Ralph O. Williams III

Cognitive Bias

• What is "Cognitive Dissonance"?
• What is Confirmation Bias?
• What is Attribution Bias?
• What is Loss Aversion?
• Sunk Costs
• What is Sunk Cost Aversion?
• Recognize Cognitive Overload
• Recognize Reactive Devaluation
• Resist "Competitive Arousal"

What is "Cognitive Dissonance"?

Cognitive dissonance is the psychological discomfort we feel when our beliefs conflict with our experience. For example, we know smoking is bad for us, but we enjoy smoking. The discomfort is alleviated by coping mechanisms such as denial (smoking is not bad), rationalization (smoking is not that bad) or minimization (I don’t smoke very much). This process is driven by our need for consistency between our beliefs and our experience. 

As a mediation advocate, you must recognize and manage cognitive dissonance. You and your client will hear facts and analysis from the other side and the mediator which are contrary to your beliefs about your case. The temptation is to explain away, minimize or ignore this adverse information, especially because you do not want to appear weak in front of your client.

Before the mediation, prepare your client to expect to hear things that might undermine the case. Explain that mediation is a learning experience where gathering knowledge about the other side's position is a valuable part of the process. When the unwelcome information arrives, you and your client will be ready to take the better course, that is, to question, explore and consider the information, then update your evaluation and negotiating position accordingly.

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What is Confirmation Bias?

Confirmation Bias describes the psychological process where we seek information that confirms our beliefs. The Endowment Effect is confirmation bias' cousin. This is the tendency to value our things, both material objects and beliefs, more highly.

These processes are particularly strong in mediation where our case is challenged by the other side, the mediator and sometimes our client. The tendency is to focus only on facts and law that confirm our position, generally resulting in overvaluing our case. The consequence is to miss valuable opportunities to learn, alter negotiation tactics to settle the case or adjust trial strategy, if the case does not settle.

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What is Attribution Bias?

Attribution Bias is the psychological process where we attribute good behavior and characteristics to ourselves and poor behavior and characteristics to others. It comes in two forms, internal (dispositional) and external (situational). For example, when the other side is late, it is because they are inconsiderate, an internal/dispositional quality. When we are late it is because of traffic, an external/situational cause.

In mediation we need to be aware of and manage attribution bias. If we ascribe only good to our case or client, we over-value our position and ignore its challenges, leading directly to missed settlement opportunities and client management issues. The client wants to believe they have a great case and you are going to take it all the way to trial with little cost or aggravation to the client. Interestingly, demonizing the other side leads to the same client management difficulties. The client wants to believe that the other side is evil and that you will punish them at little or no cost.  Neither situation promotes case resolution.

During mediation, skilled advocates guard against attribution bias by treating the other side with courtesy and respect, while maintaining a state of inquiry and flexibility about their case. 

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What is Loss Aversion?

Loss aversion describes the psychological phenomenon where people place a higher value on avoiding loss than on securing gain. This is why they buy certificates of deposit rather than invest in the stock market. The flip side of loss aversion is that once a person incurs a loss, they often engage in risk seeking behavior to recover the loss, such as putting money in a get rich quick scheme. Here’s how loss aversion works, mediating a litigated case.

Plaintiffs have suffered loss and will take a disproportionally high risk in the form of large demands in an attempt to recoup the loss. However, once engaged in negotiations, when hard offers, perceived as fair or “in the ball park” are on the table, the risk continuum shifts to retaining the gain achieved and avoiding the loss of a settlement.

Defendants and insurance companies incur loss with every dollar offered; hoping to avoid further loss, they offer little. When negotiation proceeds to “the ball park”, holding on to the gain, i.e. avoiding loss of a settlement, shifts the risk continuum to closing the negotiation.

The loss aversion process explains why parties start far apart, move to the “ball park” and then settle the case. It also illustrates that patience is a negotiating virtue and that rushing to the “bottom line” rarely works.

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Sunk Costs

“Sunk costs” is an accounting/business term which means “unrecoverable costs incurred on a project,” e.g. research and development.  In a lawsuit sunk costs are the incurred attorneys’ fees and costs.  Absent fee shifting contract provisions or statutes, sunk costs do not drive case value.  

When evaluating and/or negotiating a case, try to put aside the sunk costs.  Focus on the case’s present value and how spending future money will influence that value.

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What is Sunk Cost Aversion?

Sunk cost is time, effort and money spent on a project or relationship that will not be recovered, no matter the outcome. Sunk cost aversion is the reluctance to admit that the project or relationship is not working out. However, when faced with this reality, the prudent course is to let it go and move on.

In the lawsuit context, a case does not always develop into the profitable enterprise we envisioned on intake. Occasionally, the witness doesn’t come through, the client testifies poorly at deposition or the damages don’t add up. We want to believe our investment, both time and money, was for a good cause and it hurts to acknowledge that a case is going south.

Overcoming sunk cost aversion begins with the realization that we cannot throw good money after bad. Look at every case with fresh eyes. Make sure it’s worth your energy and act accordingly. Good case, keep moving forward. Bad case, adjust the client’s expectations and cut your and the client’s losses. Sometimes, it’s best to quit while you’re behind.

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Recognize Cognitive Overload

Cognitive overload is an education concept that states that the brain has a limited capacity to hold and process information. Our clients experience cognitive overload at mediation when they must simultaneously absorb a setting, the ADR facility, a process, the mediation and a task, negotiating a settlement. In mediation, cognitive overload manifests as tuning out, circular discussions, distrust, anger and frustration. It is aggravated by hunger, thirst, uncomfortable conditions and external stressors such as child/elder care concerns, other business and crowded schedules.

Decisions cannot be made and more information cannot be taken in until the information in limited working memory is processed and transferred to long term memory in a useful way. Think flash memory saved to hard drive. To facilitate this processing and transfer, manage the environment, take breaks, have a snack and visit the facilities. Prevent and relieve cognitive overload by "chunking,” that is, breaking down information into 3 to7 manageable pieces, making sure they are absorbed before moving on.

As lawyers we must be sensitive to the reality that lawsuits, mediation and negotiation are almost second nature to us. But to our clients, they are foreign and often scary terrain. Our job is to successfully guide them through the process. 

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Recognize Reactive Devaluation

Reactive devaluation is the psychological/negotiation phenomenon where a negotiator automatically discounts any proposal from the other side.  It often hinders productive negotiations by creating unreasonable responses and early impasse.

Before you react and discount or reject a proposal, stop and ask if it contains points to build on or work with in the negotiation.

If you anticipate that the other side will devalue your settlement ideas, merely because they come from you, consider having the mediator advance the concepts as his/her own.

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Resist "Competitive Arousal"

Competitive arousal is the urge to win rather than make the best deal.  Negotiating with people you perceive as rivals, negotiating under time pressure and negotiating in front of an audience contribute to competitive arousal which impairs your judgment.

Solutions/Recommendations: Think of the other side as a partner working toward an agreeable settlement.  Schedule enough time to conduct the mediation.  Avoid the temptation to be extra aggressive in front of your client.

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