The Indecisive Arbitrator (And His Cognitive Biases)

The Indecisive ArbitratorMy father has a running joke about being indecisive.  “Do you have trouble making up your mind?” The answer:  “Well, yes and no.” Indecisiveness is actually a good quality in an arbitrator.  It is another way of saying, “keeping an open mind until the end.”

When I was a teenager, I spent a few days one summer hanging around a courthouse, sitting through a murder trial.  The DA questioned a witness, and I thought, “That makes sense.” The defense attorney then cross-examined the witness, and I thought, “Wow, that makes sense too.” After the prosecution rested, the same pattern occurred with the defense.  By the closing arguments I had reacted against both lawyers and witnesses with a sense of deep suspicion. I assumed they were all lying or at best stretching the truth.  Yet if I were the decision maker, how would I have made a decision?

It could not be based on sincerity.  When I was learning to be a mediator, one of my mentors told me, “The parties have repeated their story to themselves so often they really believe it. They may be lying even to themselves.  Sincerity doesn’t mean much.”

It could not even be based on the “truth” about what happened.  In college I took a difficult historiography class. We looked at one particular historical incident each week by reading five books describing it from five different perspectives. It was like Rashomon with footnotes. The historian’s perspective: there is no truth, only a series of facts that we piece together into a story based on our biases.

Judges and arbitrators talk a lot about cognitive biases.  Some of the major biases are fundamental attribution error, or the tendency to assume that someone else’s problem represents a failure of character tainting everything else a person does, but one’s own success is the result of personal effort; anchoring bias, or the tendency to “anchor” a decision on one piece of information; backfire effect, where one reacts to information that is inconsistent with a developing hypothesis by strengthening belief rather than questioning it; belief bias, where one accepts the conclusions of logic based on a non-rational belief as to the plausibility of the outcome (one objection to Bayesian statistics!); confirmation bias, or the tendency to accept only information that confirms one’s existing beliefs; hindsight bias, or “I knew it” (or from the arbitrator’s perspective, “You should have known it”); and my favorite, bias blind spot, or the dangerous belief that one is less biased than others.

One bias that all arbitrators must keep in mind for every case is called the framing effect, or the tendency to draw different conclusions from the same information depending on who presents it and how it is presented.  We must constantly evaluate the credibility of the source.  If a source we do not trust tells us information that sounds truthful, or if a source we do trust tells us information that sounds untruthful, we should be careful how we weigh it.

Have you ever seen a pachinko machine, the Japanese version of pinball?  That is what an arbitrator’s decision making process is like.  Facts and arguments come in, bounce off biases and piles of other balls and come out at the bottom, when we tally the score.  The skillful advocate will be able to play to the arbitrator’s biases or help him try to get the pachinko balls past them.  The skillful arbitrator will remain indecisive and let the balls fall where gravity leads them.

Cognitive Bias in Arbitration: The Backfire Effect

arbitration backfirePeople tend to process information through some of the same filters over and over again. We call these filters “cognitive biases.” They are hardwired into our brains.

One of these biases is called the “Backfire Effect.” People look for patterns in evidence so the world does not become a string of disconnected observations. As we are starting to piece together a pattern, or develop a hypothesis, one might think that a rational person would reconsider the hypothesis when faced with an inconsistent fact. It actually takes an extra cognitive step to approach the world that way, since our tendency is to strengthen the developing hypothesis in the face of the inconvenient evidence. Our minds value seeing some pattern over the chaos of having no pattern.

In an arbitration, the arbitrator may experience the backfire effect without even realizing it. Every decision has two elements, determining (i) what actually happened and (ii) whether the fact pattern fits into an intellectual construct of whether to make an award for the plaintiff (whether that construct is legal, course of dealing or fairness depends on the type of tribunal).  As the complainant begins her case, she draws an image of the events that led to the conflict. Her counsel then fits the developing image into the developing pattern of the argument for an award.If it is well-drawn, the arbitrator who is not careful will begin to buy into it subconsciously in order to make sense of all the data. When the defense begins to present its case, it may be fighting an uphill battle not only to dislodge the plaintiff’s version of the story and legal claim, but maybe even to battle against a subconscious tendency to reject inconsistent evidence, laced with the secret emotionality that goes along with the backfire effect. Arbitrators, who like judges tend to be a rational bunch, are not always sensitive to non-rational tags that become attached to developing patterns.

