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Bias and Other Factors Impacting Settlement

Thursday, December, 13, 2012

Settlement assessments (what to offer, whether to accept or counter an offer, etc.) necessarily involve human judgment and thus are susceptible to error and bias. Here are some of the most common that parties and counsel should endeavor to avoid.

Success Bias.
  Parties and counsel have a natural tendency to overestimate the likelihood of success in litigation or arbitration.  This bias results from a party overvaluing the strengths of its case or attributing more value to its own contributions, while undervaluing, or overlooking, the weaknesses and the contributions of the other party.

False Choice Between Competition and Compromise.
A party tends to view a dispute as a choice between winning (achieving self-interest objectives) and losing (giving in to the other side).  This simplistic generalization prevents a party from considering other approaches that considers and addresses the interests of both sides.

Inattentiveness to Change.
  No dispute is ever static.  As a case progresses, each party learns more about the strengths and weaknesses of the other party.  However, there is a tendency to fail to re-evaluate the case or a settlement proposal in light of these changes.

Valuation Bias.
  A party may dismiss or be unreceptive to the value or credibility of a proposal simply because it was offered by the other party.  Similarly, a party may overrate the value of its claim or settlement proposal.  This bias often makes collaborative problem-solving difficult.

Hindsight Bias.
Hindsight is said to be “twenty-twenty” (i.e., perfect).  However, a party and counsel tend to forget that a judge or jury will view the party’s actions in hindsight and not as the party did at the time.

Cognitive Dissonance.
  It is psychologically difficult for some to give credence to information or arguments that contradicts their position.

Auctioneer’s Effect.
  Negotiators sometimes lose focus on their party’s interest or bottom line as a result of the excitement of the negotiation process.  In addition, counsel may have a tendency to show off for the other party.

“Big Picture” Blindness.
  As the saying goes, sometimes a party may miss the forest for the trees, hearing only that on which the party is focused.  By focusing only a specific point, party and counsel will fail to consider the impact on the value of the case or the resolution of the party’s interests.

In order to maximize the party’s chances of resolving the dispute and satisfying the party’s interests, party and counsel should use their collective best efforts to identify and avoid these pitfalls that may be negatively impacting their judgment.

Posted By:
Jay Lazrus