Bar Journal - Summer 2005
How a Mediator Enhances the Negotiation Process
By: Attorney Peter Y. Wolfe
How often have you heard attorneys say, “We don’t need a mediator; we can negotiate this dispute ourselves?” The perception that attorneys can resolve their clients’ disputes without the assistance of a mediator is only partially correct. Research has shown that attorneys frequently are unsuccessful in negotiating a settlement even where a range of settlement possibilities exists.1 In other instances, research indicates that while a settlement is reached, the outcomes are far from optimal for one or both parties.2 These studies indicate that introducing a mediator into the negotiation process enhances the likelihood of resolution and increases the value of what is distributed to each of the parties.3
What does a mediator add that enhances the negotiation process? Barriers exist that prevent resolution or inhibit the distribution of value to the negotiating parties. These barriers are strategic, cognitive, and structural in nature.4 Strategic barriers are those that inhibit the exchange of information between the parties needed to find an optimal resolution. They exist because parties fear that if they are completely honest they will be exploited. Parties use tactics aimed at achieving their individual objectives without regard to the other side’s outcome. These negotiation traits inhibit the informational exchanges necessary to exploit the differences in resources, interests, relative valuations, forecasts, and time and risk preferences necessary for resolution of the dispute.
In addition to strategic barriers, how parties perceive their situation creates another layer of obstacles. These barriers are cognitive and relate to how individuals process information. They distort how parties view their situations, causing a departure from the rational economic model of party decision-making. This model assumes parties choose outcomes that make economic sense. However, research demonstrates that there are deviations from this model and that parties fail to reach an agreement even when objectively viewed, the proposed resolution makes economic sense.
The last barrier relates to the structure of the negotiation process. When parties use attorneys as agents to conduct the process, conflicts may emerge between what is best for the agent and what is best for the party. These differences in certain circumstances can stall or prevent resolution. Also, negotiations conducted by attorneys as agents fail to take into consideration the importance of the party participation. Studies have documented the importance of parties feeling that they were heard and understood by the other side. When this occurs, parties will listen to what is said by the opposing side and move from their original positions, something that rarely occurs when attorneys negotiate for their clients.
This article focuses on why mediation improves the efficiency of the negotiation process and helps overcome these process obstacles. It addresses the strategic and cognitive barriers that directly affect parties’ negotiations and discusses how the introduction of a third-party mediator overcomes these impediments. It also discusses the structure of the process and how to allow for party participation. Besides these efficiency issues, there are other reasons why parties should mediate their disputes. They relate to the individual growth that is possible with mediation when parties are empowered to make decisions and learn to see themselves and opposing parties with a new and altered perspective. These topics are beyond the scope of this article but are other important reasons to use mediation.
STRATEGIC BARRIERS TO NEGOTIATION
Typically, parties negotiating legal disputes try to achieve a predetermined goal or objective, generally at the expense of the other party. They see the dispute as a zero-sum situation where one side’s gain means there is less available to the other side. To maximize a client’s outcome, a negotiator may employ many techniques, including the use of hardball tactics, use of misdirection, or use of positional bargaining. Because parties know that this is how the process is conducted, they withhold information to gain an advantage over the other side. They try to deceive or mislead the other side regarding their true intentions, priorities, or objectives either because they are afraid of being exploited if they are open and candid, or they hope to manipulate the situation by creating uncertainty or confusion about their ultimate goals. This results in a lack of reliable information available to either side, making it almost impossible to find a resolution that maximizes each party’s respective gains or minimizes their loses.
Negotiation typically involves both distributive issues (who gets how much) and efficiency issues (how to make what is distributed larger). There is an inherent tension between these two issues.5 In order to make what is distributed larger (creation of value) parties must be open and candid with each other about their underlying objectives, interests, and needs so that a variety of options can be analyzed and compared. However, when it comes to the distributive aspects of bargaining, full disclosure by one party that is not reciprocated by the other, will place the fully disclosing party at a significant disadvantage. Unreciprocated disclosure allows the opposing negotiator to exploit the disclosing party’s openness by using the information to obtain a larger piece of what is distributed.
An example of how this may look would be a negotiation between plaintiff’s counsel and defendant’s counsel regarding the settlement of an automobile accident. The plaintiff suffered $10,000 in special damages with some residual low back pain. The plaintiff is very upset about how she was initially treated by the insurance adjuster who implied that her injuries were not serious. Later she went to an attorney who told her that her case was worth $50,000. The plaintiff wants this lawsuit to go away and definitely does not want to go to trial. She would be willing to settle for $25,000 if the insurance adjuster apologized to her. The defendant’s attorney on the other hand values the case at $25,000 but is worried because the plaintiff will make a very sympathetic witness. In addition, the driver of the car, the defendant, will make a poor witness because he feels responsible and believes the plaintiff should be adequately compensated even though the insurance company contests liability.
