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The Decision to Settle – Balance, Setoffs and Tradeoffs Between Rational, Emotional and Psychological Forces

by Shiri Milo-Locker
April 2004

The line between a ‘yes’ and a ‘no’- to - settlement decision in negotiation is very thin. The last straw is often what it takes to move parties from a persistent “no” to a willing “yes”. It is true for our everyday-life small decisions like buying a pair of shoes as for large-scale government decisions like accepting a peace plan or going to war. What pushes people to their ultimate decision in negotiation? What are the forces that operate and how do they relate to and interact with each other when a party considers whether to accept or reject a settlement at a certain point in time?

This article suggests that the decision to settle or not to settle is the result of an overall balance between pro-settlement and anti-settlement forces on three dimensions: rational-economical, emotional and psychological. It asserts that there is no need to overcome all obstacles and to find cure to all concerns the parties may have in the negotiation, but merely to create enough incentives to settle that would overweigh disincentives at a given time.

It also argues that although the nature of the forces we are dealing with is very different, they are able to offset one another and make tradeoffs with each other. Emotional pro-settlement forces may offset economical anti-settlement ones, psychological barriers may be offset by rational incentives to settlement, and so on. The use of offsets and tradeoffs between dimensions are strategies to create extra value in the negotiation (Mnookin and others, 2000, pp.12-15), which may facilitate a settlement between the parties where one could otherwise either not be achieved or be less satisfying to one or both parties (Menkel-Meadow, 1984, pp. 754, 795, 809-813).

The first section of the article identifies the forces for and against settlement operating on a party faced with a settlement decision. It proposes a model, built on the principle of a weight scale, to map, weigh, and present the forces as means to better understand the parties’ needs and indicate whether a party is likely to agree to settle at a certain point in time or not, and why.

The second section suggests two strategies to promote settlements based on the capability of the forces to offset each other and make tradeoffs with one another while being measured by the same “weight units”. One such strategy is by means of cross-dimensional offsets, which basically means a party’s needs on one dimension may offset its needs on another dimension in a manner that would bring him or her closer to agree to settle. For example, emotional pro-settlement forces may offset economical anti-settlement ones, psychological barriers may be offset by rational incentives to settlement, and so on.

The other strategy is by tradeoffs between the parties of “goods” on different dimensions, for example, when one party offers the other a gesture that will satisfy an emotional need of the other party and the other party in return offers an economical concession that will satisfy an economical need of the first party. In the event they both value what they have been offered more than what they offered, they will both be closer to agree to settle after the tradeoff than before.

Although the analysis in this article may generally apply to both deal and dispute negotiation, it will focus on negotiations in the context of dispute resolution.

I The Decision to Settle is Put on a Scale - Incentives and Disincentives on Three Dimensions

1. The Operating Forces

A party is likely to opt to settle when she perceives overall gain in terms of need satisfaction in so doing (Binder and others,1991, p.33). This is regardless of whether this process was a reasoned or even conscious one or not (Golann, 1996, p.309). But what is such a perception or feeling made of? What building blocks and materials construct it?

A party’s mental state, whether in the course of the negotiation or upon decision to settle, is as complex as the human mind and as diverse as the number of humans in the universe. Fully and comprehensively understanding it is yet far beyond us. Giving this, the only possible analysis of the decision to settle is based on general categories of factors.

This article perceives the decision to settle as consisted of three categories of forces or three dimensions: rational-economical, emotional and psychological. Every negotiation involves them, every negotiator is affected by them, and every decision to settle is built from and driven by forces on and in between them. Furthermore, they should all be regarded as equal players, meaning equally legitimate and potentially equally powerful - the actual relations between them varies from one case to another. Like rational-economical forces, emotional and psychological ones may push either for or against settlement, they should not be regarded as merely “barriers” to resolution but also as potential promoters of it.

