Lawyers, Negotiation, And Bargaining Research Paper

1. Negotiation Models

Scholars have identified two basic models of, or approaches to, negotiation. The first, and perhaps most familiar, is variously labeled the ‘adversarial’ or ‘distributive,’ or positional model of negotiation (Gifford 1985, Lewicki et al. 1994). This adversarial model of negotiation posits that negotiation is a zero-sum game in which any gain one party receives is necessarily at the expense of the other party. Because it views negotiation as a zero-sum game, the adversarial model counsels negotiators to attempt to accumulate as many of those gains as possible through the use of such tactics as extreme opening positions, few (and small) concessions, commitments to positions, and the withholding of relevant information (Gifford 1985). The adversarial model, in short, places a primacy on claiming value in negotiation.

The downside to the adversarial model, at least according to its critics, is that it is often harmful to the relationship between the parties and can easily lead to impasse or to negotiated agreements that leave value on the table. To address these shortcomings, scholars have developed a second approach to negotiation, currently fashionable in American law schools (as well as business, public policy, and international relations schools), called the ‘problem-solving’ or ‘integrative,’ or ‘principled’ model of negotiation (Fisher et al. 1991, Menkel-Meadow 1984, Walton and McKersie 1965). The problem-solving model of negotiation posits that negotiation is not necessarily a zero-sum game. Rather, most negotiations are (or at least have the potential to become) collaborative problem-solving exercises in which the parties work together to devise creative, ‘win-win’ outcomes. Given this view of negotiation, the problem-solving model counsels negotiators to focus on the parties underlying interests in negotiation, to devise creative options that help satisfy both parties, interests, and to develop and use legitimate, objective criteria that both parties view as applicable to the negotiation (Fisher et al. 1991). The problem-solving model, in short, emphasizes both creating and claiming value in negotiation.

Neither of the primary negotiation models is sufficient to capture the complexity of legal negotiations as a positive matter, and in all likelihood, neither is sufficient as a prescriptive guide, either. Lawyernegotiators no doubt do, and probably should, borrow liberally from either or both negotiation model(s) depending upon the nature of the negotiation, the relationship between the clients, the practice area, the norms in the community, and relevant legal standards and rules.

Available empirical evidence suggests, however, that lawyer-negotiators tend to rely somewhat more heavily on one model or the other when negotiating. According to one empirical study, for instance, lawyer-negotiators evaluating their adversaries rated 65 percent of them as cooperative or problem-solving negotiators, 24 percent as competitive or adversarial negotiators, and only 11 percent as incapable of categorization (Williams 1983). A more recent empirical study of American civil litigators found that most of them express a preference for the problem-solving model of negotiation but tend to behave more consistently with the adversarial model of negotiation (Heumann and Hyman 1997).

2. Negotiation In The Legal System

Lawyers perform myriad roles in America and around the world. Broadly speaking, though, lawyers’ work typically falls into one of two categories: dispute resolution or deal making. Negotiation is central to both.

2.1 Dispute Resolution

Many lawyers function as dispute resolvers. Civil litigators and criminal defense attorneys, for instance, are dispute resolvers. Dispute resolvers spend much of their professional lives helping their clients settle disputes through negotiation.

Most disputes do not require lawyers, however, because most disputants settle their disputes on their own through negotiation (Miller and Sarat 1980–1). Once disputants have invoked the formal legal system by hiring a lawyer and filing suit, their negotiation is no longer shaped merely by informal norms but also by the law and legal system. The disputants and their lawyers negotiate, in other words, ‘in the shadow of the law’ because the consequence of failing to reach a negotiated agreement is possible imposition of a binding decision by a third party, i.e., a trial (Mnookin and Kornhauser 1979).

