial information."

In complex business environments, it's impossible to foresee every contingency. This limitation often leads to incomplete contracts and missed opportunities. What if you could incentivize experts to reveal hidden aspects of a problem, expanding the possibilities for more effective agreements?

Imagine you're an investor seeking advice from a financial broker. The broker possesses insights into market risks and opportunities you're unaware of. How do you encourage them to share this knowledge so you can create a truly informed investment strategy?

This article explores a fascinating solution: iterated revelation mechanisms (IRMs). IRMs are dynamic interactions designed to incentivize experts to gradually reveal information, leading to more complete and beneficial contracts. Think of it as a structured negotiation where new information unlocks better outcomes.

What are Iterated Revelation Mechanisms (IRMs)?

Layered contract concept showing information being revealed.

At their core, IRMs are dynamic processes where an expert gradually reveals new information about a problem. With each revelation, the decision-maker (that's you!) proposes a contract. The expert can either accept or reject the proposal. The process continues until either the expert rejects a proposal or no new information is revealed.

Think of it as layers of an onion being peeled back. Each layer reveals something new. Only, in this case, each layer leads to a potentially better deal.

Dynamic Interaction: Experts reveal information incrementally.
Contract Proposals: Decision-makers propose contracts after each revelation.
Accept or Reject: Experts decide whether to accept the proposed contract.
Iterative Process: The cycle continues until no new information emerges or a proposal is rejected.

A critical feature of IRMs is that the decision-maker can only propose contracts they can understand and express at that time. This means the framework adapts as new information comes to light, ensuring practicality and relevance at every stage.

IRMs and The Real World

Iterated Revelation Mechanisms offer a powerful framework for navigating situations where information is unevenly distributed. By understanding the principles of IRMs, you can design negotiation strategies that incentivize transparency, unlock hidden value, and lead to more successful agreements.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.2304.05142,

Title: Iterated Revelation: How To Incentive Experts To Complete Incomplete Contracts

Subject: econ.th

Authors: Evan Piermont

Published: 11-04-2023

Everything You Need To Know

What are Iterated Revelation Mechanisms (IRMs), and how do they work?

Iterated Revelation Mechanisms (IRMs) are dynamic processes designed to incentivize experts to gradually reveal new information about a problem. The process unfolds as follows: An expert unveils a piece of information, and the decision-maker proposes a contract. The expert then chooses to either accept or reject the proposed contract. The process continues with more information revealed and contracts proposed until the expert rejects a proposal or no new information is revealed. This iterative process, similar to peeling layers off an onion, allows for the discovery of hidden value and the creation of more complete and beneficial agreements. The core components include: dynamic interaction, contract proposals, accept or reject decisions, and an iterative process.

How do Iterated Revelation Mechanisms (IRMs) help in complex business environments?

In complex business environments, it's often impossible to have complete information. Iterated Revelation Mechanisms (IRMs) offer a solution by creating a framework that encourages experts to share their knowledge incrementally. This dynamic allows decision-makers to adapt and propose contracts that are relevant to the information available at each stage. By incentivizing transparency through IRMs, you can unlock hidden value, secure better contracts, and ultimately lead to more successful agreements, even when facing incomplete information. This is particularly useful when negotiating contracts with experts who have insights you lack.

What are the key characteristics of an Iterated Revelation Mechanism (IRM)?

An Iterated Revelation Mechanism (IRM) is characterized by several key features. First, it involves a dynamic interaction where experts incrementally reveal information. Second, decision-makers propose contracts based on the revealed information. Third, experts have the option to accept or reject these proposed contracts. Fourth, this iterative process continues until either the expert rejects a contract or no new information emerges. A critical aspect is that decision-makers can only propose contracts they can understand and express at the time, ensuring practicality and relevance throughout the process.

Can you give an example of how to use Iterated Revelation Mechanisms (IRMs) in a real-world scenario?

Consider an investor consulting a financial broker. The broker possesses knowledge of market risks and opportunities that the investor isn't aware of. Using an Iterated Revelation Mechanism (IRM), the investor could initiate a process where the broker gradually reveals information about various investment aspects, such as potential risks in the market. After each revelation, the investor proposes a contract or investment strategy based on the information. The broker can accept or reject this proposal. If the broker accepts, the investment proceeds; if they reject, the process continues with further information disclosure. This iterative approach, driven by IRMs, enables the investor to create a well-informed investment plan that considers all available knowledge.

How does the decision-maker's understanding influence the contract proposals within Iterated Revelation Mechanisms (IRMs)?

Within Iterated Revelation Mechanisms (IRMs), the decision-maker's understanding is crucial. The framework dictates that the decision-maker can only propose contracts they can understand and express based on the information available at each stage. This ensures practicality, relevance, and adaptability. As the expert reveals new information, the decision-maker's understanding of the problem deepens. This allows for the proposal of more informed and tailored contracts. This adaptability is a key advantage of IRMs, as it prevents premature commitments and allows for contracts to evolve with the unveiling of new information.