Helping Disputants to Quantify Their Risk

Victoria Pynchon’s “Settle It Now Negotiation Blog” is always worth reading, and a recent post struck paydirt: A link to an article by Donald R. Philbin, Jr., on the use of decision tree analysis — and other tools — in assisting parties to intelligently negotiate claims and defenses.  It is the best single article on this topic that I know.

Philbin’s article is a relatively easy read, thanks to his direct but accurate style.  After going through the rudiments of probability analysis and its utility in negotiation (and evaluation of options), he dives into other fields like class action settlement approval by judges; adjustment for psychological bases such as reactive devaluation; the mathematics of iterative probabilities (i.e., a sequence that has six stages, each of which has an 80% probability of success, has only a 26% probability of success overall); and the implications of all of this for those of us whose job it is to help decision makers do their jobs well.

Philbin is brilliant is setting forth the simple things starkly — he notes, for example, that in the midst of imperfect information, “decision trees help us determine how much parties are willing to pay to close informational gaps.”  And he shows how errors of attribution, when linked with the phenomenon of reactive devaluation, can sink a negotiation.  (He cites responses given to researchers to the proposition that Russia should half its nuclear arsenal: when attributed to U.S. President Reagan, 90% reacted favorably; when attributed to a third party 80% favored the idea; and when attributed to Soviet Premier Gorbachev only 44% were favorable.)

Some may find some parts of the article (at 13 Harv. Neg. L. Rev. 249 (Winter 2008)) a little light, and other parts a little heavy going.  But I don’t see how anyone could possibly rue the time they spent reading it — or would not file it away, as I have, for ready reference down the line.