Victoria Pynchon’s Settle It Now Blog Spot has an insightful post on mediation of business cases. Many divorces involve valuing and dividing business interests. Her insights are eye-opening for those who simply try to “get to the number” too quickly. While her report is not directly aimed at divorces involving businesess, it’s certainly applicable. Our mediators have much to learn about cognitive science to succeed in these complex cases.
Business people take big risks in the face of uncertainty all the time. Attorneys, however, are trained to forecast every potential disastrous loss and advise their clients to gain some degree of certainty or control over those losses before making any decision that could substantially affect their pocket books. In the presence of uncertainty concerning the value of the goods at issue (a matter of greater uncertainty for lawyers and mediator than for the clients who presumably knew more than they were telling) how could this matter be settled without further discovery and analysis?
Cognitive Scientists to the Rescue
Cognitive scientists have identified, among other cognitive biases, something they call the “ambiguity effect.” The ambiguity effect occurs when decision makers avoid options for which missing information makes future probabilities unknowable. This was the “elephant” in our negotiation room. As soon as the parties were asked to “ante up” based upon their stated appraisal of the goods, each suddenly became completely uncertain of that value.
Victoria Pynchon’s Settle It Now Blog Spot has an insightful post on mediation of business cases. Many divorces involve valuing and dividing business interests. Her insights are eye-opening for those who simply try to “get to the number” too quickly. While her report is not directly aimed at divorces involving businesess, it’s certainly applicable. Our mediators have much to learn about cognitive science to succeed in these complex cases.
Business people take big risks in the face of uncertainty all the time. Attorneys, however, are trained to forecast every potential disastrous loss and advise their clients to gain some degree of certainty or control over those losses before making any decision that could substantially affect their pocket books. In the presence of uncertainty concerning the value of the goods at issue (a matter of greater uncertainty for lawyers and mediator than for the clients who presumably knew more than they were telling) how could this matter be settled without further discovery and analysis?
Cognitive Scientists to the Rescue
Cognitive scientists have identified, among other cognitive biases, something they call the “ambiguity effect.” The ambiguity effect occurs when decision makers avoid options for which missing information makes future probabilities unknowable. This was the “elephant” in our negotiation room. As soon as the parties were asked to “ante up” based upon their stated appraisal of the goods, each suddenly became completely uncertain of that value.
Reduce uncertainty or ambiguity and you increase the odds that the decision makers will do what business people do best and often — take calculated risks based upon an uncertain future. In an effort to decrease uncertainty, I suggested to the parties that they make their buy-out offers contingent on a neutral appraisal of the current market value of the warehoused goods.
While the business people reconsidered their respective evaluations of the warehoused goods, they both began to exhibit the “just world” and “self-serving” biases. The “just world” bias is our tendency to believe people “get what they deserve” (both negatively and positively). The self-serving bias is our tendency to claim more responsibility for our (business) successes than our (business) failures.
Faced with an option that might test each party’s valuation of the corporate entity, they shifted their attention to the other’s misdeeds (leading to the imminent failure of the business) and their own beneficial contributions (accounting for the success the business had experienced in the past). These cognitive biases threatened to de-rail the interest-based negotiation over price and mire the parties once again in a position-driven dispute that neither party could ultimately afford to litigate.
Sometimes the Deal Just Can’t Close in a Single Day
I never believe a negotiation has failed simply because it has not concluded in a single day. Often, the parties need time to digest new insights, reassess their positions and perhaps even check the books and records again before making a rational decision. Neither the lawyer nor the mediator do their clients any favor by pushing for a decision before the business people are ready to make it.
And yes, readiness to make a business decision is as emotional as any other major life decision. I have learned, for instance, that some business people need a day or two to mourn their losses before they are ready to accept them. One of the (often false) promises of litigation is the way in which it keeps hope alive in the parties. Hope that they will prevail. Hope that when they prevail everything that has been lost to them will be restored. Hope that they will ‘win’ rather than ‘lose.’ I have seen grown businessmen tear up at the moment they realize their losses will never be fully restored to them even if they “win” the litigation.
The need to reassess, reevaluate and yes, mourn, are just some of the reasons why it’s best to leave attractive offers on the table for a day or two after the apparent failure of any negotiation or mediation session. In the hypothetical case discussed here (really the conflation of three separate disputes) all of the parties (with continued telephone and e-mail assistance of the mediator) settled within two weeks of the first day of mediation.
Why the parties decided to settle on the number they eventually did is a mystery to me. I do believe, however, that a re-evaluation of the parties’ valuation assumptions as well as time to “digest” their losses, were critical to agreement being reached at all. In this case, as in many commercial cases, I believe the business people know more than they tell anyone — attorneys or mediator. If we factor in the “just world” and “self-serving” biases, they even know more than they are willing to admit to themselves.
Asking the right questions and setting the resolution process in motion, is often the best work any negotiator or mediator can do on a given day. Keep the faith and stay in the process, remembering that the strongest bias of all for business people is to leave the past behind and make something productive and profitable happen during every new business day.”