In this situation it is difficult for either party to know the underlying preferences of the other party as each will tend to bluff, puff, or lie about his or her underlying interests and preferences, and each will withhold information either to avoid being exploited or to exploit the other side. Plaintiff’s attorney will not disclose that the plaintiff does not want to go to trial and would settle for less if there were an apology, but instead will suggest that the case is worth over $50,000 and that they will go to trial to obtain what the plaintiff is entitled to. On the other hand, the defendant’s attorney will not disclose that the defendant will be helpful to the plaintiff at trial or that the plaintiff will make a good, sympathetic witness. In this situation, there is a lack of reliable information being shared by the parties, preventing them from maximizing the outcome for each party. The result is a process that may result in impasse or inefficient distribution of the negotiated items. To understand their relative positions and/or to enlarge what is distributed — to create value — requires an openness that many parties are unwilling to reciprocate because of the fear of being exploited or because they feel that they must “win.”
These results can occur even when there are potential gains for each side from a negotiated settlement. In the current example, a possible overlap exists between what the plaintiff wants and what the insurance company will pay. But it is unlikely that the plaintiff’s attorney will propose any settlement incorporating an apology; nor is this possibility something that the defendant’s attorney would be aware of.
The desire to win can also create impasse even when the only issue is the distribution of the excess overlap between the parties. An example is a situation where the defendant is willing to pay $95,000 to settle a personal injury case and the plaintiff’s bottom line is $75,000.00. If each side learns this information, the negotiation then involves how to distribute the $20,000 excess. Will there be an agreement? An agreement probably will be reached, but not necessarily at this time. Each side will use positional tactics fighting over who will receive the larger portion of the surplus. The tension between the distribution of the $20,000 and the value of resolving the case may result in no deal until the eve of trial, when the increased transaction costs force a settlement.
How a Mediator Helps to Overcome Strategic Barriers
How does a mediator overcome these strategic barriers? First, the mediator acts as a buffer between the parties, moderating or eliminating many of the hardball tactics used. The mediator accomplishes this by translating the information exchanged and reframing it to remove threats or ultimatums. Second, the mediator learns to understand what is motivating each of the parties and what each hopes to achieve, giving a framework to subsequent negotiations. Third, the mediator uses this information to help the parties generate options. Last, the mediator works with the parties to build on these options by exchanging proposals and information to generate movement toward a resolution. During this process, the mediator relays the necessary information to each party allowing the parties to find an acceptable solution. This works because each side feels safe to reveal its concerns, objectives, and supporting information, knowing that the mediator will not disclose the information to the other side without permission.
Within this framework, there are skills and techniques that mediators use to empower the parties to resolve their dispute, which generally are not available to parties negotiating by themselves. Since the distributional issues concern who gets how much, the tendency for parties is to adopt tactics and take a positional bargaining approach. This approach is limiting and in many instances results in impasse. Mediators can influence positional bargaining by understanding what the parties hope to achieve and why they are using positional tactics. Many times parties adopt positional tactics because think that they can or must do it to “win.” They see negotiations as “eat or be eaten” and do not know any other way to negotiate, failing to understand that value can be created by cooperation. Knowing this, mediators can coach the parties to focus on efficiency issues (creation of value) or at least help moderate the positional exchanges.
Creation of value requires an understanding of the parties’ interests and needs,6 which can be affected by many factors including how the parties were treated, the need for recognition, respect, economic well-being, security, and control over one’s life.7 Although attorneys attempt to meet these interests by translating them into legal positions (dollar awards in civil cases, or alimony or possession of the home in marital cases), these translations may not accurately reflect everything the party wants or needs resolved from the dispute. To overcome this failure, mediators help the parties understand what they hope to achieve from the process and assist them in finding ways to meet these needs. When this is done, mediators create value and enlarge what is distributed. In the automobile accident example, the mediator attempts to understand what is important by shifting the focus from the numbers to the parties’ interests, goals, and aspirations — topics that would not normally be disclosed to the opposing party. In this case, the mediator learns that the plaintiff is concerned about how she was treated. This issue has value to the plaintiff but is unrelated to the legal issues of liability and compensation. If the defendant is willing to recognize this need and apologize to the plaintiff, value is created for the plaintiff that should result in a settlement less than the $50,000 being asked by her attorney.
Another example of reconciling interests rather than compromising positions occurs in breach of contract disputes. In these cases, the legal positions relate to the damages for the alleged breach, but the parties’ interests are generally to maintain their reputations and make money from the deal. Examining these shared interests and finding ways to restructure the contract creates joint gains for both parties.8
Sometimes parties place different values on their interests. These differences facilitate the opportunities for exchanges. In a marital case, one party’s interest may be in keeping the existing home, whereas the other party’s interest is in finality and not paying alimony. The different interests allow for an exchange where one receives the home and the other gets finality and no alimony payments. These possibilities for trade-offs between interests can transform the dispute from a zero-sum exchange to a situation where both sides can benefit. Other examples of creating value by examining interests include the use of frequent flyer miles to expand what is available to the plaintiff who wanted money to travel in a suit against an airline; or the use of a structured settlement where the parties were saving for their child’s education; or a new apartment for a slip and fall plaintiff who really wanted to move and the defendant was a property management company.9 These ways to create value are based on the party’s interests, resources and priorities, and they have little if anything to do with the parties’ legal positions. Parties who negotiate without the assistance of a mediator normally do not discuss these issues.
