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Mediate.com

Optimism

by Joe Markowitz
December 2011

Mediation's Place by Joe Markowitz

Joe Markowitz

There is a lot in Daniel Kahneman's book Thinking, Fast and Slow of interest to mediators and 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 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.

Biography


Joseph C. Markowitz has over 30 years of experience as a business trial lawyer.  He has represented clients ranging from individuals and small businesses to Fortune 500 corporations.  He started practicing with a boutique litigation firm in New York City, then was a partner in a large international firm both in New York then in Los Angeles, then returned to practicing with a small firm and on his own.  In addition to general commercial litigation, Mr. Markowitz has expertise in  intellectual property, employment law, entertainment law, real estate, and bankruptcy litigation.  Mr. Markowitz has managed his own firm since 1994. Mr. Markowitz was trained as a mediator more than 15 years ago, and has conducted a substantial number of mediations as a member of the Mediation Panels in the Los Angeles County Superior Court, the District Court and Bankruptcy Court in  the Central District of California, as well as private mediations.  He has served since 2010 as a board member of the Southern California Mediation Association.   



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Website: www.mediate-la.com/

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