Originally from Alternatives to the High Cost of Litigation

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The Master Mediator addresses in a series of columns the psychological factors and cognitive bias that may affect dispute resolution. Recent columns have explored the seminal work of Professor Daniel Kahneman in identifying two cognitive modes: “System 1,” which is fast, instinctive and 
emotional, and “System 2,” which is slower, more deliberative, and more logical. Cognitive Bias is the tendency to make incorrect judgments based on erroneous presuppositions. It is a default to the System 1, with the brain processing information quickly to reach a decision or to act, without the filter and reflection of System 2. According to Professor Max Bazerman, it arises when “a heuristic is inappropriately applied by an individual in reaching a decision” (see box). 

Framing Theory

Randy Kiser in his landmark book, Beyond Right and Wrong, discusses framing theory, relying primarily upon the work pioneered by Professor Kahneman and the late Amos Tversky, and noting that Kahneman and Tversky have shown that “decision makers are consistently ‘risk averse in the domain of gains’ and ‘risk seeking in the domain of losses.’ They underweight a high probability of gain, preferring a ‘sure thing,’ and underweight a high probability of loss, preferring a gamble to a certain, smaller loss. The perceptual illusions fostered by framing outcomes, moreover, are ‘as common among sophisticated respondents as among naïve ones.’”

The research supports the proposition that plaintiffs are often more risk averse than defendants, which results in plaintiffs who try cases obtaining slightly more per case ($27,687 in one study), while defendants may obtain more success in predicting defense verdicts—but the magnitude of error in the same study was $354,949 per case compared to the average of $27,687