If the mediator is unable to shift the focus to the efficiency issues associated with value creation, the mediator can still coach the parties’ exchanges. In the automobile accident example, the mediator helps each side better understand the other’s perspective by supporting each side’s informational exchanges. The defendant learns how good a witness the plaintiff will make in explaining her back problems and how the accident occurred. The plaintiff learns the defendant’s rationale for evaluating the case. The mediator focuses on understanding assumptions about the case and, when appropriate, shares them with the other side, including the valuation by the defendant. Tactics and misinformation are less relevant when the mediator translates the party’s statements and ensures that the necessary information is provided. The mediator’s skills play a key role in helping the parties reassess their situation as new information is exchanged while, at the same time, protecting the parties from exploitation. Should the process become stuck, the mediator looks to identify the reasons for the impasse. In many instances, the reasons are cognitive in nature and are discussed in the next section.
Although lawyers, as most other professionals, typically believe that consistent, reasoned, objective and rational decision-making characterizes their negotiations, but an abundance of evidence suggests that this assurance is misplaced.10 Research by cognitive psychologists suggests several ways in which human reasoning often departs from that suggested by theories of rational judgment and decision-making.11 In attempting, to understand why settlement attempts fail and trials occur, commentators have developed the “standard economic explanation” theory of the trial versus settlement decision-making process. According to this theory,
A defendant will be willing to settle for an amount equal to the cost of an adverse trial judgment multiplied by the percentage chance of losing the case, plus trial costs, minus out of court settlement costs. A plaintiff will be willing to accept a settlement offer in the amount of a favorable judgment multiplied by the likelihood of a favorable judgment, minus trial costs, plus out of court settlement costs. Lawsuits will settle if the defendant’s maximum offer is higher than the lowest offer the plaintiff will accept.12
In effect, both parties agree on the risk-discounted value of a jury verdict so they have no incentive to incur the higher costs of trial. In the absence of miscalculation and strategic bargaining, cases will settle under this model.
Departures from this standard economic model occur on a regular basis because psychological barriers, which are cognitive and perceptual in nature, prevent disputants from acting in a value-maximizing, utilitarian manner.13 Research illustrates that these psychological constraints can cause legal disputes to go to trial even when there is a viable bargaining range for settlement that is not adversely impacted by the strategic behavior of the disputants.14 To understand why this occurs requires an examination of the nature of these barriers and how they affect the party’s decision-making process. Once it is understood why cases that should otherwise settle proceed to trial, this article will discuss how the introduction of a mediator can help overcome them. While many cognitive barriers have been identified, this article will now focus on perspective bias, positive illusions, loss aversion, anchoring bias, reactive devaluation, and equity seeking.
a. Perspective Bias
In general, people have great difficulty separating themselves from their role in the dispute, thus preventing them from viewing it objectively.15 “We don’t see things as they are, we see things as we are.”16 So even when the parties negotiating a legal dispute possess complete and shared information, they tend to assess the strength of their case in a self-interested, or “egocentric”, manner.17 Thus, a party’s perspective frames how the dispute is seen. In any given dispute, there may be several possible realities for the various disputants, and a failure to reconcile them will lead to impasse.
In one of many simulated studies, participants in a neutral setting were divided into two groups and given background information. The group identified as plaintiffs received a sheet entitled “confidential information for plaintiff,” while the group identified as defendants received information entitled “confidential information for defendant.” Each side was given a list of hypothetical jury awards. They were then asked to predict what chance they had of winning their case in front of a jury and, should the jury come back in favor of the plaintiff’s case, what would be the dollar value of the jury verdict. The participants sitting as plaintiffs indicated that they had a 70-75 percent chance of prevailing and that a jury would award them between $180,000 to $200,000. The participants sitting as defendants predicted they also had a 75 percent chance of winning and, should plaintiff prevail, the likely jury award would be $90,000 to $100,000. At the conclusion of the exercise, the participants were told that they all possessed the same information and that the only difference was that one set was labeled plaintiff’s confidential information and the other defendant’s confidential information.18
The conclusion from this exercise is readily apparent. Even where each side possessed the same information, each tended to exert a bias toward its position or role in the dispute and tended to see and evaluate the information from that perspective. This tendency causes attorneys and parties to misevaluate their cases and leads to impasse during the negotiation process. Perspective bias is not easily overcome without outside assistance.
b. Positive Illusions
Egocentric biases are reinforced by what is referred to as “positive illusions,” which include unrealistic optimism, exaggerated perception of personal control, and inflated positive views of self, and are seen in situations where people tend to overestimate their abilities. This concept was demonstrated where participants answered questions of moderate to extreme difficulty about matters for which they generally had little or no knowledge, such as how many miles Saturn was from the Earth.19
The participants selected their answers from one of five multiple-choice possibilities. After a series of similar questions, the parties were then asked if they believed their answers were correct. Most participants had a confidence level of more than 50 percent that their answers were correct. In reality, the participants greatly overestimated the probability that their predications were correct.