As an arbitrator, be aware of the backfire effect. As a party or advocate, use it. The early part of the complainant’s case is critical. The pattern is drawn in the opening statement, then those first bits of evidence must layer over each other as cleanly as possible to set the stage. Think of the presentation as a house of cards, with the evidence as credibly as possible built on itself to tie together a story that the arbitrator has to work to step away from when the other party has its turn. For the other party, the best way to undermine the backfire effect is to damage the credibility of the complainant’s very first bits of evidence presented and the way complainant’s story fits together, so the arbitrator has conscious doubts over the intellectual construct he is developing.  If the complainant’s story has not fully taken hold, it leaves space for the respondent to develop its story.

The backfire effect: be aware of it.  Use it.

Cognitive Bias in Arbitration: The Curse of Knowledge

Massachusetts arbitrationPeople tend to process information through some of the same filters over and over again. We call these filters “cognitive biases.” They are hardwired into our brains.

One of these biases is called the “Curse of Knowledge”: the tendency to overvalue information that we already know when making a decision that is also based on new information. On the one hand, it is clearly a survival skill to be able to learn from and utilize a knowledge base. Sometimes people even pick arbitrators based on their knowledge and experience in a particular area, so that the arbitrator has at least a basic understanding of how the matter in controversy works on which to base a decision on the “right” outcome under the circumstances. On the other hand, sometimes people rely on that knowledge base so much that it is hard for them to weigh new evidence properly.

For instance, consider an arbitrator looking at a corporate acquisition gone bad. The arbitrator is a lawyer with extensive transactional experience. As the parties explain the situation, he fits their evidence into a developing fact pattern that is based on the framework of his own deal experience and knowledge of the law. On the one hand, the customs and practices of the M&A industry are familiar, so advocates do not need to explain everything from the beginning. On the other hand, the arbitrator may have been involved in a transaction or a prior arbitration that echoes the experience of one of the parties – not a true conflict of interest, but a pre-formed lattice on which to hang evidence as it is presented. He needs to step back and find a way to be able to listen to everything while still using his knowledge base.

As an arbitrator, be aware. As a party, use this cognitive bias. Research your arbitrator to the extent you can to see if you can glean something from her experience. Consider whether in your case experience is good or bad – as in the choice the Financial Industry Regulatory Authority gives between “public” arbitrators from outside the securities industry and “non-public” arbitrators with industry experience. Build upon familiarity if it helps you and re-build the cognitive lattice with more basic explanations if it does not. If you are in a forum in which the arbitrator can ask questions, do more than just respond to the question: listen for gaps or inaccuracies in the arbitrator’s knowledge base as well as reading the tea leaves about what she is thinking.

Knowledge is a two-edged sword. Try not to cut yourself!

Cognitive Bias in Arbitration: Fundamental Attribution Error

People tend to process information through some of the same filters over and over again. We call these filters “cognitive biases.” They are hardwired into our brains.

One of these biases is called “fundamental attribution error.” When something good happens, we tend to overestimate the role of our own effort and intention. For instance, a store manager might say, “The changes I made helped us make more money last year,” even though it happened at the time the whole industry was expanding. On the other hand, when something bad happens, we are tempted to assign blame.  For instance, “I know his job was cut when the company was downsizing, but if he had put more effort in, they would have kept him and let someone else go.” In other words, even though people may think they root for the underdog, they actually have a tendency to congratulate themselves and blame the alleged victim.

Judges gavel on a pile of law booksIn a contested matter, the complainant has been unhappy enough with the outcome of a situation to makea claim.  At some level, the arbitrator must be careful not to have a bias toward blaming the alleged victim or respond to his bias by overcompensating in favor of the alleged victim.  Similarly, he must be careful not to have a bias toward crediting success solely to the effort and general superiority of the party claiming success (although he may need to acknowledge that success in weighing the evidence). He must be conscious of how he is responding at a subconscious level.

The advocate in arbitration can use cognitive biases in her favor by how she spins the story she tells.  For instance, defendant’s counsel can present evidence of the many ways the plaintiff failed to take action to prevent or ameliorate the harm. While the advocate runs the risk of alienating an arbitrator by reiterating evidence too much, she should certainly try to reinforce the arbitrator’s subtle predilection toward assuming fault (and even character flaw).  Likewise, plaintiff’s advocate should consider ways to weaken the other side’s subtle claims of moral superiority. Counsel should plant the seeds of the dark side of a successful defendant’s story, as if defendant were a baseball player who was viewed as a hero because of his prowess on the field until the public learned about his secret steroid use.

While fundamental attribution error comes up more often as an obstacle to mediated resolution, the attentive advocate can also use it to help be persuasive in arbitration.