The emotional dimension is distinguished here from the psychological one for two reasons. One is qualitative, the other quantitative. The qualitative reason is the different nature of the emotional and psychological factors discussed here and the way each of them affects the decision making process. While emotional phenomena, like anger, jealousy, love, sadness, joy, etc. are ones we tend to feel, psychological phenomena, such as partisan perception, judgmental overconfidence, etc. tend to be ones we think. While the psychological phenomenon discussed here tend to be cognitive and work their way through our mind, the emotion’s path is through our heart. The quantitative reason for the distinction is the heavy weight and important roles both emotional and psychological factors play in negotiation, a role which entitles both of them to an independent category. [1]

It is true, nonetheless, that the whole division into dimensions is somewhat artificial, as rational-economical, emotional and psychological elements are so intertwined. However difficult, the effort is worthwhile. The deconstruction of the decision making process into the fragments of the different forces offers a comprehensive analysis and understanding that is sure to enable better addressing barriers to resolution and better promoting satisfying solutions.

1.1 The Rational – Economical Dimension

The rational-economical model traditionally assumes that people strive to maximize their own gains, without regard to the gains of others (Gould, 1973, p.279). Thus, when we weigh the pros and cons of a settlement we usually mean to rationally assess the economical gains we acquire through the deal compared with the economical losses. Economical gains or losses in this sense may refer to money or anything that has money value as well as other assets and gains that are not usually measured in monetary terms, such as, for example, national security and child custody. Accordingly, rational-economical incentives and impediments to settlement may be of different types and nature.

1.1.1. Rational-economical incentives to settle

Rational-economical incentives to settle may be divided into two types of incentives, deal-central and deal-peripheral incentives. The former relates to the core conditions of the deal, while the latter relates to incentives external to the deal in-and-of-itself. Once a settlement agreement is reached, the former would typically be translated to explicit terms in the settlement agreement while the latter would tend to take a more implicit and indirect shape. Examples of deal-central incentives include, in a divorce negotiation (from the perspective of the wife), a sum offered by the husband in which he agrees to pay the amount of child support requested by the wife; a five years term option to renew a lease contract instead of the three requested by the lessee (from the perspective of the lessee), etc. Deal-peripheral incentives may be, for example, incentives to reduce costs of litigation, save time and energy of the involved persons and gain certainty of the result over the risk of an adverse decision.

1.1.2. Rational-economical disincentives to settlement

Rational-economical disincentives to settlement are basically the mirror image of the incentives mentioned above. Just as the rational-economical incentives, they too may be either a central, usually explicit part of the deal or a peripheral, implicit one. Following are a number of examples for deal-central disincentives: from a perspective of a buyer of goods, the refusal of the seller to guarantee the quality of the goods; from the perspective of a seller of goods, the refusal of the buyer to put a down payment; from a perspective of an employee, a request by the employer to add extra hours with no extra payment, etc. Examples for deal-peripheral disincentives may include having a constituency that is likely to oppose the deal or when a party benefits from the lapse of time.

1.2. The Emotional Dimension

Similar to rational-economical interests, people have emotional interests or needs. What do we mean by “emotional”? Anger, fear, regret, relief, hope, disappointment, shame, guilt, pride, envy, jealousy, malice, pity, indignation, revenge-seeking anger, hatred, contempt, joy, respect, grief, romantic love, affection, physical attraction, resentment and alienation (Elster, 1999, p.241) is a non exhaustive list of emotions.

Emotional needs, such as the desire for love, status, recognition, and so on profoundly influence patterns of thought, attitude, and behavior (Binder and others, 1991, p.33). Disputes are no exception, regardless of whether the disputants are family member or states. During the American – Mexican negotiation over the price of Mexican natural gas, when the U.S. Secretary of Energy refused to approve a price increase negotiated between Americans and Mexicans, the Mexican government reacted by burning the gas rather than selling it in a lower price. The reason for such an utterly irrational act was that the Mexicans had an interest not only in getting a good price but also in being treated with respect and a sense of equality (Fisher and others, 1991, p.49). Lawrence Susskind, an experienced mediator, once said:

“I don’t assume some perfect rationality from everybody in the room. I assume, first, that emotion will overcome logic during the course of the process. Almost everybody will often do things that, if they thought about them beforehand and were asked, “Would you do that?” they’d say, “No”. but they – we – will do it anyway, because emotion dominate logic.” (Lawrence Susskind in Golann, 1996, p.188).

Emotions may take the form of either pro-settlement or anti-settlement forces and will be referred to here as “emotional incentives to settlement” and “emotional disincentives to settlement”.

