An Empirical Study of Bargaining in Mediation

By: Donald L. Swanson

Confidentiality requirements are a difficulty for empirical studies of mediation.

But a 2015 study gets around such difficulties and provides insights on details of mediation negotiations. The study is, “Inside the Caucus: An Empirical Analysis of Mediation from Within” [Fn. 1].

Here’s how confidentiality difficulties are minimized in the study:

The study is based on one mediator’s contemporaneous notes from more than 400 mediations that she conducted between 2008 and 2013;

The sole mediator, Lisa Klerman, is one of the authors of the study; and

She is able to analyze (and report on) over-all statistics, trends and impressions from the details of her own mediations, without confidentiality concerns for any particular case.

This single-mediator study has other positives. Her contemporaneous notes are, for example, “likely to be highly accurate,” since she relied on them during the mediations.”

But generalizations must be made cautiously, because the study is limited—to a single mediator, to disputes over employment issues (e.g., discrimination and wrongful termination claims), and to southern California plaintiffs. Nevertheless, the study provides valuable insights on “important subjects about which relatively little is currently known.”

Here are some of the study’s findings about mediation negotiations and how they are done.

Opening Offers

The study finds that opening offers in negotiations:

“are not serious indicators of where the parties expect to settle;” but

instead, they are “but the beginning of an elaborate dance in which both sides expect to compromise significantly.”

Defendant Making First Offer

The study finds that an opening offer by defendant is the preferred start to negotiations:

“When the defendant makes the first offer,” (i) “the settlement rate is higher,” (ii) the ratio between the first offers of both parties “is much lower,” and (iii) “the average settlement was much closer to the defendant’s opening offer;

The “farther apart the parties are at the beginning of the negotiation, the less likely they are to settle”; and

An opening “shoot for the moon” offer by plaintiff tends to maximize the opening distance.

Here are explanations about such first-offer findings:

The defendant’s first offer “anchored” and thus moderated the plaintiff’s response—forestalling a “shoot for the moon” plaintiff’s offer;

One study suggests that “parties intuitively weigh the order of magnitude of their initial positions and then split the difference of those magnitudes”;

While a plaintiff can start negotiations with a very high demand, the defendant’s opening offer is bounded below by zero; and

While many opening offers by defendants are very low, plaintiffs tend to respond with counter offers that result, typically, in settlements about a quarter of the difference between the opening offers.

Number of Negotiating Rounds

The study finds “a strong relationship between the number of bargaining rounds and the probability of settlement”:

“The more rounds of bargaining, the more likely” a case is to settle”;

That’s because, when settlement “seems hopeless,” negotiating parties “are likely to break off relatively early”; and

Negotiating parties are “likely to go many rounds” of offers and counteroffers only if “they think there is a very high chance the case will settle.”

Progression of Offers

The study “provides rare insight into the way offers and counteroffers went back and forth.”

When negotiations go multiple rounds, concessions progress like this:

Plaintiff’s offers commonly descend in regular fashion, with the drops decreasing in size as the bargaining progresses but with, commonly, “a large drop” in a plaintiff’s late offer shortly before settlement;

Defendants’ offers “follow a similar, but ascending, pattern—concessions become smaller as bargaining progresses,” with “a larger concession at the end”; and

The study attributes changes at the end to acceptance of a mediator’s proposal, which this mediator used frequently when she believed the parties were ready to settle.

Here’s why many rounds of bargaining, with smaller concessions each time in early stages, are both preferred by negotiating parties and effective:

“Whenever a party makes an offer, it is revealing information about itself—how much it is willing to accept—that could be used against the party in later bargaining”;

So, “parties strategically ‘hold back’ on their settlement offers”; and

There is “some reciprocity in bargaining”—concessions “by one side tend to be matched by concessions on the other side,” especially in later rounds.

Conclusion

Here’s a huge thanks to the authors of this study for their insights into details of mediation processes that are, otherwise, shrouded in a veil of confidentiality!

Footnote 1: The study report is by Professor of Law & History, USC Law School, Daniel Klerman, and by Clinical Professor of Law and Director, Mediation Clinic, USC Law School, Lisa Klerman, and is published in 12 Journal of Empirical Legal Studies, 686-715 (Dec. 2015). All quotes and information herein are from this report.

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