Originally from:

AAA Handbook on Mediation - Third Edition

THE VALUE OF ECONOMIC ANALYSIS IN PREPARING FOR MEDIATION

Donald R. Philbin, Jr.

I. Introduction

“Why?” the child asks, negotiating a reprieve from eating green beans in favor of an early dessert. “Because green beans are good for you,” may have a hollow ring. “Because I said so” may work only to the extent of the power imbalance. Children want to know how their parents reach the conclusions that they serve up as positions. They probe for underlying rationales and interests. Litigants have the same need to understand how their opponents reach conclusions.

If 98% of filed cases will have negotiated outcomes, preparing to negotiate or mediate should focus more on underlying rationales than on positions, and for this the parties need a common vernacular through which to discuss the rationales that inform their positions.

This chapter discusses economic decision analysis as a tool to assist practitioners and their clients in preparing to negotiate or mediate. Of course, an economic analysis is only as good as the legal and factual analysis upon which it is built. It should show the legal remedies allowed by law and the facts supporting them. A sound economic analysis will get a party beyond the simple conclusion that it has a “good case” because there is some chance of a high or low award. A litigant wants to understand how the adversary got to its “good case” conclusion and what “good case” means. Take this military example. An 80% chance of success in each of six crucial stages of a military operation does not make for good odds. Even though a president may be tempted to give the go-ahead if the generals report that the overall chances for the operation are good, the combined results are a surprisingly low 26%. Mathematically, the problem is represented as 0.80 to the sixth power or 0.80 x 0.80 x 0.80 x 0.80 x 0.80 x 0.80 = 0.26. Graphically, it looks like this...