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Cognitive bias in mediation
Victoria Greenwood • 17 July 2020
Why do we act the way we do?
a party puts a vastly inflated value on something which just does not make sense.
The theory behind this potential psychological block suggests there are 2 possible explanations for this seemingly irrational behaviour both of which can be facilitated within the mediation process:
- the “endowment effect”, and
- the “inner chimp”
The Endowment Effect
The endowment effect was first observed back in the 1980s at the University of Chicago, when economist Richard Thaler carried out his ground breaking studies.[1] In Thaler’s study participants were given a mug and then offered the chance to sell it or trade it for an equally valued alternative (in this case, pens). They found that the amount participants required as compensation for the mug once their ownership of the mug had been established, their (“willingness to accept”) was approximately twice as high as the amount they were willing to pay to acquire the mug (“their willingness to pay").
Simply put, it became apparent that once someone owns something, they place a higher value on it than they did when they first acquired it. They become endowed with a sense of possession, of “mine-ness”.
This behaviour is evident in a variety of dispute areas – from boundary disputes, disputed wills, rights of way, and even shareholder disputes. Let us consider the example of the boundary dispute. Often the strip of land is small, it has no real value, and in reality, there is nothing either party can do with that land. Why then, are these disputes so fiercely and emotionally fought? Is it as simple as an Englishman’s home is his castle? Not quite.
One side has usually been in physical possession of the land, and as such has an almost sentimental attachment to this object, a feeling of “mine-ness”. Consequently, that party will want far more for that strip of land than is reasonable, and more than the other party is willing to pay. The other side may have the legal title to the land, and as such feels ownership towards it and consequently will not be willing to part with the land for what would ordinarily be a reasonable sum. It would seem that each party may be willing to pay less to buy the land than it wants to receive, if it were to sell that land. This is often the stalemate reached in boundary disputes.
Expectations of what is “mine” are another area where the endowment effect takes hold. In disputed will cases there are often those who have always assumed they would inherit certain things; children expect to inherit from their parents, but what happens when that one child who has cared for their parents expects to receive more than her sister who lives abroad? How do we deal with the “mine-ness” issues that our clients have?
The Inner Chimp
In addition to this we are often faced with dealing with the “Chimp Paradox”. Professor Steve Peters in his book “the Chimp Paradox”, explained this as the “inner chimp” that we all have, the more basic, primal version of ourselves, whose primary drivers are power, territory, dominance and self-preservation.
Knowing about our inner chimp can help mediators and legal professionals deal with our clients, or even the other side, when this less desirable version of ourselves emerges.
Clients in a boundary dispute are already endowed with a sense possession over this strip of land, then add to the mix their inner chimp’s desire for territory and dominance and we can be facing a real block to settlement.
When a party loses their temper and their inner chimp emerges, it is time to take a step back. There is no point in presenting them with logical facts, as their chimp can’t process them. Instead, let them get it out of their system. It is a fact that you can only shout for a minute, after that you run of steam. Once they have got this off their chest you can start with the facts. The worse thing that you can do is fight back at their inner chimp.
The Mediation
So how do we as mediators deal with these psychological blocks to settlement?
The answer for the mediator is twofold and we must deal with:
- the mind
- the issue of possession.
The parties need to be in the right state of mind before any meaningful discussions can take place. As Professor Steve Peters explains in The Chimp Paradox, the use of facts, reason, truth, and logic will eventually calm the chimp down. It is not easy and may need much repetition and you can expect to encounter bouts of chimp-anger.
The mediator must deal with the issue of possession, that feeling of “mine-ness” that is so key in boundary disputes and disputed wills. One idea is to distance the parties from the item they wish to possess, for example putting their inheritance in a trust for their children or grandchildren.
Mediation has the benefit in that it allows:
- The mediator to look for those type of ‘outside the box’ suggestions. If they don’t work then reality testing can be used to explain that with or without their agreement, if matters progress to trial, they face the risks and uncertainty of litigation and may lose what they hold so dear.
- The parties to have a say in what they lose or gain and most importantly retain control – something of which their chimp would definitely approve!