Another example of positive illusions is the tendency to seek information that confirms rather than discredits one’s own hypothesis.20 During discovery, attorneys are more likely to seek information that advances their clients’ viewpoint than they are to seek information that supports the other side’s case. Other attributes of positive illusions include parties’ tendencies to overestimate their ability to control outcomes determined by factors beyond their control.21 When parties are overly optimistic about their ability to secure favorable litigated outcomes, they set extreme reservations points.22 This results in overconfidence that inhibits negotiated settlements. These conclusions are supported by research studies that found overconfident negotiators were less likely to make concessions and completed fewer deals than negotiators who were able to be more objective.23
c. Loss Aversion
Studies suggest that losses have more impact on parties’ choices than do equivalent gains.24 Cognitive psychologists have demonstrated that when parties are making decisions under conditions of uncertainty, they depart from the rational economic model in systematic ways.25
When making these decisions, parties use a mental heuristic or reference point to determine whether the proposed solution is viewed as a gain or loss. The consequence of this coding process is important because parties disfavor a loss from a given reference point more than they favor an equivalent gain.26 This phenomenon is known as “loss aversion.” This coding also affects how parties value what they possess. Psychologists have shown that people demand a greater amount of money to sell an item they own than they will spend to acquire the same item because they view the sale or giving up of the item as a loss.27
A second consequence of this heuristic is that parties are risk-adverse in the face of what they perceive as a potential gain.28 Parties will not gamble with a sure gain even though they would gamble to avoid a loss of the same magnitude. This is illustrated by the following: Participants were asked while attending a lecture to make the following choice: They could leave the lecture hall by either door A or door B. Those leaving through door A would be given an envelope, of which one quarter would contain a $100 bill and three quarters would be empty. The other choice was to leave through door B where each person would receive an envelope containing a $20 bill. The question presented was whether the sure $20 gain was more acceptable than the 25 percent chance of winning $100 or a seventy-five percent chance of winning nothing. The overwhelming majority chose the sure gain of the $20 even though the expected value of the second alternative, $25 is slightly greater.29
The second part of this exercise presented a different scenario. The participants were given a different choice when departing. Those who exited via door A would have to pay a $20 exit fee. Those who chose to leave through door B would be taking a chance –three-quarters would pay no fee at all, but one quarter would be required to pay $100. A majority of the participants chose to exit through door B, taking a one in four chance to avoid a sure loss of $20 even when the discounted payoff was $25.30
Taken together, these examples suggest that most people would not gamble for a possible gain of $25 but instead would accept the sure gain of $20. On the other hand, most of the participants would gamble to avoid a sure loss of $20 even though, on average, the discounted value ($25) of the loss of exiting via door B is higher than paying the sure loss of $20. These results are further supported by studies that suggest that the proportion of people who will gamble to avoid a loss is much greater than those who would gamble to realize a gain.31 This effect of viewing the situation as either a gain or loss is referred to as the “framing” effect. The implications are that how parties frame a transaction, as either a gain or loss, affects their decision-making process.
Another variation of this effect is that we value things we own more highly than do people who would acquire them.32 This phenomenon’s effect on negotiations was observed at recent training conducted by Jeffrey Senger and Christopher Honeyman for 22 assistant United States Attorneys.33 Eight participants were randomly selected and received a coffee mug embossed with the seal of the Department of Justice. They were then given the following instructions: “You now own the mug in your possession, which you can keep and take home with you. You also have the option of selling it if a price, which will be announced later, is acceptable to you. For each of the possible prices indicate whether you wish to sell your mug and receive the stated price or keep your mug and take it home.”
The rest of the group did not receive mugs, but received the following instructions: “You do not own the mug that you see in the possession of some of your neighbors. You will have the option of buying one if a price, which will be determined later, is acceptable to you. For each of the possible prices indicate whether you wish to pay this price and receive a mug to take home with you or not buy a mug at this price.”
A table of prices followed each set of instructions. All participants were asked to choose privately the price at which they valued the mug. Mug owners chose the price that they would be willing to sell their mugs and the others chose the price they were willing to pay to acquire the mugs. The result was that the 8 original owners valued the mugs at $7.87 and the 16 buyers valued them at an average of $2.67.34
Loss aversion acts as a barrier to a negotiated resolution. Parties tend to “fight on” in the hope of avoiding what is perceived as a loss even though continuation of the dispute involves a gamble in which the loss at trial may end up being far greater than what is offered before trial. Likewise, parties seeking to acquire something possessed by the other will value it less than the party that possesses it. This influences negotiations since parties are averse to offering concessions in circumstances they view as a sure loss. Unless the effects of loss aversion are overcome, impasse occurs. The striking feature of this phenomenon is that whether something is viewed as a loss or gain can be manipulated by changing the coding process. If changing the coding process is successful, the perceived loss is now seen as a neutral exchange. This is generally not possible without the assistance of a neutral, third party.
d. Reactive Devaluation
Social psychologists have conducted studies showing people tend to devalue proposals solely because an adversary offered them. According to this research, a party that views a change in the status quo as favorable may alter that evaluation upon learning that the other side to the dispute proposed the change.35 This basic notion of “reactive devaluation” is a familiar one where a person who would have been willing to settle a claim for $5,000 may no longer be willing to settle for that amount once the other side makes the offer. The attractiveness of the offer or proposed exchange is diminished simply because it originated from the opposing party.
