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January 01, 2016 Best of ABA Sections

The Use of Numbers in Negotiation and Mediation

Jennifer K. Robbennolt

Numbers are useful for negotiators and neutrals in myriad ways—for crafting options, evaluating proposals, and generating persuasive arguments. But numbers also present challenges, potential problems so big that wise mediators and negotiators will think carefully about how to make the most of numbers’ promise without falling prey to their perils.

The promise of numbers. Numbers can be illuminating and compelling. Negotiators (and mediators) invariably make predictions about the likelihood of future outcomes, such as a court’s ruling on a motion, winning or losing in court, or consummation of a deal. These likelihoods are commonly expressed numerically in terms of probabilities. Potential outcomes, such as a damage award, the value of a deal, or the value of stock options, are also often quantified. And the expected value of a particular outcome is formulated as a mathematical function of its likelihood and magnitude.

Transaction costs such as lawyers’ fees, the dollar value of delays, or the costs associated with going to mediation are often put in numerical terms. Negotiations, deals, or settlements that unfold over time often involve numbers associated with time, including the time value of money, inflation, interest rates, and risk assessments.

Persuasion and problem solving may involve numerical arguments. Negotiators may seek objective quantitative information. They might consider an appraisal, some set of comparables, safety or environmental standards, engineering specifications, or data about replacement costs, “blue-book” values, market price, or depreciation. How many neutrals, after helping parties negotiate away most of their differences and edge close to agreement, have urged the parties to step back, look at the small numbers gap that divides them, and “split the difference”?

All these numbers can be useful decision-making tools. Getting hard data about a matter in dispute may reduce ambiguity and, potentially, the bargaining range. Focusing on numerical information may help negotiators resist common biases in judgment, such as overreliance on a general impression of how well an example fits a particular category or is part of a broader pattern. Numbers can create salient reference points that can facilitate settlement. Numbers might be used to “calibrate” the information that is being provided to the negotiator.

The perils of numbers. Dealing with numbers can be difficult for many negotiators and mediators because numbers are abstract representations and their meaning can differ by context. Even choosing which numbers to entertain can be fraught. Confirmation bias is a tendency to look for, pay attention to, and more readily accept information (including numbers) that confirms an existing belief or preference while disregarding information that is less congenial. And when the information is amendable to differing interpretations, it is likely to be interpreted differently by different parties to the negotiation in ways that are conducive to their respective positions and in ways that can even cause greater disagreement.

One of the most discussed ways in which numbers can distort decision making is how our numerical judgments can be influenced, or anchored, by other numbers that are at the front of our minds. Available numbers can provide benchmarks for our estimates even when they are irrelevant to the judgment or estimation task at hand. In negotiation, judgments can be influenced by initial offers or demands, negotiator aspirations or reservation prices, information about other cases, and constraints such as insurance policy limits or statutory damage caps.

Another commonly described distortion is the effect of framing a choice as a loss or a gain. People tend to be risk-averse toward moderate- to high-probability gains but risk-seeking toward moderate- to high-probability losses. Thus, the same numerical information, presented differently, can result in strikingly different decisions.

People also have difficulty understanding the effects of inflation and compounding interest. The money illusion involves confusing dollars with buying power. In addition, bigness bias inclines us to focus our attention on big numbers to the neglect of smaller ones, even though small losses or gains can become substantial when they add up over time.

The precision of a number also has an effect on how it is perceived and used. For example, there is a tendency to perceive round numbers as being bigger than precise numbers of approximately the same magnitude. In addition, researchers have found that more precise first offers tend to be perceived as better reasoned and act as more “potent” anchors than do round numbers of similar size.

Numeracy. All this is complicated by the fact that people, even highly educated people, differ in their level of understanding of and comfort with numbers, a construct known as numeracy. Highly numerate people understand and tend to use numbers and numerical concepts to facilitate decision making. Those higher in numeracy may get a richer “gist” from numerical information than those lower in numeracy, and they are more inclined to seek out numerical information, tend to think more critically about numbers and their validity, and are likely to draw more accurate affective meaning from numerical data.

In contrast, those who are less numerate experience less comfort with numbers, are more trusting of information that is presented in a verbal or narrative format than they are of information that is presented via numbers, and are more likely to be influenced by non-numerical information such as mood or emotion. Low numeracy can make people more vulnerable to psychological heuristics and is, not surprisingly then, associated with various biases in how risks and benefits are perceived.

Dealing with numbers. Given the benefits and perils of numbers, the challenge for negotiators and mediators is to make good use of numbers without falling prey to their pitfalls. To this end, negotiators and mediators would be well served to have basic training in how to work with numbers, paying particular attention to where numbers come from.

Broadening the range of information on which to focus can help blunt the distorting influence of particular anchor points or frames. For example, experimental data suggests that focusing on other numbers can moderate the anchoring effect of a first offer. Similarly, negotiators can consider numerical information in different frames or with different degrees of precision.

Mediators or other advisors also can help ensure that useful numbers are considered by negotiators and take steps to help make numbers manageable for negotiators, recognizing that individuals will come to the numbers with differing levels of numeracy. Drawing focus to the most important data, ordering or framing the data in useful ways, suggesting useful comparisons, tailoring complexity to the level of numeracy, and combining numbers with descriptive labels may reduce the cognitive demands of numerical information, aid comprehension, and facilitate the effective use of numbers. Asking questions about the sources, validity, and reliability of numbers, as well as the degree of uncertainty associated with them, can help negotiators realistically assess them. Augmenting numerical information with appropriate visual representations of the data, including graphs or tables, can also be helpful, but it is important to pay attention to the ways different presentations can influence understanding.

ABA Section of Dispute Resolution

This article is an abridged and edited version of one that originally appeared on page 6 of Dispute Resolution, Fall 2015 (21:1).

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Jennifer K. Robbennolt

Jennifer K. Robbennolt is the Alice Curtis Campbell Professor at the University of Illinois College of Law, Champaign.