1.2.1. Emotional Incentives to Settlement

Emotional incentives to settlement are emotional motivations to reach a settlement or emotional benefits or rewards anticipated as a result of a settlement. Stress relief, recognition, honor, revenge, satisfaction, sense of belonging and ego boost and appreciation are examples of emotional rewards that may be gained by means of a settlement.

1.2.2 Emotional Disincentives to Settlement

Emotional disincentives to settlement are emotions adversely affecting a decision to settle or emotional “reasons” why not to enter a settlement. Among emotional disincentives may be distrust, anger, humiliation, resentment, fear, contempt, embarrassment, loss of face and disappointment. Some of these emotions affect negotiations at the basic level of communication inhibiting a true and constructive discussion of the issues, while others are perceived as adverse effects of entering into a settlement.

1.3. The Psychological Dimension

Negotiation is a psychological process (Moore, 1996, p.124). Nonetheless, it appears that a full and comprehensive understanding of the psychological phenomena affecting negotiations is still beyond our reach. The ones already explored essentially attempt to explain parties’ irrational attachment to positions (Golann, 1996, p.200). They all seem to be closely connected to the way we think about, judge and interpret our surrounding, as if each was an invisible screen we look at the world through while thinking we see reality as it is. Clearly, when we are affected by such phenomena, we are not thinking rationally (Elster, 1999, p.45).

Psychological Phenomenon known to affect people in dispute (Arrow and others, 1995, pp.145-160; Mnookin and other, 2000, pp.156-165; Golann, 1996, pp.200-201) include: partisan perception, which is people’s tendency to construct a reality of the conflict based on what they expect and wish to see and what is in their self-interest to see; selective perception, which refers to people’s tendency to unconsciously screen out any new data that do not fit their existing view of a situation; judgmental overconfidence, which is people’s tendency to overestimate their ability to predict future events. There are two aspects to this phenomenon, one is the level of accuracy in one’s basic judgments and the other is the extent to which one is used to assess the risk he or she is wrong; loss aversion, which basically means most people hate to lose more than they love to win. In other words, people tend to attach greater weight to prospective losses than to prospective gains; reactive devaluation, which means the source of a proposal affects the evaluation of the proposal. An offer that is believed to come from an opponent is likely to be devalued by the receiving party comparing to a situation where the same offer is believed to come from a neutral or an ally. Equity theory is yet another psychological phenomenon, although not usually found in negotiation literature, which proposes that individuals try to achieve justice in their relationships with others and feel distress when they perceive injustice, even if they benefit from it (Moghaddam, 1998, p.480).

1.3.1 Psychological Incentives to Settlement

Psychological incentives to settlement are pro-settlement motives deriving from psychological phenomena. Here are some examples: For a plaintiff, an offer that provides her with certainty of winning a less than expected sum rather than a gamble on a larger gain through litigation (with the risk of a larger loss) due to loss aversion; for either party, when the settlement is framed to appear as at least equal to their respective minimum non-loss point (beyond it is perceived as a loss), again due to loss aversion; a party’s perception of a settlement as fair and equitable one, as suggested by equity theory, and a party’s wish to meet a deadline.

1.3.2. Psychological Disincentives to Settlement

Psychological disincentives to settlement are inhibitors to settlement derived from psychological phenomena. Following are examples of the ways they may occur: Misevaluation and underestimation of a settlement offer due to partisan and selective perception; misjudgment and overestimation of the trial option and as a result the settlement option due to judgmental overconfidence; and devaluation of an offer or a concession by the opponent due to reactive devaluation.

2. Putting the Operating Forces on a Scale - A Three Dimensional Balance Model (TDBM)

Once the operating forces for and against settlement are identified, the next step is to weigh them one against the other and see whether a party is likely to agree to a settlement or reject it and why. The tri-dimensional - balance model (“TDBM”) offers a three steps way to do that.

The model features the three dimensions described above, the rational – economical, emotional and psychological, as the source of various forces operating on the same pivot, the decision pivot. Each dimension is comprised of two opposite forces, incentives and disincentives. A party’s decision to settle is likely to occur when the overall forces on the incentives side overweigh the overall forces on the disincentives side. Following are the three steps for using the TDBM.