Trials, however, are quite rare in the American civil justice system because most disputants settle their cases through negotiation. The conventional explanation of this phenomenon is economic. According to the economic model of suit and settlement, disputants and their lawyers seek to maximize value in litigation. To do so, they calculate the expected value of trial (i.e., anticipated judgment times the probability it will occur less trial costs), compare it to any settlement offer on the table, and select whichever promises to give them more value. Because the costs of trial are so much greater than the costs of settlement, most disputants opt to settle their cases through negotiation because settlement generally promises more value than trial. Trial, according to this economic account of litigation, results only when the disputants and their lawyers develop widely divergent predictions about the likely outcome at trial. In the absence of widely divergent predictions, disputants will settle their cases because they expect that they will maximize their outcomes through settlement ( Priest and Klein 1984). As noted below, however, settlements may break down for other reasons as well.

2.2 Deal Making

Other lawyers function as deal makers. Corporate lawyers, mergers and acquisitions specialists, and securities lawyers, among others, are deal makers. Deal-making lawyers are ‘transaction cost engineers’ who use differences between the parties (e.g., one party wants to buy a good, while one wants to sell), noncompetitive similarities (e.g., licensee and licensor, both of whom want a technology to succeed), economies of scale (e.g., pooling production or consumption facilities to lower costs of a good) and the like to create value for their clients (Gilson 1984, Gilson and Mnookin 1995). Deal-making lawyers also strive to claim value for their clients by negotiating advantageous divisions of the value they have helped to create.

3. Barriers To Negotiation

Whether functioning as dispute resolvers or deal makers, lawyer-negotiators are likely to find that predictable barriers or impediments arise during the negotiation process to prevent them from obtaining optimal negotiation outcomes for their clients. These barriers or impediments fall roughly into three categories: (a) strategic; (b) psychological; and (c) structural (Arrow et al. 1995, Mnookin 1993).

3.1 Strategic Barriers

Strategic barriers arise where lawyer-negotiators consciously adopt strategies and tactics, like hard bargaining techniques, that backfire. Strategic barriers are likely to arise because lawyer-negotiators and their clients find themselves trapped in the so-called negotiator’s dilemma (Lax and Sebenius 1986). The negotiators dilemma, like the prisoner’s dilemma upon which it is based, focuses on the tension between competitive or value-claiming moves on the one hand and cooperative or value-creating moves on the other.

Every negotiation involves something of value, which the parties can simply divide (i.e., value claiming) or which they can attempt to expand and divide (i.e., value creating and claiming). Negotiators who make competitive or value-claiming moves may succeed in obtaining relatively more of the existing value, but their competitive moves are likely to inhibit the cooperation needed to create additional value for the parties. The negotiator’s dilemma refers to negotiators’ tendency to focus narrowly on claiming value at the expense of creating additional value for the parties to divide.

The negotiator’s dilemma is inherent in negotiation, but it is particularly likely to confound lawyer- negotiators and their clients under certain conditions. For example, the negotiator’s dilemma is more likely to impede successful negotiation when the parties face informational asymmetries because value creation depends upon common information (Gilson and Mnookin 1995). When information is asymmetric, parties must agree to share their private information to create value, but parties may be reluctant to do so for fear that their adversaries will exploit the in- formation they have divulged. This is particularly likely to be a problem in litigation.

3.2 Psychological Barriers

Psychological barriers arise due to predictable cognitive and motivational biases that influence the way lawyer-negotiators and their clients interpret information, assess their adversaries, and experience feelings of gain or loss (Korobkin and Guthrie 1994, Ross and Stillinger 1991). Three of the many psychological barriers that may arise include self-serving biases, reactive devaluation, and loss aversion.

Lawyer-negotiators and their clients are likely to fall prey to self-serving biases when making judgments about ensuing negotiations because people generally have difficulty interpreting information in a neutral fashion. To illustrate, researchers asked experimental subjects to assess damages in a tort case arising from an automobile-motorcycle collision in which the plaintiff had sued the defendant for $100,000. The researchers assigned some subjects to play the role of plaintiff and others the role of defendant, but they provided both sets of subjects with identical information about the case. Despite reviewing identical information, subjects interpreted it in self-serving ways. When asked to predict how much the judge would award, the subjects evaluating the case from the perspective of the plaintiff predicted that the judge would award $14,527 more than the defendant-subjects predicted. When asked to identify what they perceived to be a fair settlement value for the case, plaintiff-subjects selected a value $17,709 higher than the value selected by defendant-subjects (Loewenstein et al. 1993). These self-serving assessments are ‘an important determinant of bargaining impasse’ (Babcock and Loewenstein 1997).

