Are you certain you are making the best decisions possible in your settlement negotiations? The science says, “Probably not.” Randy Kiser’s research in decision making by lawyers confirms it. Plaintiffs’ lawyers decisions to reject settlement and go to trial are wrong 50% of the time at an average loss to their clients of $75,000. Defense lawyers err about 30% of the time and the cost to their clients averages $1.4 million.
Why Experienced Attorneys Make Bad Settlement Decisions
Decision making processes in our brains can be metaphorically divided into System 1 thinking and System 2 thinking. System 1 thinking is fast, effortless, emotional, impulsive, intuitive, and unconscious. System 2 thinking is slow, effortful, cautious, conservative, and conscious. When both systems are operating and cooperating, we make good decisions and avoid disastrous ones. When System 2 goes off line, we are vulnerable to bad judgments. Unfortunately, it doesn’t take much to knock System 2 off line, which is why experienced lawyers (and everyone else) make bad decisions in settlement negotiations.
The Problem of Cognitive Ease
During waking consciousness, the brain is engaged in multiple computations to maintain and update current answers to some key questions: Is anything new going on? Is there a threat? Are things going well? Should my attention be redirected? Is more effort needed for this task? These assessments are carried out automatically and unconsciously by System 1.
System 1 continuously monitors what is going on outside and inside the mind and generates assessments of various aspects of the situation without specific intention and with little or no effort. These basic assessments are easily substituted for more difficult questions, which leads to heuristics and biases in decision making.
The normal state of our mind is that we have intuitive feelings and opinions about almost everything that comes our way. We are rarely stumped. We often have answers to questions that we do not completely understand, relying on evidence that we can neither explain nor defend. Generally, if a satisfactory answer to a hard question is not done quickly, System 1 will find a related question that is easier and will answer. This is called substitution. The target question is the assessment you intend to produce. The heuristic question, which is completely unconscious, is the simpler question that you answer instead. Here’s how it often plays out in settlement negotiations.
|
Target Question |
Unconscious Question |
Unconscious answer to Target Question by using intensity matching |
| How much would you contribute to save an endangered species? | How much emotion do I feel when I think of dying dolphins? | What dollar amount matches the intensity of my feelings around dying dolphins? |
| What is a reasonable amount of money to settle this lawsuit? | How angry am I at the defendant for denying my claim? | What dollar amount matches the intensity of my anger and frustration with the insurance company? |
| What is the risk if I go to trial to defend this lawsuit? | How angry am I at the plaintiff for suing me? | What dollar amount matches the intensity of my anger at the plaintiff for suing me? |
In the third question, the defendant is actually creating a value of what he would want to be paid by plaintiff that equals his anger at being sued. This negative value translates to offering little or nothing in settlement and righteous indignation at being asked to pay anything.
As a mediator, I see this substitution occur all the time. When I ask hard questions and receive heuristic answers, I know what I am dealing with.
System 1 can therefore lead us to snap judgments that are unconscious and wrong because it replaces the hard question with an easier question that can be answered effortlessly. As a mediator, one of the most common statements I hear is “We’ll let the judge decide this!” It’s easier to avoid the hard work of negotiation with the momentarily satisfying “See you in court!” even though that is usually a disastrous decision for one or all parties. It is decision making by substitution.
The Solution to Good Settlement Decisions is Formal Negotiation Training and Thorough Preparation
There are two fundamental solutions to this problem in legal negotiations. First, obtain as much legal negotiation training as you possibly can. Kiser’s studies show that lawyers who have been formally trained in negotiation after law school make less decisional errors. Second, thoroughly prepare for each negotiation. There are 10 essential steps to preparing for settlement negotiations. Don’t skip any of them. If you are schooled in legal negotiation theory and practice and prepare for each negotiation, you will avoid bad settlement decisions.