Step one: Mapping

Mapping is done by identifying a party’s incentives and disincentives to enter a settlement on all three dimensions discusses above, the rational-economical, the emotional and the psychological. A settlement could be either a concrete settlement offer or a hypothetical settlement based on the other party’s position. The model stresses the importance of a subjective evaluation in the sense that any identification and evaluation of incentives and disincentives must be done entirely from the perspective of the subject of evaluation and not by using some external standards (Binder and others,1991, p.263).

A possible way of mapping the different incentives and disincentives is using a table such as the following:

Figure 1

Dimension Disincentives Incentives
Rational – Economical

Step two: Evaluating

The next step would be to evaluate the relative weight of the incentives and disincentives. Obviously, when the task is to quantify thoughts and feelings one should not expect perfect accuracy. Rather, the goal is to be able to roughly assess the relative weight of the operating forces – incentives against disincentives on each dimension and in-between dimensions. At minimum, such assessment should be able to detect, for example, strong emotional issues that impede settlement, how those relate to the economical issues involved and whether there are substantial psychological affects that bias perception.

Evaluation should be first done for each incentive and disincentive, to be later on accumulated to the total weight of incentives and disincentives on each dimension. For the purpose of evaluation different techniques may be employed. The most accurate would be the numeric one, attaching to each incentive and disincentive a number on an ordinal numbers series, to reflects its relative power (Brams and others, 1999, pp.9-10,70-79, on attaching numerical values to different items in dispute negotiations). For example, using a scale of numbers between –10 to 10 and attaching different values to incentives and disincentives on the scale, such as 5 to a particular rational incentive, -6 to a particular emotional disincentive and –2 to a certain psychological disincentive. Each incentive or disincentive is actually rated on a 0 – 10 scale, only that disincentives have negative values, thus are marked by the minus sign. Another method of attaching values may be by using a scale of importance. Thus, for example, the least important incentives or disincentives would be tagged as “minor importance”, and so on “low importance”, “medium importance”, “very important”, “extremely important” and so on. While this method may provide a general idea of the relative strength of the operating forces, when there are many such forces on both the incentives and disincentives sides, it may fail to give a clear picture of the relative weight of each force. However, sometimes this is the best one can do, either because there is not enough information for precise numerical evaluations or because one is uncomfortable with such.

Once this detailed evaluation is complete, an aggregate value should be attached to the total incentives and disincentives on each dimension. For example, when there are some psychological barriers, very strong adverse emotions and a very large economical gap the aggregate values of disincentives may be –4 for the psychological, -7 for the emotional and –10 for the economical.

Step three: Presentation

When aggregate values of incentives and disincentives have been articulated, a simple graphic presentation of the results may help clarify the picture. A graphic numeric presentation of incentives versus disincentives on each dimension may look as follows:

Figure 2

Dimension Disincentives Incentives
Rational – Economical <-------------------- ---->
Emotional <----- -->
Psychological <--------------- -->
-5 -4 -3 -2 -1 0 1 2 3 4 5

Figure 2 represents a party’s state of mind towards a proposed settlement, similarly to as if put on a three head scale. The arrows are vectors representing different degrees of importance or weight of the operating forces, whether incentives or disincentives, on each dimension. In this example, the party has strong rational disincentives to settle (5 units), substantial psychological impediments (4 units) and some emotional disincentives (2 units), against mild incentives to settle on the rational and emotional dimensions (2 rational, 1 emotional). The overall balance is thus 8 units against the settlement, mostly due to rational considerations and psychological factors.

At this point, after identifying, evaluation and mapping of incentives and disincentives, whoever properly used the TDBM should have a fairly broad understanding of each party’s state of mind, the various interests and needs as well as what seems to interfere with its judgment. Doing it for both parties will enable to assess how far the parties are from reaching an agreement and what are the main forces keeping them away from it.

Following is an example of how the TDBM may work in practice.

An application of the TDBM

Joe is the founder and CEO of a small company (“company X”) engaged in the business of distributing toys of a large toys manufacturer (“company Y”). The two companies have a long-term distribution agreement. Jack is the new CEO of company Y, brought in after company Y showed decreasing profitability. That’s when Joe’s troubles started.