In the study conducted by Senger and Honeyman referenced above, the participants were given a one-page description of a hypothetical civil case. They were told that they reviewed the file and determined that a good settlement offer would be $50,000. They were then told that they received a voice-mail message from plaintiff’s counsel offering to settle for $50,000. The participants were asked whether they would accept this offer, or if not what their counteroffer would be. Forty-eight of the 53 participants were unwilling to accept the offer from plaintiff’s counsel despite the fact that a few moments earlier they decided that $50,000 would be a good settlement. The 48 participants who refused to accept the offer instead proposed the average counter offer of $29,795.36
Both in laboratory and field settings, social psychologists have demonstrated that a given compromise proposal is rated less positively when proposed by someone on the other side.37 In these situations, the thought process suggests that the recipient of the offer believes that the offeror has given up nothing of real value and therefore resists making a counteroffer. This failure to respond leaves the original offeror with the impression that the recipient is not acting in good faith. In these situations, the cognitive and motivational processes that account for reactive devaluation act as a barrier to efficient conflict resolution.
e. Anchoring Bias
When asked to determine the value of a given case, the amount of damages or the alimony a court may award, attorneys find mental shortcuts to arrive at their conclusion. They may remember a particular court outcome they obtained, or possibly one they read about. This number then serves as a reference, framing how the value is determined. “Anchoring” is a cognitive psychological construct that allows people to make estimates by starting at an initial position based on the number remembered, which they later adjust to yield a final estimate. In this context anchors serve as a mental short cut or heuristic to solve a problem, which is the value of this case.38
There is a tendency with anchoring to focus on a salient number of how much a case is worth and make insufficient adjustments in response to the particular case at hand. For instance, if a recent court award for a similar case comes to mind, attorneys valuing their case may be unduly influenced by that number in the assessment of the present case. Research has demonstrated that even when this focal number is not accurate or particularly relevant, it can bias the attorney’s judgment and result in a distorted prediction of value.39
Consider the following examples of how people use a salient number to anchor their thought processes. If asked whether there were more male or female attorneys in America, researchers have found that individuals consult their memory and conclude that they see more male attorneys than female attorneys, so they answer male attorneys. When asked if there are more murders or suicides each year in America, most participants answered murders as they see more murders than suicides. In this situation, the heuristic is wrong because the reference does not reflect a comprehensive sampling of what is happening in the country.40
This happens during legal negotiations where attorneys focus on the one recent decision that made the newspapers in assessing the value of their case without consulting all the other verdicts that were not reported.
In another study, professional auditors were divided into two groups. Members in Group A were asked whether they thought significant executive-level management fraud occurred in more than 10 of the 1000 companies audited by Big Eight accounting firms. The members of group B were asked to indicate whether they thought significant executive-level management fraud occurred in more than 200 of the 1000 companies audited by the Big Eight accounting firms. The experimenters tested whether these anchors, 10 in group A and 200 in group B, would influence the answer to the question: What is your estimate of the number of Big Eight clients per 1000 that have significant executive-level management fraud? In response, group A’s estimate was 16.52 and group B’s estimate was 43.11. In this example, the initial anchor affected the rational judgment of these auditors.41
When applied to the negotiation process, anchoring results in both attorneys and parties fixating on a number that represents their perceived value of the case. What effect does that high jury verdict play in plaintiff’s thought process, or what role do the last two defendants’ verdicts have on defendants? Experience tells us that these numbers have an effect that may translate into a plaintiff’s offer or a defendant’s response. They also affect marital cases in establishing the respective positions of each side. Anchoring impedes rational decision-making as it affects each side’s expectations, which causes insufficient adjustments as new facts emerge. The result is a process that becomes stuck with a real difference over the expected value or outcome of the case. Without the assistance of a neutral third party these barriers can be difficult for negotiating parties to overcome.
f. Equity Seeking
Disputants, as with other individuals in social exchanges, seek equity and feel entitled to it.42 During negotiations, parties assess how their gains or losses compare to those of the other party. When what is offered appears to be smaller gain than that received by the opposing party, the proposed gain is rejected even though it may represent an economic gain for that party. In one study, participants’ satisfaction with a negotiated outcome was more strongly affected by their counterparts’ relative payouts than by their own absolute payout.43 In that study, subjects on average were more satisfied with an outcome that imposed a $600 loss on themselves but a loss of $900 to their counterpart, than with an outcome that offered them a gain of $600 but also resulted in a gain of $900 to their counterpart.
Parties also look at the relative needs and resources of the other side. Equal gains may be rejected if they are not commensurate with the different magnitude of needs of one of the parties. Studies have shown that people think it is unfair for a large corporation to lower wages even when wages in the area are declining.44 Their conclusions focused on the respective needs of each of the parties.
