Cognitive Bias in Mediation: The Endowment Effect

The Endowment EffectPeople 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 “endowment effect”: once people have something, it becomes magically endowed with a sense of “mine-ness.” People often want more to part with it than they would have been willing to pay to acquire it. The endowment effect can make negotiations over what seem to be economic issues surprisingly filled with non-rational elements.

Consider a neighbor dispute over real property boundaries, for example.  These battles sometimes turn on the placement of a 6- or 12-inch strip between two parcels.  The parcel has become “mine” to both sides. When pressed, each party may be willing to pay less to buy out the other’s claim than it wants to receive if it sells its interest.  The same stalemate happens in partnership disputes too, when one or both partners have endowed the partnership with “mine-ness.”

The endowment effect often rears its head when people are getting divorced.  The divorce process itself requires people to sort their personal property into piles labeled “mine,” “yours” and “ours that we have to split.”  Even though the parties may call it sentimental attachment to particular objects, when something falls into both parties’ “mine” piles, the discussion stops being about the value of the object and becomes more of a tug of war.  Unfortunately, some people place all the property in a home into their own “mine” pile.  As a comedian once said, “I get divorced every few years so I get to give give all my stuff away.”

The endowment effect becomes particularly difficult with expectations.  For instance, people might reasonably expect that they will receive an inheritance from their own parents.  It is the ultimate in “mine”: a person who gave one life is passing on the fruits of a lifetime of toil. However, others lay claim to the same interest.  The government wants its taxes paid.  Siblings think they deserve more.  Spouses who have lived for years in anticipation that one day they will receive a little extra cash to spend think they are entitled to a piece, too.  The legal system, which at its best clarifies social rules that supersede individual expectations, is often frustratingly vague.

The answer for the mediator or creative negotiator is to try to bypass “mine-ness.”  Skip a generation and use the funds to pay for children’s education.  Swap something from the “yours” pile for something from the “mine” pile, so both sides will feel that the other has not been unjustifiably enriched (an actual common law legal concept!). If necessary, delve into what it means to parties for something to be “mine” or “yours” – are they objecting to something being taken, or do they feel an entitlement that is wrapped up in other emotions? If none of that works, you may have to take on the brute force challenge of forcing people to accept the unsatisfying reality that, whether by their agreement or law, some of their “mine” pile will be taken from them.  If they decide to agree, then they may at least get to pick and choose from their pile.

Cognitive Bias in Mediation: Fundamental Attribution Error

Massachusetts family mediationPeople 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 particularly strong bias 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 moral blame.  For instance, in a family mediation in which one party has experienced an injury or illness, the other party will often say, “I know she got hurt, but she really could be fine now if she worked harder at it.” In other words, people do have a subconscious tendency to congratulate themselves and blame the alleged victim.

Both sides of the fundamental attribution error coin come up often in business and family mediation. The mediator first has to decide if it is a barrier to resolution, creating significant difficulties on one or both sides, or if he can safely ignore it. If it is a barrier, he has many options.  He can engage in reality testing, although he should read the parties carefully to be ready to address any explosive pushback if emotions run high. He canhold up a mirror to the party most entrenched or float the fairness bubble.  His goal is to see if the parties’ perspective can be shifted so they can get past the issue.

For the parties, fundamental attribution error can be offensive. People do not like listening to boastful language that implicitly or explicitly denigrates their role in positive developments. At the same time, people do not like listening tolanguage thatimplicitly or explicitly blames them, often by laziness, for not escaping externally imposed constraints. As a party, one can spin the language to increase or decrease the other party’s perception of one’s fundamental attribution error to increase or decrease the other party’s annoyance.  Annoyance often stands in the way of resolution, but sometimes, if people are motivated by a desire to overcome the taint, it can be an impetus. The implicit message to which some parties respond is, “Prove to me you are capable.” Parties who are using the mediator to convey messages should be up front about their goals, since mediators sometimes filter out emotional content in order to keep the focus on the elements of resolution.

Fundamental attribution error: acknowledge its presence, then choose to use it or try to bypass it.