Jack called Joe for a meeting and demanded that company X will reduce its share from selling the product so company X can increase its share, otherwise company X will no longer be company Y’s distributor. Joe refused and the parties soon found themselves in court fighting over the enforcement of the agreement with claims from both sides. In the course of the court proceedings, Jack invited Joe to discuss possibilities to settle the case. During their conversation, Jack offers Joe one fifth of Company X’s claim and withdrawal of company Y’s claim against company X. Will Joe accept this offer?

Step one: Mapping

Looking from Joe’s perspective, what might be his incentives and disincentives to take the offer?

Figure 3

Dimension Disincentives Incentives
Rational – Economical 1.The agreement entitles company X to much more than Jack’s offer;
2. Good chances to win in court.
1.Save legal costs;
2.Save time and energy of the court proceedings;
3.A chance for future commercial relationship with company Y;
4.Might lose in court and either get nothing or, worse, have to pay company Y.
5.The court proceedings may expose information he prefers to keep in secret.
Emotional 1.Seeks revenge for what he perceived as a bad faith behavior of company Y and Jack.2.Antagonism to anything Jack proposes as a result of sensing he is patronizing and trying to intimidate Joe. 1. Never been in court, afraid of the court process and its results.
Psychological 1.Reluctance to settle as a result of overestimating the chances to win in court, strengthened by his lawyer’s advice (judgmental overconfidence, partisan and selective perception).2. Discounts the offer because it came from Jack and company Y (reactive devaluation).

Step two: Evaluating

In the stage of evaluating, each incentive and disincentive is attached a relative value to indicate its relative degree of importance to the party or the intensity to which it affects the party’s decision. Evaluation is best performed by someone who has enough information and insight about the person subject to evaluation and is able to minimize own biases, such as a professional mediator who spent sufficient time with the parties.

I will use in this case a scale of 1-10 to rate each incentive and disincentive mapped above, with incentives having positive values and disincentives negative ones.

Figure 4

Dimension Disincentives Incentives
Rational – Economical 1.The agreement entitles company X to much more than Jack’s offer; 8
2. Good chances to win in court.5
1.Save legal costs; 3
2.Save time and energy of the court proceedings; 2
3.A chance for future commercial relationship with company Y; 0.5
4.Might lose in court and either get nothing or, worse, have to pay company Y; 0.5
5.The court proceedings may expose information he prefers to keep in secret. 1
Emotional 1.Seeks revenge for what he perceived as a bad faith behavior of company Y and Jack; 5
2.Antagonism to anything Jack proposes as a result of sensing he is patronizing and trying to intimidate Joe. 6
1. Never been in court, afraid of the court process and its results. 1
Psychological 1.Reluctance to settle as a result of overestimating the chances to win in court, strengthened by his lawyer’s advice (judgmental overconfidence, partisan and selective perception). 2
2. Discounts the offer because it came from Jack and company Y (reactive devaluation). 1

Note that factors on all three dimensions may overlap each other and cause discrepancies in the evaluation results. Here, for example, the psychological bias of overestimating the chances to win in court clearly overlaps the rational economical evaluation of the offer. The way to cure discrepancies as this is by identifying and discounting the excess value. If the evaluation of the court results weighs 7 units as a disincentive, the 7 units should be allocated between the rational-economical and the psychological dimensions (here 5:2).

Stage 3: Presentation

After calculation of the aggregate values of incentives and disincentives on each dimension, the vector presentation provides a graphic illustration of the operating forces and how they weigh against each other on the three dimensional scale. See Figure 5.

Dimension Disincentives Incentives
Rational – Economical -13 <------------------ ---->7
Emotional -11 <-------------- >1
Psychological -3 <- 0
-18-16-14-12-10-8-6-4-2 0 2 4 6 8 10 12 14 16 18

The results presented in Figure 5 make clear that Joe’s disincentives to settle, from his perspective, largely overweigh his t is likely to keep blocking settlement offers, even if monetary value is substantially increased, as long as emotional disincentives are not reduced or emotional incentives are generated. This information should be particularly useful for Jack as well as a mediator when planning their next steps in the negotiation.

