Mediation|Negotiation

Laura Kaster on Impasse: It's the Value, Stupid!

The second post on Molly Klapper’s book, Definitive Creative Impasse-Breaking Techniques in Mediation, focuses on a deceptively simple and profoundly wise short essay by Laura Kaster, Addressing Impasse by Helping the Parties Value the Case.  She opens her piece with a “much overlooked but obvious” point:  “Settling or mediating a case is, among other things, a process for agreeing to the value of the claim. … Impasse often occurs precisely because the parties do not agree on the value of the case.”

There has been a recent mini-tsunami of empirical studies casting skepticism on attorneys’ ability to make objectively accurate determinations of outcomes of litigated claims.  Kaster cites Randall Kiser’s much-touted article, Let’s Not Make a Deal, for one of its many startling findings: that 61% of plaintiffs made errors in rejecting settlement offers, with a mean loss of $42,000; and 24% of defendants made decision errors in rejecting offers, with a mean loss of more than $1,000,000.   

So we must assume that there’s a high likelihood that the parties to a mediation are misinformed about the objective value of the claim/defense.  What is the mediator to do about it?  The client sitting in front of us doesn’t want to make an error in value assessment.  Accuracy is hampered by many barriers beyond the client’s control. 

Kaster notes the phenomenon of “groupthink,” as well as heuristics such as hindsight bias and cognitive dissonance.  She also notes the “sunk-cost bias” that prompts litigants (and their advisors) to throw more money and effort into an endeavor on which they have already invested.  All of these conclusions are made in good faith.  None of these distortions is a choice — they come with the territory.

Techniques to wrestle with this challenge?  First, ask the client to work out a risk-assessment protocol.  That is, encourage the client to be explicit with respect to the assumptions and calculations that underlie the value decision. 

Second, probe conclusory statements like “We have a very strong case.”  A former Chief Litigation Counsel for AT&T, Kaster is accustomed to encouraging the most straightforward calculations of risk for the benefit of business clients:

What is the likelihood of success at trial?

 Slam Dunk.

But what is the percentage likelihood?

80%.

And will the other side appeal?

Certainly.

What is the likelihood of success on appeal?

Slam dunk.  80%.

So you have a 64% chance of winning, subject to further reduction by costs of experts, court reports, trial exhibits, attorney fees, etc.

Being prepared to do the math, and being aware of the cognitive, unintended and unconscious influences on decision-making, enables a mediator to help a party to come to a closer estimate of the value of a case, and may help to lower the instances of decisional error by the parties and their lawyer.

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