In a study conducted by Russell Korobkin and Chris Guthrie, participants were divided into two groups and provided with facts from a landlord-tenant dispute45 that involved the rental of an apartment by a local student. Two months into the lease the apartment’s heater broke. The tenant promptly notified the landlord and asked the landlord to fix the heater. The landlord did not respond and the tenant notified the landlord a second time. The heater was not repaired, and the tenant spent the remaining months in a cold apartment. After moving out the tenant learned that she could sue the landlord and was told that she had a very good chance of recovering a portion of the $4,000 rent she paid during the four months the apartment did not have heat. The tenant filed a small claims action and on the eve of trial was told that the landlord was willing to settle the dispute for $900. The two groups in the study were then asked if they would accept the landlord’s offer.
The variable tested in this scenario was the landlord’s reason for not fixing the heater in spite of the tenant’s request. Group A was told that the tenant called on multiple occasions. The landlord promised to repair the heater but never did. Group B participants were told that after the second call to the landlord, the landlord had a family emergency and had to leave the country to take care of it. Thirty-five percent of the group A participants said that they would accept the offer while 59 percent of the Group B participants said that they would accept the offer. Thirty percent of the group A participants said that they would definitely reject the offer while only 9 percent of the group B participants said that they would definitely reject the offer.
This example demonstrates that two groups in the same position, faced with the same uncertainty in court, arrived at very different results based on the information about why the repairs were not done. This example demonstrates that litigants want more out of the legal process than a monetary settlement. Instead, they seek to restore equity to an inequitable relationship. When litigants feel that they have been treated badly by the other side, the chances of settlement decrease because litigants seek retaliation or vindication of their moral position in addition to monetary damages.46 Parties seek to restore equity in resolving disputes and may fail to select settlements with the highest expected monetary value,47 creating potential barriers to a negotiated settlement.
How A Mediator Can Help Overcome Cognitive Barriers
The introduction of a mediator can enhance the negotiation process and help overcome the effects of positive illusions and egocentric bias by focusing on reconciling the different views of the dispute. Mediators use different techniques in these situations. One technique, referred to as “reality testing,” has both parties examine what they perceive as possible weaknesses in their respective cases. The objective is to help the parties to understand the implications of theses shortcomings. This allows the mediator to reorient the parties’ perspectives and have them reassess their positions based on these possible weaknesses. Other techniques involve the mediator helping the parties reexamine the assumptions they made in determining their position and then questioning the assumptions’ applicability. The mediator may also work with the parties to develop new information pertaining to these assumptions. These tools in the hands of a skillful mediator can moderate the effects of positive illusions and egocentric bias, allowing the parties to reach a new and shared view of their respective positions.
Mediators use different tools when dealing with loss aversion. The problem with loss aversion is that it is like an optical illusion in the parties’ minds. A mediator telling the parties that it is an illusion does not necessarily enable them to see things differently. In order to help the parties see things differently the mediator must focus on reframing the reality of how their situation is perceived and how offers are viewed. This requires that the mediator gain an understanding of the parties’ aspirations, past history, or previous offers that may influence the parties’ frames of reference. Once understood, the mediator uses this information to change the frame of reference by discussing proposals in a manner that achieves these aspirations. These frames are malleable. Settlement proposals are explained by showing where the party has made gains achieving his or her objectives while minimizing any perceived loss. The goal is to reconceptualize the frame of reference from a loss into one that is neutral.
The structure of the mediation process overcomes reactive devaluation. During the process, the mediator acts as a buffer between the parties, relaying information and settlement proposals. When offers and counterproposals come from the neutral third party and not directly from the other party, opposing parties are less likely to reject them out of hand because they are viewed as coming from the mediator. In addition, the mediator can guide the parties by allowing them to see alternatives not readily apparent. In these situations, it is possible for the mediator to make suggestions to each side and build on successive responses, guiding the parties toward resolution.
Mediators address anchoring bias in ways that are similar to how they address egocentric and positive illusions biases, but with an emphasis on challenging assumptions. The mental heuristic causing this distortion must be addressed. This can be accomplished by examining how the number was developed and the assumptions made. If there was an undue bias exerted by a particular case or event, then its applicability must be examined and exposed. Skilled mediators help the parties understand the informational base of each party and help them reconcile these differences, enabling them to reassess their offers. The mediator coaches the negotiations, explaining to each side how the value framed by the mental heuristic hinders the exchanges necessary for resolution and helps develop offers that advance the process.