III Strategies to Promote Resolution: Cross-Dimensional Offsets and Cross-Dimensional Inter-Party Tradeoffs

One important assertion embedded in the TDBM is that incentives and disincentives on the rational-economical, emotional and psychological dimensions can offset each other in an overall balance we process in our minds. The possibility to create offsets between dimensions may have important practical implications for negotiation and dispute resolution processes. One is the understanding that there is no need to overcome all obstacles and to find cure to all concerns the parties may have in a given negotiation, but merely to create enough incentives to settle that would overweigh disincentives. Based on this understanding and on the theory of offsets between dimensions, this section presents two methods to promote settlements, “cross-dimensional offsets” and “cross-dimensional inter-party tradeoffs”.

1. Cross-Dimensional Offsets

The technique of cross-dimensional offsets is the adding of incentives to settlement on one dimension to offset disincentives to settlement on another dimension. For example, enlarging the rational-economical gains for a party may overcome an emotional element that inhibited it from settling, and vice versa, adding an emotional motivation may facilitate rational-economical concessions. The offsetting forces, however, may come from different sources, such as the other party, a third party or from within the party itself. An example for cross-dimensional offsets coming from a third party is when a mediator reminds a party of the legal costs, the time and the energy she will be saving by settling, thus creating a rational-economical incentive for her that may offset an emotional disincentive which has been blocking a settlement.

The following example involves cross-dimensional offsets - the source of which is the other party. It is a dispute between a landlord and a tenant - Turnbull Vs. Jones Realty (The example is taken from Fisher and others, 1991, p.119. Described here is only a portion of the negotiation, which is relevant to the discussion here). Turnbull rented an apartment from Jones Realty for $600 a month. When he wanted to move out he discovered that the apartment was under rent control, which provided for a maximum rent of $466. Disturbed that he had been overcharged, he turned to Mrs. Jones from Jones Realty to ask for reimbursement. Mrs. Jones was unreceptive and hostile and accused Turnbull of ingratitude and blackmail. Nonetheless, after a number of negotiation sessions Mrs. Jones agreed to reimburse Turnbull and her tone became friendlier and apologetic.

One of Turnbull moves in the negotiation was an appeal to Mrs. Jones’ sense of equity and fairness. He said to her: “We want to know that we didn’t pay more than we should have. When we’re persuaded that the rent paid measured up fairly to the time spent in the apartment, we’ll call it even and move out.” By saying this Turnbull created a psychological incentive for Mrs. Jones to reach a fair result, which was based on Turnbull’s suggested criteria for fairness.

Another thing Turnbull did was telling Mrs. Jones how much he and his roommate appreciated what she had done for them. He said: “Paul and I understand you were doing a personal favor by renting us this apartment. You were very kind to put in the time and effort and we appreciate it.” By saying that Turnbull created for Mrs. Jones an emotional incentive to keep appearing as a kind and generous person. As put by Fisher and Ury, “praise and support, moreover, imply that the person will continue to deserve them. After being praised, Mrs. Jones now has a slight emotional investment in Turnbull’s approval of her. She has something to lose and as a result act more conciliatory.” The parties reached an agreement along the lines suggested by Turnbull.

For Mrs. Jones, then, psychological and emotional incentives, introduced by Turnbull, offset her preliminary rational-economical as well as emotional disincentives, to a point where overall incentives overweighed overall disincentives.

2. Cross-Dimensional Inter-Party Tradeoffs

Cross-dimensional inter-party tradeoffs operate quite similarly to cross-dimensional offsets only that while cross-dimensional offsets focus on each party in and of itself and do not necessarily involve interaction between the parties, cross-dimensional inter-party tradeoffs focus on the exchanges of “goods” on different dimensions between the parties.

A cross-dimensional inter-party tradeoff occurs when, for example, one party does or says something that is emotionally beneficial to the other party, although emotionally inconvenient to it, and in return the other party is making economical concessions, also beneficial to the other side and inconvenient to it. In such case the parties have traded “goods” on two different dimensions, economical and emotional (Menkel-Meadow, 1984, pp.838-839 for the proposition that psychological needs may be part of the utilitarian calculus of needs; p.795 for the concept of trading off different needs). Following are two examples of situations where cross-dimensional inter-party tradeoffs may occur.