Not only are lawyer-negotiators and their clients likely to interpret their own positions in self-serving ways, they are also likely to discount or devalue their adversaries’ positions due to a phenomenon psychologists have labeled reactive devaluation. For example, psychologists asked two groups of Stanford University undergraduates to evaluate divestment proposals during a period of heated debate over Stanford’s divestment policy in South Africa. The researchers told one group that the university had proposed a modest ‘deadline’ plan rather than the more aggressive ‘specific divestment’ plan it had considered proposing. The researchers told the other group that the university had proposed the specific divestment plan rather than the deadline plan. Eighty-five percent of the subjects told that the university had proposed the deadline plan rated the specific divestment plan more favorably, but only 40 percent of the subjects told that the university had proposed the specific divestment plan rated it more favorably (Ross and Stillinger 1991). The subjects devalued both proposals simply because they had been offered.

Reactive devaluation is an even more serious problem when the parties distrust one another, as is often the case in negotiation. In another study, for instance, psychologists asked three groups of American subjects in the mid-1980s to evaluate a nuclear disarmament proposal. One group learned that President Ronald Reagan had offered the proposal, another learned that neutral ‘strategy analysts’ had offered the proposal, and a third group learned that Mikhail Gorbachev, the Soviet leader at the time, had offered the proposal. Ninety percent of subjects rated the proposal as evenhanded or favorable to the USA when attributed to Reagan, and 80 percent did so when the proposal was attributed to neutral strategy analysts. When attributed to Gorbachev, however, only 44 percent rated it evenhanded or favorable to the USA (Ross and Stillinger 1991). In short, ‘the very offer of a particular proposal or concession’ especially if the offer comes from an adversary ‘may diminish its apparent value or attractiveness in the eyes of the recipient’ (Ross 1995).

Reactive devaluation may be exacerbated by loss aversion, another significant psychological barrier that can arise during the negotiation process. Psychologists have found that negotiators do not experience equivalent gains and losses the same way. Rather, losses loom larger ‘generally twice as large’ as corresponding gains (Kahneman et al. 1991, Kahneman and Tversky 1984). Loss aversion may manifest itself in negotiation in a couple of different ways.

First, loss aversion is likely to affect negotiators’ valuations of goods in transactional negotiations. Sellers are likely to place a higher value on goods than buyers because sellers experience the transfer of the good as a loss while buyers experience the transfer of the good as a gain. In an often-replicated study, researchers divided experimental subjects into a sellers group and a buyers group. The researchers gave members of the sellers group a coffee mug and the members of the buyers group $6.00 in cash. The researchers asked the sellers to indicate the minimum amount they would accept to sell the coffee mug, asked the buyers to indicate the maximum amount they would pay for a mug, and informed all of the subjects that they would execute trades based on the responses given. The researchers found that the two groups valued the mugs quite differently. Sellers, who would experience a loss if they parted with their mug, assigned a median price of $5.25, while buyers, who would experience the attainment of the mug as a gain, assigned a median price of $2.25–$2.75 (Kahneman et al. 1991). In short, sellers tend to value goods much more highly than buyers, which may prevent lawyer-negotiators from obtaining optimal outcomes for their clients in transactional negotiations.

Second, loss aversion may influence the way negotiators perceive concessions. Negotiators view concessions they make as losses but concessions they receive from the other side as gains. Because losses are weighted more heavily than gains, negotiators are likely to view the concessions they make as more significant than the equivalent concessions their adversaries make. This ‘concession aversion’ may also undermine successful negotiation (Kahneman and Tversky 1995).

