Tuesday, December 27, 2011

Optimism

There is a lot in Daniel Kahneman's book Thinking, Fast and Slow of interest to mediators and other people involved in conflict. The book sums up a lifetime of work in psychology and economics, and serves almost as a catalog of cognitive biases we encounter in business, the legal system and elsewhere.

One chapter describes the optimism bias, which may be essential to making capitalism function, but which also leads to many costly decisions for individuals. For example, the optimism bias leads entrepreneurs to expect success in opening their own small business such as a restaurant, despite the knowledge that the majority of such businesses fail within a few years. Kahneman also describes a similar bias he calls the planning fallacy, which leads groups planning many kinds of projects to underestimate the time required to complete the project and overestimate the likelihood of its success. People simply cannot see, and therefore cannot plan for, unexpected obstacles or problems they may encounter in completing their project.

As an example, Kahneman describes a curriculum development project he was involved in years ago which aimed to produce a new course and textbook. At one point when the work seemed to be proceeding well, he asked the other members of the team to estimate how long they thought it would take to complete the project. Their estimates averaged about two years. Only then did he think to ask a co-worker about the success rates of projects similar to theirs, and learned that such efforts had a 40% risk of failure, and generally took 7 to 10 years to complete. The most amazing part of this story is that this information, while slightly discouraging, had no effect on the group's plans. They still thought they would complete their work within the time frame they estimated, and chose not to abandon the project. They of course encountered numerous unforeseen obstacles, took eight more years to complete their textbook, and it was never used.

Parties involved in lawsuits or other kinds of conflict exhibit these same biases. People tend to think their situation is unique, and are not dissuaded by statistics applicable to similar cases. They believe in the rightness of their positions. They therefore frequently overestimate their chances of success. They also underestimate the costs and risks of pursuing their claims because many of these costs and risks cannot be discerned until they arise.

We can avoid some of the mistakes caused by cognitive biases simply by becoming more aware of them, which is the purpose of Kahneman's book. We can try to avoid the optimism bias and planning fallacies specifically by taking what Kahneman calls an outside view, that is by considering the base rate of success or failure that others experience in similar situations. Sometimes that kind of information is brought to bear in a mediation. But Kahneman's work suggests that hearing this information will have limited impact on parties involved in conflict. People resist applying statistical data to their own unique situation. And often, information about the success rates of similar cases may be unavailable or for some other reason is not taken into account. (Personal injury lawyers and insurance adjusters often rely on statistical jury verdict information, but lawyers in business cases tend to find that kind of information less available or applicable.) Another suggested idea is called a "premortem," in which someone practices giving an explanation of how the project at hand could ultimately fail. I would be cautious about trying that in a mediation, because people generally resist the idea of explaining how they might lose a case. In that setting, sometimes the only counter to one side's overly optimistic view of their position is hearing the overly optimistic view of the other side.

Kahneman's work also provides a good explanation for why many disputes do not get resolved until after parties have directly felt some of the costs and setbacks and delays that people typically encounter in the legal system. We are most impressed with what we experience ourselves, and apt to think that what happens to all the other fools who get involved in legal disputes has little bearing on us. It is usually only after parties have actually received court rulings that do not go 100% their way, and after they have had to pay some of the costs and fees associated with continued conflict, that they become receptive to the benefits of settlement.

Friday, December 16, 2011

Prospects for World Peace

The recent decision by the Lakers player formerly known as Ron Artest to change his legal name to Metta World Peace opens up immense possibilities for sportswriters and commentators to add layers of irony and nuance to their coverage. I'm not sure the sports community is ready to rise to the challenge. For example, although today's LA Times story, about Coach Mike Brown's decision to shift World Peace from the starting lineup to the second string, did lead off by saying that the coach is "giving World Peace a chance . . . to come off the bench," the article otherwise left these possibilities largely unexplored. Never fear. I am fully prepared to leap into the breach.

