How Multiple Settlement Alternatives in Mediation are a Disadvantage

By: Donald L Swanson

Conventional wisdom says that negotiators prefer multiple settlement alternatives, over a single alternative, because they expect to get better deals when they have more than one.

However, such conventional wisdom is wrong, according to a study [Fn. 1] that uses five experiments with simulated negotiations.

Multiple Alternatives = Disadvantage in Negotiations

The authors of the study find that multiple alternatives actually create a disadvantage in negotiations. Here’s how:

• negotiators with multiple alternatives make less ambitious first offers than those who only have a single alternative, even when (i) the best alternatives are identical, or (ii) the average value of multiple alternatives is equal to or higher than the value of the single alternative; and
• less ambitious first offers lead, in turn, to less profitable negotiation agreements.

The study’s authors cite “compelling evidence” that such a disadvantage comes from distorted perceptions: negotiators’ perceptions of their own and their opponents’ bottom lines are distorted downward by the existence of multiple alternatives.

The authors conclude that the mere existence of more than one alternative in negotiation exerts three distinct forces: the alternatives (i) provide feelings of power, (ii) serve as anchors that affect the size of first offers, and (iii) distort downward the perceived bottom lines of the parties.

A Practical Approach, With Limitations

As a practical matter, therefore, the authors of the study suggest that negotiators make a conscious effort to focus on their best alternative and to disregard all other alternatives.

But even this practical approach has limitations. In one experiment, for example, negotiators with multiple alternatives were explicitly directed that, “the only alternative offer that should inform your negotiation is your best offer,” with all other offers being disregarded. What the experiment found is surprising:

• a strategy of focusing on the best offer and ignoring alternatives doesn’t work; because
• the distorting effect of multiple alternatives is robust and immune to such a strategy

In other words, focusing on the best alternative does not lead to an improvement of first offers, when multiple alternatives are available: that’s because negotiators find it hard to discount alternatives of lower value, even when explicitly told to ignore them.

Implications for Mediation?

The results of the study described above could inform how professionals in a mediation (i.e., the mediator and attorneys for the parties) approach their jobs.

–Attorneys for the parties

Here are a couple opposite-and-practical examples for a party’s attorney to consider.

• High Expectations.  When a client has unrealistically high expectations about the value of his/her/its claim, introducing multiple settlement alternatives into the mediation might be helpful in managing the client’s unreasonable expectations. In a tort claim mediation, for example, introducing the possibility of an apology, or modifications of defendant’s practices so “it doesn’t happen again,” might be helpful.
• Weak Backbone.  When a party lacks sufficient backbone for sustaining a reasonable position over time, keeping alternatives at an absolute minimum might be helpful.

–Mediators

How might a mediator utilize the findings of this study?

And what might be the professional limits on a mediator’s efforts to affect or manipulate the negotiation process with such information?

Conclusion

Mediators and attorneys for the parties in a mediation need to be aware of all factors that affect the decision making process. And all need to be prepared to utilize whatever factors are available, within the bounds of professional propriety, to achieve a voluntary settlement between the disputing parties.
————————

Footnote 1: The study is “Bargaining Zone Distortion in Negotiations: The Elusive Power of Multiple Alternatives,” published in Organizational Behavior and Human Decision Processes 137 (2016), 156-171. It’s authors are Michael Schaerer of Singapore Management University, David D. Loscheider of Leuphana University Luneburg, and Roderick Swaab of Insead.

** If you find this article of value, please feel free to share. If you’d like to discuss, let me know.