Victoria Greenwood
[1] Kahneman, Daniel; Knetsch, Jack L.; Thaler, Richard H. (1990). "Experimental Tests of the Endowment Effect and the Coase Theorem"
We like to think we will always be around. Unfortunately, our inability to confront our own mortality can have a disastrous effect on those closest to us and our businesses. All businesses need to deal with succession, but farming families are particularly vulnerable to the effects of failing to deal with succession. Why is succession planning so important within farming? One of the main reasons is that children are often involved in working on the family farm and there is this unwritten understanding that one day all of this will be yours. Farming families are also notorious for not having partnership agreements in place, which again can leave the business open to potential disputes over the ownership of the business and its assets. Issues within farming One of the most common disputes that arise in farming families from a lack of succession planning is a proprietary estoppel claim – briefly put this is where: A representation, promise, assurance or other encouragement by the defendant giving rise to an expectation by the claimant that he/she would have a certain proprietary interest. There is reliance by the claimant upon that expectation. Finally, the claimant suffers a detriment in consequence of his/her reasonable reliance on the promise. When can mediation help? During the planning discussions Getting to the actual discussion about succession is often the first hurdle. Farmers are often so busy running the farm that they don’t have time to think about succession planning and for many people having this sort of discussion doesn’t come easy. Family members don’t want to rock the boat – children don’t want to disappoint their parents by admitting they don’t really fancy running the farm. Parents may feel that they are forcing their children into running the farm, but then equally children can be insensitive with their new ideas for the farm, which can often lead to disputes with their elders. Having an open and honest conversation as early as possible – and before a problem arises, is the best course of action. The children may not want to carry on the farm, but by knowing this the parents can plan for their retirement and have something to aim for. Sometimes these discussions will get out of hand. Heated debate may take place and people may get offended and upset. Mediation enables an independent third party to come in and speak with all of those involved. The mediator can: Explore the goals of each family member and what they want to achieve Facilitate conversations between family members so that they understand what others feel and want Enable the family to come up with a way forward together Where no discussions have taken place and litigation ensues Proprietary estoppel cases are fuelled with emotion and often to lead to lengthy, bitter and very expensive litigation. Whist there are practical steps you can take to avoid claims such as avoiding making promises and succession planning, this isn’t always the case. If faced with a claim for proprietary estoppel the parties should consider the use of mediation over litigation as the advantages of using mediation include: Confidentiality – farming communities are small, and these cases are ripe for local gossip and media attention. Cost – a mediation costs between £1500 - £3000 per party vs legal costs of around £100,000 if it went to trial. Speed – the mediation can be arranged within a few weeks and dealt with in one day - in comparison to the time it will take to bring the matter to trial (at least a year) and a possible 3 to 5 day hearing. The parties decide on the solution rather than a Judge making a decision (which often suits neither party).
Despite popular opinion they are not something which should be only considered in later life, or at the onset of an illness but right now to ensure your wishes will be respected should you lose mental capacity, be that temporarily or indefinitely. Lasting Powers enable you, the donor, to appoint someone you know and trust to act in your best interest, when you are unable to do so. Their purpose is to promote your independence. Most attorneys will be appointed family members – children and grandchildren. Families do not always agree on things, and this will be no exception when it comes to making decisions as an appointed attorney. What can cause issues? • Underlying family tensions o The initial appointment of the attorney(s) may have exacerbated tensions between family members, with some questioning why they were only appointed as replacement attorney for example. • Lack of consensus of agreement between attorneys • Lack of agreement between attorney(s) and other family members • Lack of agreement/consultation between attorneys, family members and medical professionals • Lack of inclusion/consultation with the donor What kind of disputes can arise? • Accommodation decisions • Financial management • Property management • Care/treatment decisions • Gifts Family disputes can increase the risk to the donor as the disputes may mean that not all decisions are being made in the donor’s best interests, which can have a negative effect on the donor’s care, health and wellbeing. The Court of Protection and the Mental Capacity Act Code of Practice encourage those involved in an attorney dispute to attempt mediation. The mediator must have regard to the Mental Capacity Act 2005 (“MCA”), and one of the areas where mediation helps rebalance the power between donor and attorney(s) is that any settlement must comply with Section 4 of the MCA: “a decision made for a person who lacks capacity must be made in the best interests of that person” Mediation is ideal when people are not communicating well or not understanding each other‘s point of view. It can improve relationships and stop future disputes, so it is a good option for attorneys as it is in their interest to maintain good relationships in the future. Mediation • ensures issues are addressed in the best interests of the donor • involves the donor and takes into account their wishes and feelings • supports the donor in making decisions • enables parties to communicate effectively and understand each other’s points of view • likely cheaper than going to the Court of Protection
The latest Arcadis Global Construction Disputes Report 2020 has revealed that the average time taken to resolve construction disputes in the UK has fallen by 23% to just 9.8 months (previously 12.8 months). This reduction in time doesn’t correspond to a reduction in the average value of disputes, which have remained constant. So why is the average length of dispute in the UK the lowest in the world? The report looked at how the UK deals with its construction disputes with the top 3 most common methods pf resolving a construction dispute being: 1. Adjudication 2. Party to Party negotiation 3. Arbitration So why doesn’t mediation make the top 3? Mediation has lost its place in the top 3, having been overtaken by Arbitration – most likely due to the introduction of new low-cost schemes, such as the Chartered Institute of Arbitrators’ Business Arbitration Scheme. Efforts have been made to encourage the early use of dispute resolution in the construction sector – such as the Construction Industry Council’s Model Mediation Agreement and Procedure, but this doesn’t seem to have made much of an impact. Mediation offers a lower cost and a quicker option to those involved in the construction industry, so perhaps in time and with ongoing education as to the benefits more will come to use it. Whatever the method – alternative dispute resolution is here to stay, and the construction industry success certainly serves as a shining example.
