Vermont Bar Journal, Vol. 40, No. 2 Vermont Bar Journal, Summer 2019

by Leo Bisson, Esq. Decision-Making at Mediation Psychological Factors Influencing Outcomes We recently saw the 100-year anniver- sary of the war to end all wars. Sadly, the stream of wars has never ended, and prob- ably never will. All one must do is hear the daily news to realize how fun≠damentally fortunate we are to have a rule of law allow- ing peaceful resolution of disputes. And to have alternative dispute resolution process- es to minimize the inefficiencies of litiga- tion. Mediation and arbitration have sup- plemented traditional methods of negoti- ation to enable those involved in disputes to have some decision-making control over the outcome. As a mediator of civil claims seeking re- dress for personal and financial losses (most commonly tort cases seeking a sum of mon- ey), I have often pondered the factors trig- gering acceptance or rejection of settle- ment opportunities arising during sessions. Over the course of about 1,000 mediations in the last 20 years one observation stands out as the most curious – parties sometimes reach agreements they all would have re- jected coming into the process. How could that be? What changes to make a “no” a “yes”? I am not so naive as to credit the role of the neutral alone for success at mediation, nor fault one or both parties for failure. A good and knowledgeable neutral certain- ly can provide information about multiple issues parties may consider, ranging from the litigation process to points of evidence and substantive law potentially applicable to the dispute. In addition to providing in- formation, a neutral may influence decision- making, either intentionally or accidentally. A mediator savvy in the science of Motiva- tional Interviewing may be able to direct- ly influence a party’s decision about set- tlement. 1 Through empathetic listening, open-ended questioning and restatement of a party’s position, a motivational inter- viewer can demonstrate discrepancies be- tween a party’s objectives and current po- sition such that a change of position and movement towards compromise becomes possible. Naturally, counsel for the parties and oth- er claims professionals involved in the pro- cess influence the decision-making of the parties. Again, this may be intentional or accidental. Family and friends likewise may have a bearing on a party’s view of case val- ue and thus the position taken at media- tion. The quest to understand how and why decision-making at mediations is influenced leads down an interesting path. Here I will 36 discuss some of the commonly encoun- tered psychological factors. 2 In Michael Lewis’ novel, “The Undoing Project,” he explores the life-long work of two Israeli psychologists, Amos Tversky and Daniel Kahneman. 3 Working together and employing numerous surveys, they dem- onstrated that people in every social and economic stratum make decisions about a wide variety of things based on subcon- scious rules of thumb they labeled “heuris- tics.” They categorized heuristics as certain ingrained principals which define the be- havioral contours of human decision-mak- ing. Contrary to utilitarian economic theory, which posits that decisions are based on a rational analysis of what is in a person’s best interest, they demonstrated that people often do not make decisions in their own best financial interest. For example, most people decide to take a sure $2,000 over a 50% chance to get $5,000, the statistically best choice. Conversely, those same peo- ple asked to choose between a sure loss of $2,000 or 50% chance of losing $5,000 chose the latter. In the first case most opt- ed for the sure thing over an even chance to do 2.5 times better, whereas in the second case they chose to chance a 2.5 times big- ger loss rather than accept a smaller sure loss. What Tversky and Kahneman came to realize is most of us are risk averse when it comes to a decision about a potential gain, but risk taking when deciding about a loss avoidance. 4 This trait forms the basis for what they labeled as Prospect Theory. Prospect Theory holds that financial de- cisions must be viewed in relation to a per- son’s reference point. For example, if of- fered a raise of $5/hour one may consid- er that satisfactory until learning that a co- worker is offered a $10/hour raise for the same work. Learning of the co-worker’s raise creates an anticipation that one is en- titled to the same, thus changing the point of reference from which the offer of $5 is measured. Prospect Theory also recogniz- es certain other human characteristics that factor into decision-making. Loss aversion is a strong influence. Studies show most people are willing to take greater risks to avoid a loss than to realize a gain. Opti- mism is another influential bias most share. Kahneman describes how optimism creates an “illusion of validity.” These and many more behaviors routinely appearing in fi- nancial decision-making influence the me- diation process, whether consciously or subconsciously. Prospect Theory and heu- THE VERMONT BAR JOURNAL • SUMMER 2019 ristics impact the course of mediations in many ways. Anticipation. It is normal at mediation for each party to anticipate the claim re- sulting in a gain or loss. But whether an amount of money either paid or received is viewed as a true gain or loss depends on each party’s reference point. And a party’s reference point will surely include anticipa- tion of some level of gain or loss from the matter. The claimant likely anticipates re- couping some level of financial gain to com- pensate from their perceived loss, and the defendant anticipates some loss in order to resolve the claim. Anticipated gain or loss informs that party’s status quo which in turn forms the reference point from which a par- ty will view a potential settlement as being a true gain or loss. Claimant’s anticipation of gain is un- doubtedly influenced by their counsel, but also by factors unrelated to the merits of the claim, such as anecdotal information about other cases, and personal needs. For institutional clients and those repre- sented by claims professionals, like insur- ers, a more regimented hierarchical system for anticipating status post resolution is in place. In both cases, pre-determined an- ticipated outcomes limit the flexibility of the mediation process and require consid- erable effort by the neutral to understand when a proposal will be viewed as a true gain by a claimant who is unlikely to forfeit for a chance of doing better at trial, or a loss by a defendant who is willing to take a chance to avoid. Learning what each party anticipates from the outcome of the dispute is criti- cal to understanding each party’s reference point from which proposed settlements will be viewed. It is further instrumental in mea- suring any discrepancy between a party’s position and anticipated outcome. And it is the starting point from which the medi- ator can begin to address the reasonable- ness of a party’s ultimate goal for dispute resolution. Anchoring. The uncertainty of a ver- dict or judgment in any given case affords considerable room for both disagreement among parties and influence by a skilled neutral. When a sum cannot be calculated mathematically and is subject to variables and imprecision, it has repeatedly been shown that a suggested amount will affect the opinion of value decided on by an indi- vidual. An example used by Kahneman is to ask: “Do you think the average life expec- www.vtbar.org

Vermont Bar Journal, Vol. 40, No. 2 Vermont Bar Journal, Summer 2019 | Page 36