Equity seeking suggests that parties are more sensitive to how fairly they have been treated than how they faired in objective terms.48 People measure fairness in a self-centered manner. To overcome this barrier, the mediator must learn why the party feels unjustly treated and help him or her to articulate and define what is fair. The mediator then examines how this is influencing the decision making process. In these situations, the mediator will strive to understand each party’s individual and subjective view of the issues relating to fairness. This requires that the mediator reframe how the inequities are seen. Once reframed, the mediator can elicit statements without the rhetoric and imagery associated with the parties’ positions, thereby assisting them to see more clearly each other’s positions. With this new perspective, the skilled mediator finds ways to achieve each party’s need for fairness. In the automobile accident example, plaintiff’s desire for an apology creates the balance necessary to restore her feelings of equity, enabling resolution. In a personal injury case involving a plaintiff who became very sick from eating contaminated food served at a fast food restaurant, the mediator found equity for the plaintiff by having the establishment inspected on a regular basis and the plaintiff given a copy of the report.49
The last barrier relates to the structure of the negotiation process where parties use attorneys as agents to conduct the process. When this happens, the incentives for an agent negotiating on behalf of a party may induce behavior that fails to serve the interests of the principal.50 Research suggests that it is no simple matter to align perfectly the incentives of an agent with the interests of the principal.51 This divergence can impede efficient resolution of conflict either by protracting the process or hindering resolution. Another drawback of using agents is that the principal does not actively participate in the negotiation exchanges between the parties. In the context of legal disputes, this may not achieve the principal’s need for “voice.”
“Voice” refers to parties’ need to have an opportunity to tell their stories and know that the other side heard them. To them, the ability to be heard and understood is more important than the outcome.52 Judicial settlement conferences demonstrate this phenomenon where the parties do not participate but have their dispute argued by their attorney. Research indicates that parties dislike this type of process because they are not included and have no input in the outcome.53
Disputants assess the extent to which the other party hears and considers their presentations and seek assurances that adequate consideration has been given to them. They want to know they have been heard and understood before they will accept resolutions that differ from their original positions.54 Structurally, providing parties with “voice” rarely occurs when agents conduct the negotiations.
While many benefits accrue from hiring an attorney to negotiate legal disputes, such as the availability of expert knowledge, advocacy and negotiation skills and access to other resources, there is a price that must be paid in the form of higher transaction costs. These costs can escalate because possible conflicts may emerge between what is best for the principal and what is best for the agent. Parties may perceive that an agent is prolonging the dispute in order to increase fees. Not all such behavior is venal. Many times litigation costs are incurred out of the competitive desire to leave no stone unturned in order to prevail at trial. However, this can escalate the tension as the opposing party is forced to compete, making it more difficult to resolve the dispute prior to trial raising the cost to all parties. Then there are the contingency fee cases where the plaintiff’s desire to end the dispute as soon as possible may be offset by defendant’s incentives to exploit the situation by raising the transaction costs in order to pressure plaintiff’s attorney to settle. Lastly, there are situations where one party has more resources than the other and seeks to exploit the imbalance.55
Conflicts also occur when attorneys do not understand or are unaware of their clients’ non-monetary incentives or goals. For example, the contingent fee can serve to dissuade lawyers from seeking ways to create non-monetary kinds of value. “As one plaintiff’s attorney told the author, ‘You can’t pay the rent with 1/3 of an apology.’ “56
The contingent fee can also cause cases to drag on longer than they otherwise might when defense counsel is paid at an hourly rate. In the original personal injury example, plaintiff’s attorney is convinced that the case is worth $50,000, but the plaintiff is willing to settle for less if an apology is offered. How will this case be resolved? Will the plaintiff’s attorney attempt to influence plaintiff to “hang tough” in order to obtain more? In this situation, there is a definite conflict between what is best for the agent and what the principal desires. Will these situations always be resolved in favor of what plaintiff wants from the dispute or will the attorney influence the plaintiff to hold out for more?
In other cases, it is the client who prolongs the dispute. Clients often do not share their attorney’s rational thought process and resist efforts to settle cases. The principal may want to continue the dispute despite legal counsel’s best efforts to settle the matter, such as the situation where the manager responsible for a lawsuit may want vindication to protect his or her own career, or the manager in charge of a given office or division may want to delay settlement until after he/she has been transferred so the settlement will not be on his or her watch. These different examples illustrate how divergent goals of the agent or principal can prolong the dispute.
How the mediation process is conducted can overcome many of these problems. During mediation, both parties and counsel are brought face to face, enabling them to have a direct conversation in a controlled environment. This process allows each party to hear and be heard, unfiltered. These exchanges allow each to understand what is motivating the other so each can gain a new perspective of the other. When mediation is conducted in this fashion, the parties’ need for “voice” is met. In addition, the mediator will insure each party acquires the necessary information for resolution and help empower the parties to make their own decisions.
Success may be more difficult when the agent’s or principal’s stake in the outcome distorts the situation. In situations where the client perceives his or her reputation or job as an issue, the mediator must consider who should attend the mediation. In these types of cases, the mediator should encourage the attendance of someone other than the individual stakeholder. Where the agent’s stake in the outcome is impacted by creation of value, which may not be distributed as part of a contingent fee, the mediator must discuss with counsel that associated gains are possible for the attorneys in these cases. These gains are byproducts of the client’s satisfaction from successful resolution and include counsel’s enhanced reputation in the community, which may lead to more business.