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We like to think we will always be around. Unfortunately, our inability to confront our own mortality can have a disastrous effect on those closest to us and our businesses. All businesses need to deal with succession, but farming families are particularly vulnerable to the effects of failing to deal with succession. Why is succession planning so important within farming? One of the main reasons is that children are often involved in working on the family farm and there is this unwritten understanding that one day all of this will be yours. Farming families are also notorious for not having partnership agreements in place, which again can leave the business open to potential disputes over the ownership of the business and its assets. Issues within farming One of the most common disputes that arise in farming families from a lack of succession planning is a proprietary estoppel claim – briefly put this is where: A representation, promise, assurance or other encouragement by the defendant giving rise to an expectation by the claimant that he/she would have a certain proprietary interest. There is reliance by the claimant upon that expectation. Finally, the claimant suffers a detriment in consequence of his/her reasonable reliance on the promise. When can mediation help? During the planning discussions Getting to the actual discussion about succession is often the first hurdle. Farmers are often so busy running the farm that they don’t have time to think about succession planning and for many people having this sort of discussion doesn’t come easy. Family members don’t want to rock the boat – children don’t want to disappoint their parents by admitting they don’t really fancy running the farm. Parents may feel that they are forcing their children into running the farm, but then equally children can be insensitive with their new ideas for the farm, which can often lead to disputes with their elders. Having an open and honest conversation as early as possible – and before a problem arises, is the best course of action. The children may not want to carry on the farm, but by knowing this the parents can plan for their retirement and have something to aim for. Sometimes these discussions will get out of hand. Heated debate may take place and people may get offended and upset. Mediation enables an independent third party to come in and speak with all of those involved. The mediator can: Explore the goals of each family member and what they want to achieve Facilitate conversations between family members so that they understand what others feel and want Enable the family to come up with a way forward together Where no discussions have taken place and litigation ensues Proprietary estoppel cases are fuelled with emotion and often to lead to lengthy, bitter and very expensive litigation. Whist there are practical steps you can take to avoid claims such as avoiding making promises and succession planning, this isn’t always the case. If faced with a claim for proprietary estoppel the parties should consider the use of mediation over litigation as the advantages of using mediation include: Confidentiality – farming communities are small, and these cases are ripe for local gossip and media attention. Cost – a mediation costs between £1500 - £3000 per party vs legal costs of around £100,000 if it went to trial. Speed – the mediation can be arranged within a few weeks and dealt with in one day - in comparison to the time it will take to bring the matter to trial (at least a year) and a possible 3 to 5 day hearing. The parties decide on the solution rather than a Judge making a decision (which often suits neither party).
Despite popular opinion they are not something which should be only considered in later life, or at the onset of an illness but right now to ensure your wishes will be respected should you lose mental capacity, be that temporarily or indefinitely. Lasting Powers enable you, the donor, to appoint someone you know and trust to act in your best interest, when you are unable to do so. Their purpose is to promote your independence. Most attorneys will be appointed family members – children and grandchildren. Families do not always agree on things, and this will be no exception when it comes to making decisions as an appointed attorney. What can cause issues? • Underlying family tensions o The initial appointment of the attorney(s) may have exacerbated tensions between family members, with some questioning why they were only appointed as replacement attorney for example. • Lack of consensus of agreement between attorneys • Lack of agreement between attorney(s) and other family members • Lack of agreement/consultation between attorneys, family members and medical professionals • Lack of inclusion/consultation with the donor What kind of disputes can arise? • Accommodation decisions • Financial management • Property management • Care/treatment decisions • Gifts Family disputes can increase the risk to the donor as the disputes may mean that not all decisions are being made in the donor’s best interests, which can have a negative effect on the donor’s care, health and wellbeing. The Court of Protection and the Mental Capacity Act Code of Practice encourage those involved in an attorney dispute to attempt mediation. The mediator must have regard to the Mental Capacity Act 2005 (“MCA”), and one of the areas where mediation helps rebalance the power between donor and attorney(s) is that any settlement must comply with Section 4 of the MCA: “a decision made for a person who lacks capacity must be made in the best interests of that person” Mediation is ideal when people are not communicating well or not understanding each other‘s point of view. It can improve relationships and stop future disputes, so it is a good option for attorneys as it is in their interest to maintain good relationships in the future. Mediation • ensures issues are addressed in the best interests of the donor • involves the donor and takes into account their wishes and feelings • supports the donor in making decisions • enables parties to communicate effectively and understand each other’s points of view • likely cheaper than going to the Court of Protection
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