This is the first edition of a paper by Graham Massie, CEDR Director of Consultancy, applying the experience of conflict to addressing the theory surrounding attitudes to risk.

It’s always bothered me in mediations when – in what I suspect is largely an attempt to bolster their own confidence – someone claims they’ve got a “75% chance of winning at trial”.

The trained statistician in me yearns to understand how they have come to such a conclusion – and what do they mean by it.  Presumably they’re saying that if the same case was separately heard by 100 different judges then they would prevail 75 times.  Obviously that’s never going to happen in practice.  In any event how does such analysis square with the other side’s perspective – in a perfect market of equal knowledge and equal expertise then does this imply that the other side are running their case with only a 25% expectation of success?

Of course, the law reports bear weighty evidence that for every winner there is also a loser - a long-run success rate for litigants as a whole of only 50%.  Mediators are well used to discovering that both sides are telling themselves they have a 75% chance of success; and part of our job is to address such anomalous joint perspectives by facilitating information exchange and encouraging fuller analysis and evaluation – in effect helping parties move towards a position of shared information and mutual understanding.

And yet, even if mediators do achieve the nirvana of reducing parties’ aggregated evaluations of their likelihood of success down to only 100%, we still have to consider the matters of how individuals respond to risk in conflict.

And to confuse the situation even more, some of us will be quite prepared to take on a 60% chance of winning, but would be scared off by a 40% chance of failure.  This isn’t just a question of the diminishing marginal utility of money (the richer we get the less value we place on the next £1,000) or of what Richard Thaler called the endowment effect (whereby we place a higher value on things we already own) but also, more worryingly, on simply how the question is asked – as a general rule, we are so risk averse that we would rather, say, chose a medicine which saves 40% of patients rather than one which we are told will still see 60% die.

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by Graham Massie

Graham Massie is the Director of Consultancy for The Centre for Effective Dispute Resolution (CEDR).