Michael Lewis’ new book, “The Undoing Project: A Friendship That Changed Our Minds,” chronicles the decades-long collaboration of psychologists Amos Tversky and Daniel Kahneman and has renewed focus on their ground-breaking studies on decision-making. Those studies and the subsequent work by Kahneman after Tversky’s death in 1996 were the subject of Kahneman’s bestselling book “Thinking, Fast and Slow.” In that book, Kahneman explored the biases of intuition inherent in decision-making and divided the thinking process into two sections. System 1 is the intuitive heuristic of “think fast,” and System 2 is the “think slow,” a more deliberative and thoughtful process that is activated when the search for an intuitive solution fails.
This tendency for decision-makers to respond first with an intuitive (and often wrong) response has significant implications for both mediators and advocates.
In one experiment, Kahneman and Tversky rigged a wheel of fortune to stop at only one of two numbers, 10 or 65. Students were asked to spin the wheel and write down the number shown. They were then asked to record their best estimate of the percentage of African nations in the United Nations.
Obviously, the spin of the wheel provided no useful information, yet the answers of the students seemed “anchored” by their wheel number. Those students landing on the number 10 estimated the percentage of nations at 25 percent, while the students landing on 65 responded with an average of 45 percent. The author cites this and multiple studies that confirmed the phenomenon of the “anchoring effects when decision-makers consider a particular value for an unknown quantity before estimating the quantity.”
Implications for meditators and negotiators are obvious. Additional studies demonstrated that the asking price of a house for sale affects the potential buyer’s opinion as to value. The same psychological reality applies to opening demands in a negotiation. One conclusion from the studies is that plaintiffs or negotiators should make the first move by setting the price and to set that price or demand “high.”
Kahneman states: “My advice to students when I taught negotiations was that if you think the other side has made an outrageous proposal, you should not come back with an equally outrageous counteroffer creating a gap that will be difficult to bridge in further negotiations. Instead you should … make it clear to yourself as well as to the other side that you will not continue the negotiation with that number on the table.”
Luckily for mediation participants (since leaving the session is not practical), another pair of psychologists proposed an alternative. That study by Adam Galinsky and Thomas Mussweiler proposed that negotiators faced with an unreasonable demand should focus on arguments against the anchor. Attention could be focused, for example, on the minimal amount that the opponent might accept and on the costs and adverse effects that the party faces if no agreement is reached.
What practice pointers then, consistent with these studies, emerge for the mediator and negotiator?
When faced with what the negotiator believes is an unreasonable demand, he or she could make a two-part response. First, counsel could use standards and principles and whatever objective facts are available to demonstrate why and to what extent the demand is not reasonable. To avoid forfeiting the chance to salvage a settlement, the negotiator could make what he or she might consider a “reasonable” demand and then make a counter-offer as if that imaginary number had been the demand. After explaining the principled position behind the counter-offer, counsel could then move very little on subsequent rounds until a “tolerable range” is established.
This “reward and punish” approach avoids the unproductive result of quitting or “responding in kind,” which can just create a negotiation death spiral. The same recess process approach can also be taken by plaintiffs.
Trust your intuition? Not so fast
Kahneman and Tversky created the following profile, dubbed the “Linda Problem.”
“Linda is thirty-one years old, single, outspoken and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in anti-nuclear demonstrations.”
After having various audiences read or hear this description, the authors asked the following question:
“Which alternative is more probable? Linda is a bank teller. Linda is a bank teller and is active in the feminist movement?”
When surveyed, 85 percent to 95 percent of undergraduates at several major institutions chose the second option; clearly an error in logic in that the second Linda is a subset of the first, making it more probable that Linda is in the larger set. Kahneman attributes these results to a “conjunction fallacy,” an error which results when people judge a conjunction of two events in a direct comparison. “Linda” should cause mediators and participants to “think slow.”
Generally, people will pay more to avoid risk than to get a gain. The human tendency for risk aversion, even when “irrational” in a classic mathematical sense, is one of the critical realities of human behavior for mediators and negotiators. This long-established risk-aversion principle has often been exemplified by a choice presented to groups of decision-makers. The first group was asked how much they would pay to participate in a coin flip in which they would get nothing if tails and $2,500 if heads. The second group was asked how much they would pay to avoid having to flip a coin in which they would lose nothing if it landed on tails but lose $2,500 if it landed on heads. Study after study has demonstrated that people will pay significantly more to avoid the loss potential than they would pay to get the gain.
Kahneman and Tversky built on these established principles but discovered an important twist: People become risk seekers when all options are perceived as bad. This conclusion was driven by a study that presented the following choices to individuals: lose $900 for sure or have a 90 percent chance to lose $1,000. The majority chose the gamble, driving the conclusion that the sure loss of $900 was so aversive that the individuals were driven to take the risk.
In these and many other instances, Kahneman’s studies should serve as cautionary notes to mediators and counsel: listen not to rebut what is said, but listen for interests. And in listening and mediating, engage System 2 and think slow.•
John R. Van Winkle, of Van Winkle Baten Dispute Resolution, is a former chair of the American Bar Association’s Section of Dispute Resolution and author of West’s Indiana Rules of Dispute Resolution Annotated. The opinions expressed are those of the author.