What kind of message does it send to bench World Peace? We have reason to be disappointed in such a conventional-seeming strategy of turning to World Peace only after exhausting the aggressive efforts of the Lakers' starters. Think about how much excitement the team could create if they instead activated World Peace at the beginning of the game.

Wouldn't we prefer to see the Lakers fully embrace World Peace by placing World Peace at the forefront of their strategy this season, instead of holding World Peace in abeyance? Wouldn't we rather hear the announcer herald the arrival of World Peace at the outset of every game, rather than bringing World Peace in as an afterthought? Don't we want to encourage fans to think of World Peace first, rather than calling for World Peace only after other resources are tired?

We all want World Peace to succeed. Fans should be urging the Lakers to exploit the full potential of World Peace. Of course we understand that the Lakers have to consider what World Peace can do to help the team, but they should also be thinking of what the team can do for World Peace. We have reason to worry now, at the start of this new season, whether the team will truly stand up for World Peace, or whether it will only turn to World Peace on rare occasions.


Friday, December 9, 2011

Mediation Confidentiality in California

 You know that mediation has hit the mainstream when the cover story of the Los Angeles Lawyer magazine (published by the Los Angeles County Bar Association) is about mediation confidentiality.  The scope of mediation confidentiality is not only a hot issue in the field, but important to every lawyer who encounters mediation, which is getting close to everyone nowadays.


Retired Judge Michael Marcus, now a practicing arbitrator and mediator, has published a helpful summary of the development of the law regarding mediation confidentiality in California in both the state and federal courts. I won't try to summarize his summary here, but am posting this for my own benefit and for anyone else who needs a handy link to all the main cases on this issue. There is even a quiz included for MCLE credit.

Saturday, December 3, 2011

Hybrid Proceedings

One of the touted benefits of ADR is that it allows parties to design their own dispute resolution process specially suited to their needs. Problems can arise, however, if a court is subsequently called upon to try to figure out what to call the process the parties have invented. A court might need to do that to decide what rights and obligations the parties have assumed under their process. A recent Federal Circuit case, Kimberly-Clark v. First Quality Baby Products, provides a nice illustration of this problem. (Thanks to the Disputing blog for bringing it to my attention.) In a series of patent infringement disputes between two consumer products giants Kimberly-Clark and Proctor & Gamble, the parties crafted a series of dispute resolution agreements whereby they submitted issues for hearing before panels of arbitrators. Unlike an arbitration, however, the panels' decisions were non-binding and were designed to facilitate settlement. Their decisions did have certain legal consequences, though, such as obligating the "losing" party to pay the arbitrators' fees. Those ADR proceedings apparently worked, enabling Kimberly-Clark and Proctor & Gamble to settle.

The issue before the Federal Circuit was whether to allow discovery in a subsequent case involving a different party (First Quality), of these panel decisions and the underlying proceedings in the disputes between Kimberly-Clark and Proctor & Gamble. Kimberly-Clark attempted to rely on a "mediation privilege" to prevent disclosure, but the Court of Appeals held that these proceedings were arbitrations, not mediations. On that basis, the Court affirmed the order requiring disclosure, and did not need to decide whether there is a federal mediation privilege.

This case points up the need for the Federal Courts to define more clearly the confidentiality rules pertaining to mediation. In the Central District of California, for example, local rules have recently been revised to more closely resemble the confidentiality protections protecting mediation proceedings in California state courts. But a lot of uncertainty still remains.

This case also might serve as a cautionary tale for parties designing their own dispute resolution procedure. As a practical matter, parties who get as creative as Kimberly-Clark did about their dispute resolution needs still probably can't think of every possible contingency. To do that might require them to re-invent their own complete code of civil procedure for every case. Parties should realize that if a court ever needs to interpret what they have done, the court is going to need to pigeon-hole their designer process into categories that a court can understand. In the Kimberly-Clark case the court had to consider proceedings that combined some aspects of arbitration and some aspects of mediation, and decide whether they were one or the other. It might have helped if the parties had better labeled their own process and had included provisions on the confidentiality rules and other rules that should apply if a court ever had to interpret their agreement.

(Liger photo from Listverse)