Readers may be familiar with Daniel Kahneman’s 2011 best selling book Thinking, Fast and Slow. The book synthesizes for a popular audience the 35 years of research in human cognition and behavior that earned him a Nobel Prize in economics in 2002. Kahneman, himself a psychologist, offers singular insight into human cognitive processes. His work has profound implications for all fields of decision-making, not the least of which is the practice of law, and more particularly the resolution of disputes.
The book identifies almost two-dozen "cognitive biases" — errors of reasoning, of which we are generally unaware and which distort our judgments and lead to objectively irrational choices. Kahneman’s fundamental point — which he makes convincingly through entertaining accounts of his research findings — is that we (even seasoned, highly capable lawyers) are prone to errors in judgment because most decisions are made through a "fast" thought process of associative, intuitive reactions rather than an objectively formulated "slow" mode of thinking.
This "overconfidence bias" derives from the intuitive system in our brains that employs a relatively easy mode of processing information (fast "cognitive ease") based on what we think we know. It is not the product of the separate system that engages in more deliberative adaptation of previously acquired knowledge to new facts and circumstances so as to modify our ingrained patterns of both thought and behavior.
Recognizing and tackling certain of the cognitive biases that Kahneman identifies can enable lawyers and neutrals to more effectively overcome common impediments to successful negotiation and mediation.
Kahneman articulates a "pervasive optimistic bias," which "may well be the most significant of the cognitive biases." This bias activates the illusion that we have substantial control over our lives and the outcomes we seek. Optimism is reinforced by loss aversion, by which we negatively value a loss (i.e., a threat to the status quo or expected outcome) more than we positively value a gain of equal amount.
Litigators are susceptible to what Kahneman labels the "planning fallacy." Optimism, overconfidence and loss aversion combine to cause underestimates of the time requirements and cost of litigation, as well as overestimates of its benefits, despite repeated experiences that would objectively yield less favorable conclusions. Also, litigants are prone to inflate the value of what they currently hold — their claim or defense — and exaggerate the cost of giving it up (the "endowment effect") because the concession requires incurring a "loss" in relation to the planned-for outcome.
In settlement negotiations, a lawyer and client offering a concession should be prepared for the fact that the opponent, for the same reasons, will assign a lower relative value to the concession, thus underestimating the trade value of that concession. Counsel advising clients and providing direction in preparation for or during a negotiation are susceptible to these biases that distort the thinking on each side of the negotiation.
To explain the tendency toward overconfidence, Kahneman coins the phrase "What You See Is All There Is" (WYSIATI) — repeated throughout his analysis. When people make decisions, we refer to "known knowns." We devalue "known unknowns," which are facts or scenarios that we know to be possible but reject because we have no information based on intuition or experience. We do not, of course, consider at all the "unknown unknowns," of which we are either unaware or do not recognize the relevance to the decision at hand.
Kahenman’s work demonstrates the genuine value of a third-party, neutral mediator who can act to assist the parties to see beyond WYSIATI. Mediators can be most effective when they identify and challenge biases, allowing for discovery of realistic, alternative resolution scenarios that simply are more difficult for the parties to envision and develop on their own.
The value of a process-oriented, facilitative mediator, as opposed to one who primarily provides evaluation, becomes particularly apparent through Kahneman’s lens. By engaging in a process in involving open-ended, probing questions, as well as a focus on mutual interests rather than the merits of legal positions, the parties are more able to see through their own biases and misconceptions. For Kahneman, this is so because we are considerably more inclined to modify our conclusions by discovering ourselves ("thinking slow") any misapprehensions regarding our own ideas than by acceptance of the views formulated by others.
Minds opened in this way become more receptive to alternatives to the pre-existing way of thinking about a problem or a case. The parties only then become more willing to assimilate third-party evaluation, which can be offered by the mediator at a late stage to assist in closing lingering gaps and finalizing agreements. Engaging in evaluation before that occurs meets the potentially deal-breaking resistance of cognitive biases.
Kahenman establishes the importance of "framing", which is the context in which choices are presented. He describes an experiment in which subjects were asked whether they would opt for surgery if the "survival" rate is 90 percent, while others were told that the mortality rate is 10 percent. The first framing increased acceptance, even though the potential outcome was no different. We are aware of any number of such examples—e.g., seeing the glass half full. Behavioral research establishes repeatedly that we too often remain stuck in these contextual traps, which can lead to erroneous judgments, and thus negotiation and client representation mistakes.
Mediation conducted artfully is a process in which "reframing" and "priming" of ideas, through the mediator offering a different context for the same idea, can forge substantial progress toward common ground. If the parties are presented with an alternate, constructive frame within which to view the dispute, and the mediator works persistently within that frame, the opportunities for positive discussion increase, sometimes dramatically even in intractable cases.
Litigators regularly deal with the problem of trying to settle a case in which the client has a substantial investment in fees and emotion. Rather than focus on weighing whether an incremental investment would produce a positive return, parties in a dispute seek to justify their prior investment. Loss aversion becomes all the more pronounced.
A mediator can keep urging the parties to deal with the task of settlement evaluation and negotiation from where they are at that point. This simple idea is all too easy to stray from without guidance that that can prevent the cognitive barriers of sunk costs and loss aversion from becoming too great to permit a resolution.
This discussion barely scratches the surface of Kahneman’s 400-plus pages of fairly dense, although very readable, presentation of his research and its practical impact. The book could become mandatory law school reading to provide new lawyers with a broader perspective on the most effective approaches to client representation. Because of the importance of Kahneman’s work for negotiation and dispute resolution, I will deal with specific mediation examples and applications in a later column.•