Example 1

Apology is a good example of the possibilities of cross-dimensional trade-offs. The following case deals with a dispute between a secretary whose job was terminated and the company she used to work for, represented by the manager who initiated the termination (the case is taken from Levi, 2000, p.147).

Lynn worked for XYZ Pharmaceutical Company as a secretary for nine years. She was recently assigned to the new vice president, Maureen. One of Lynn's responsibilities was opening e-mail when Maureen was out of the office, and one day Lynn opened an e-mail from the company president that read: "What to do about disposing of that unfortunate chemical . . . Maybe, we could just let it float out to sea". Alarmed by what she believed to be an unlawful proposal, Lynn copied the e-mail and sent it to state environmental authorities. When Maureen found out, she was furious about the breach of confidentiality, particularly because the e-mail had been part of a continuing joke between Maureen and the company president. She fired Lynn, and Lynn sued for wrongful termination.

The next time Maureen and Lynn see each other is in mediation of their suit. The parties are hundreds of thousands of dollars apart, and there is no agreement when the parties break for lunch. After lunch, Maureen asks if she can say something. She begins, "Lynn, I am so sorry for having discharged you. I understand that, after so many years, it must be very hard to start over again looking for a job. I realize now that when you read that e-mail, you must have thought we were dumping chemicals, and in that context you were right to notify the authorities. You are a fine secretary, and I acted on impulse out of fear and rage, and I should have asked for your side of the story rather than simply firing you. I deeply hope we can do something to end this suit."

Everyone is silent for a long moment. Then Lynn takes a deep breath and replies, "I suppose that when I read that e-mail, I may have jumped to conclusions. Maybe we can work something out." By the end of the day, the parties work out a settlement that is fair to each, with the company compensating Lynn based on a realistic estimate of lost wages and Lynn promising to cooperate in the company's response to government inquiries.

What essentially happened in this case was an exchange of apology for money. Maureen, by offering her apology, went through the inconvenience of admitting her wrongdoing, justifying to some extent Lynn’s acts and risking a non-responsive reply from Lynn. Lynn, on her part, accepted the apology and, in return, in addition to taking some of the blame on herself, agreed to substantially reduce her money demands.

Indeed, a sincere apology can go a long way in resolving disputes (Cohen, 2000, p.171). Some of the potential gains of an apology are that the plaintiff might forgo suit; the settlement process could be greatly facilitated; legal fees would be reduced; punitive damages may be avoided; damaged relationships may be repaired; the injurer may get psychological and spiritual benefits (such as reduce guilt); the injurer's reputation as a responsible person or organization may be enhanced; and the injurer's ability to prevent future errors may be improved (Cohen, 2000, p.171).

Example 2

The following example involves an executive and a company represented by its CEO in dispute over the termination of the executive (The example is taken from Golann, 1996, p.7).

An executive was hired by a technology management firm with great expectation, but fired only a few months later on the ground that his behavior and decision-making had been erratic. He sued for nearly two years’ salary and payments under his contract. The company’s CEO refused to pay a dime. Through a mediation process the mediator learned that the executive was secretly undergoing treatment for a brain tumor, which explained his behavior, created an urgent need for continuation of health coverage and conceivably raised a claim for disability discrimination. With the permission of the executive the mediator reveled the issue to the CEO. At this point the CEO lost much of his anger, the executive himself became less rigid and the parties quickly worked out a severance package that included key hospital coverage.

In this example, like in the apology case, the trade-off was primarily between the rational-economical and the emotional dimensions. This time it was the personal information about the executive’s medical condition that triggered the exchange. The disclosure of the sensitive information about the executive’s health condition to the CEO was followed by an emotional reaction of the CEO and the creation of an emotional (compassion, mercy) incentive to settle the case in a satisfactory manner to the executive (some economical incentive was probably created as well considering the possibility of a future disability discrimination claim although no such one was initiated at that time). As a result of the new incentives, economical concessions were made possible. The executive, on the other hand, had to go through the inconvenience of disclosing private information he would have otherwise kept secret, constituting an emotional disincentive, but gained important economical benefits and better relationship with the CEO, which apparently compensated for the embarrassment.