Not all negotiations get to “yes.” Failures to reach an agreement occur even when skilled negotiators conduct the process. This is not surprising since negotiators face strategic, cognitive, and structural barriers on the path to settlement. The introduction of a mediator into the negotiation process transforms the process, helping to remove these impediments. Skilled mediators help overcome the strategic barriers inherent to the process by controlling the exchanges between the parties, thus ensuring the quality of the information each receives. With reliable information devoid of negotiation tactics, parties can assess the situation and, with the help of the mediator, resolve the dispute. Where cognitive processing variations occur, mediators help the parties reconceptualize the frame that is causing distortion by changing the heuristic used. Finally, the mediation process gives parties the opportunity for voice, allowing them to present their perspective unfiltered. Having been heard, parties will more readily hear what is said by the opposing party and the mediator and may accept resolutions not previously considered. The process also allows the mediator to focus on helping the parties resolve the dispute without attorneys or clients using the process for ulterior motives. Thus the value added by the introduction of a mediator enhances the negotiation process.
1. Howard Raiffa, “The Art and Science of Negotiation” 139 Harvard University Press (1982). Also see Bazerman, “Negotiator Judgment: A Critical Look at the Rationality Assumption” 27 Am. Behavioral Sci. 618-634 (1983).
2. Id. at 139.
3. Robert A. Baruch Bush, “What Do We Need A Mediator For? Mediations Value Added for Mediators” 12 Ohio State Journal of Dispute Resolution 1, 3 (1996).
4. Robert H. Mnookin, “Why Negotiations Fail: An Exploration of Barriers to the Resolution of Conflict”, NIDR Forum Summer/Fall 21–22 (1993).
5. Id. at 23.
6. Roger Fisher and William Ury, “Getting to Yes” (1983).
7. Id. at 48.
8. A more detailed discussion of interest creation can be found in “Getting to Yes” at Chapter 3 or in “Beyond Winning” referred to at endnote 55.
9. Edward E. Shumaker Esq. conducted the first mediation, and the remaining one conducted by the author.
10. Richard Birke and Craig R. Fox, “Psychological Principles in Negotiating Civil Settlements” 4 Harvard Negotiation Law Review 1, 2 (1999).
11. Russell Korobkin and Chris Guthrie, “Psychological Barriers to Litigation Settlement: An Experimental Approach” 93 Mich. L. Rev. 107, 119 (1994)
12. Id. at 111.
13. Id. at 117.
14. Id. at 118.
15. Birke, supra note 10, at 14.
16. Carrie J. Menkel-Meadow, Lela Porter Love, Andrea Kupfer Schneider, and Jean R. Sternlight, “Dispute Resolution, Beyond the Adversarial Model” Aspen Publishers at 162 (2005) quoting Anais Nin.
17. Birke, supra note 10, at 14.
18. Class demonstration conducted by Peter Wolfe at Franklin Pierce Law Center.
19. Birke, supra note 10, at 16.
20. Id. at 17.
21. Id. at 17.
22. Id. at 16.
23. Id. at 16.
24. Korobkin and Guthrie, supra note 10 at 129.
25. Id. at 129.
26. Mnookin, supra note 4 at 26.
27. Jeffrey M Senger and Christopher Honeyman, “”Cracking the Hard-Boiled Student: Some Ways to Turn Research Findings into Effective Training Exercises” The Conflict Resolution Practitioner published by the Georgia Office of Dispute Resolution at 33.
28. Korobkin and Guthrie, supra note 10 at 129.
29. Mnookin, supra note 4 at 26.
30. Id. at 26.
31. Jeffrey M Senger and Christopher Honeyman, supra at 33.
32. Id. at 32.
33. Id. at 33.
34. Id. at 33.
35. Korobkin and Guthrie, supra note 10 at 150.
36. Jeffrey M Senger and Christopher Honeyman, supra note 25 at 36.
37. Mnookin, supra note 4 at 28, but also see Korobkin and Guthrie, supra note 9 whose studies in the context of civil litigation were inconclusive.
38. Birke, supra note 10, at 8.
39. Id. at 10.
40. Id. at 8.
41. Korobkin and Guthrie, supra note 10 at 138.
42. Id. at 144.
43. Birke, supra note 10, at 35.
44. Id. at 37.
45. Korobkin and Guthrie, supra note 10 at 145.
46. Id. at 147.
47. Id. at 144.
48. Birke, supra note 10, at 38.
49. Mediation conducted by the author in Sullivan County.
50. Mnookin, supra note 4 at 25.
51. Id. at 25.
52. Bush, Supra note 3 at 17.
53. Nancy A. Welsh, “Making Deals in Court-Connected Mediation: What’s Justice Got To Do With It”, 79 Wash U.L.Q. 787, 827 (2001).
54. Id. at 823.
55. Jean R. Sternlight, “Lawyers’ Representation of Clients in Mediation: Using Economics and Psychology to Structure Advocacy in a Nonadversarial Setting,” 14 Ohio St. J. on Disp. Resolution 269, 1999 at 9 through 15.
56. Robert H. Mnookin, Scott R. Peppet, and Andrew S. Tulumello, “Beyond Winning” at 118 (2000).
Attorney Peter Y. Wolfe is coordinator of alternative dispute resolution programs for the NH judicial branch and Sullivan County Superior Court Clerk.