Nonbinding Suggestions and Dispute Rates: Uncertainty, Focal Points, and their Effects on Bargaining Outcomes

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Mediation and fact-finding are examples of non-binding dispute resolution since these procedures do not implement binding settlements or guarantee resolution of the conflict. The effectiveness of mediators, for example, lies in their ability to facilitate voluntary settlements for those individuals in dispute. While mediators use many different tools, this research will specifically examine the use of non-binding suggestions as a way of improving dispute resolution. Existing research suggests two conflicting effects of suggestions. Suggestions may facilitate agreement by providing an anchor or "focal point" around which the individuals can voluntarily settle their dispute. On the other hand, bargaining research suggests that binding dispute resolution procedures (e.g., trials or arbitration hearings) will best promote voluntary settlement from risk averse individuals only if trial or arbitration outcomes are uncertain. Since mediation typically occurs prior to arbitration or trials, non-binding suggestions may provide information as to what a binding settlement outcome might be. Ironically, suggestions would then decrease the uncertainty about binding settlement outcomes and, according to theory, reduce voluntary settlement rates. The objective of this research is to examine which of these two effects (focal point or uncertainty) dominates, by systematically introducing suggestions into a controlled laboratory experiment. Financially motivated subjects will engage in a bargaining experiment in which computer generated suggestions may or may not occur, and these suggestions may be more or less influential in altering computerized binding settlement outcomes. By manipulating both the existence and the influence of the suggestion, it is possible to not only determine whether suggestions increase voluntary settlements, but it will also be possible to measure the separate focal point versus uncertainty effects. These effects will be precisely measured using appropriate statistical analysis, and both the design and the analysis of the data will help achieve the main objective of this research-to gain insights into designing and improving existing dispute resolution procedures. Alternative dispute resolution, such as arbitration and mediation, is growing in popularity largely due to its promise of resolving disputes more effectively and at less cost than litigation. Non-binding dispute resolution is especially popular since individuals generally prefer self-determined outcomes to mandated outcomes. The National Association for Community Mediation reported an increase of over 200% in the number of community mediation programs in the U.S. in the 1990's (from 150 to 450). Though mediation abounds, it remains to be seen whether its use actually increases voluntary settlements and, if so, by what mechanisms does it work. This study focuses on the effects of suggestions due to the prevalence of suggestions in resolving disputes in a variety of settings. It may seem that, due to the popularity and success of mediation, suggestions are already known to be effective at facilitating settlements. However, existing data on naturally occurring disputes cannot easily isolate the effects of suggestions from other tools that mediators might use (e.g., trust building). Laboratory methods can overcome this limitation. This project promises to help improve dispute resolution in a variety of settings, from labor-management relations to international trade disputes, to community mediation programs.