3.3 Structural Barriers

The third type of barrier that may arise in negotiation is structural. Structural barriers are a product not of individual negotiators’ calculations or cognitive processes but rather of the way in which conflict and conflict resolution are managed. The most significant structural impediment to successful negotiation faced by lawyer-negotiators and their clients arises out of the lawyer–client relationship.

In the lawyer–client relationship, the client is the principal who possesses substantive decision-making authority, while the lawyer is an agent who is ethically obligated to carry out the client’s wishes. The lawyer– client relationship is a classical principal-agent relationship ( Pratt and Zeckhauser 1985). The problem with any principal–agent relationship is that incentives are seldom perfectly aligned between principal and agent. This misalignment of incentives can have a detrimental impact on negotiation.

To give one concrete illustration, consider a typical personal injury lawsuit in the USA. In such a case, the plaintiff is usually a one-shot player with limited resources who hires a lawyer on a contingency fee basis, while the defendant is often a repeat-player organization of some type that hires a lawyer on an hourly-fee basis (Galanter 1974, Gross and Syverud 1996). Principal–agent problems may arise for both plaintiffs and defendants.

The plaintiff’s lawyer who takes the case on a contingency basis recovers a fee only if the plaintiff succeeds in obtaining a settlement or judgment. If the plaintiff is successful, the plaintiff’s lawyer will receive a percentage of the recovery. Because of this financing scheme, the plaintiff’s lawyer may have an incentive to settle quickly so as to maximize his hourly return, but the plaintiff may fare better if the plaintiff’s lawyer settles later or takes the case to trial. Suppose, for instance, that a plaintiff’s lawyer on a 25 percent contingency settles a case for $10,000 after 10 h of work. In this instance, the plaintiff receives a net recovery of $7500, and the plaintiff’s attorney receives $2500 for his efforts. On an hourly basis, the plaintiff’s attorney earns a $250 h wage. Now suppose, instead, that the plaintiff’s lawyer settles the case for $16,000 after conducting 40 h of work. In this instance, the plaintiff does better, obtaining a net recovery of $12,000. By contrast, the plaintiff’s attorney does worse, earning only $100 h for his efforts (i.e., $4000 for 40 h work). In short, the plaintiff’s attorney would do better to settle earlier, while the plaintiff would do better to settle late.

Defense counsel working on an hourly-fee basis faces a very different incentive structure than the plaintiff’s lawyer. Defense counsel’s hourly wage is constant regardless of the number of hours worked. Thus, defense counsel has a financial incentive to work the case as long as possible because that will maximize her earnings. Her client, by contrast, is likely to fare better if the case settles earlier. Suppose, for instance, that defense counsel charging $200 h settles a case for $10,000 after working 10 h on the case. In this instance, settlement costs the defendant $12,000 (i.e., $10,000 to plaintiff and $2000 to defense counsel) and earns defense counsel $2000. Now suppose, instead, that defense counsel settles for $6000 after spending 40 h on the case. In this instance, settlement costs the defendant more (i.e., $6000 to plaintiff and $8000 to defense counsel) but earns defense counsel more (i.e., $8000 vs. $2000). In short, defense counsel would do better to settle later, while defendant would do better settling earlier.

4. The Future Of Negotiation Research

Because of its importance in law, business, foreign affairs, and interpersonal relationships, negotiation will continue to attract the attention of scholars and practitioners trying to shed light on the process. Three research trends are likely. First, scholars will propose additional models of negotiation that combine or challenge the existing adversarial and problem-solving models of negotiation. Second, scholars will explore opportunities that new communications technologies create (as well as problems they cause) for negotiation. Finally, scholars will continue to conduct empirical and experimental investigations into barriers to optimal negotiation outcomes. Ideally, scholars will not only identify additional barriers but will develop some appreciation of the magnitude of these barriers, learn how the barriers might interact with one another, and devise prescriptions for overcoming the barriers. Continued investigation of the negotiation process is important because negotiation will continue to be the process by which most disputes are resolved and most deals get done.

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