Cross-Dimensional Inter-Party Tradeoffs and Creating Value

Recent negotiation and dispute resolution literature talks much about the potential of creating value in negotiations (Mnookin and others, 2000, pp.12-15). Creating value, sometimes called “enlarging the pie”, basically means adding valuable factors to the negotiation, thereby having more to distribute, for the purpose of increasing the parties’ satisfaction comparing to other settlement alternatives. Creating value may also help generate more possible solutions (Menkel-Meadow, 1984, pp. 795, 809-813). One of the distinctive sources for creating value is differences between the parties. When two people have different resources or they attach different relative values to the same resources, swapping what they have may make one or both of them better off (Mnookin and others, 2000, p.14).

Cross-dimensional inter-party tradeoffs work the same way. First, a multi-dimensional perception in and of itself is a way of creating value, by virtue of acknowledging a wide range of interests, needs and concerns the parties may have beyond rational-economical goals. Second, tradeoffs between needs on different dimensions may operate very similarly to conventional economical tradeoffs. Just like oranges can be exchanged for apples, money can be exchanged for emotional satisfactions. And just like two people may value differently oranges and apples, they may value differently money and some emotional satisfaction in particular circumstances.

But are emotional and psychological “goods” really the same as economical goods? Why is it that we may feel uncomfortable talking about trading emotions for money? This goes down to a moral and a practical issue, for which we should differentiate between cross-dimensional tradeoffs and conventional rational-economical tradeoffs. The moral issue is the notion that emotions are private human feelings that should not be abused by trading them for economical gains and should not be measured in monetary terms and subject to haggle on how much they worth. The practical issue is that putting emotional and psychological factors on the table in the same line with economical gains may create incentives for the parties to fake emotional and psychological disincentives in attempt to win economical gains.

As for the moral issue, although it may feel uncomfortable at times, weighing and evaluating the importance of emotional and psychological factors in similar terms to rational-economical ones should not be an obstacle if it serves the objective of better understanding the parties’ needs in negotiation and promote resolution of conflicts.

As for the practical concern that the parties might manipulate on, fake and misuse emotions and psychological factors, this concern is hardly new in the negotiation sphere. Parties pull all kinds of tricks and acts, some psychological (like playing the “underdog”), and some emotional (like storming away from the negotiation table). The cure to such manipulations is mostly to be sensitive to them, to detect bad faith when it exists or to learn how to translate them to the true motivations of the party who uses them.


The negotiation process cannot escape the complexity of people’s minds. When considering a settlement option, the negotiator is subject to a variety of forces of different nature and intensity, operating either for or against settlement. Incentives and disincentives of rational-economical, emotional and psychological nature line up on a virtual scale to determine the balance between a ‘yes’ and a ‘no’ to settlement.

Rational-economical considerations constitute only one dimension of the decision to settle, not necessarily the most influential one, as emotional and psychological factors often have a role in the decision much more central than we realize. Moreover, emotional and psychological elements are not merely distracters that should be disregarded or obstacles that should be removed, but are real, vigorous, and legitimate forces that may either promote or inhibit settlement.

The TDBM may be a useful tool to identify, evaluate and weigh the operating forces and make the balance between them. It encourages a broad and thoughtful analysis of the parties’ state of mind, and heart. It forces looking from the subjective point of view of each party, looking at the situation through their respective eyes. Thinking TDBM also means using same unit values for different dimensions. Thus, rational-economical, emotional and psychological forces may be weighed against one another to determine their relative weight in the decision whether to settle or not.

If promoting a settlement is the goal, the use of setoffs and tradeoffs between dimensions may change the balance from a position against settlement to one for it. Both strategies, setoffs and tradeoffs, rely on the understanding that there is no need to remove all obstacles to settlement or to deal with each dimension separately, but rather to reach an overall balance weighing, even slightly, in favor of the settlement.

End Notes

1 The human thought of emotions existed much before the psychological analysis of the emotions, which is only a hundred years old. Modern psychology is limited in its attempt to explain the wide range of emotions (Elster, 1999, pp.48-51).


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Additional articles by Shiri Milo-Locker