Getting to and Beyond Mediation Whatâs in a Nudge? How Choice Architecture Surrounding Dispute Resolution Options Can Increase Uptake of Mediation
Charmaine Yap Yun Ning
I.Introduction
The steadily growing prominence of mediation in Singaporeâs dispute resolution landscape belies the two decades-long journey in getting the legal profession, businesses and the public to embrace mediation.1 For mediation proponents, it may seem an agonisingly protracted process given mediationâs oft-cited benefits and suitability for many disputes.
A behavioural economist may attribute disputantsâ failure to choose mediation to cognitive errors and motivational distortions. Under the Rational Choice Theory, we might expect greater uptake of a dispute resolution method that is generally cheaper, faster and preserves relationships. A utility-maximising homo economicus would rationally conclude that mediation would lead to an outcome that has higher utility than litigation.
However, well-known behavioural experiments have shown that the cognitive limitations and mental short-cuts used in decision-making may lead to decisions that seem irrational under the Rational Choice Theory. This may explain the continuing under-utilisation of mediation in many areas despite being so lauded.
In 2017, 538 matters were filed with the Singapore Mediation Centre.2 This number is dwarfed by the total of 57,237 civil cases filed with the State Courts and the Supreme Court in the same year. A 2016 study by the Singapore Academy of Law found that only 5% of respondents involved in cross-border transactions preferred mediation as a dispute resolution method.3
Understanding our underlying mental processes will lead to better predictions of how we actually respond to rules and help in formulating measures that are more effective in encouraging mediation.4 As we are irrational in predictable ways, behavioural economists make the case for structuring the context surrounding choices and using nudges to influence people to make better decisions. This is known as choice architecture.5 Choice architecture is inevitable as the option to mediate will necessarily be framed within a context that will influence the decision-making.6
Nudges and its underlying regulatory philosophy of libertarian paternalism is uniquely suited for mediation. While family mediations and certain government and industry-specific mediations have been made mandatory, this approach may be unsuitable for most private domestic and international mediations where there are less compelling reasons for undercutting party autonomy. Nudges preserve freedom of choice which is more consistent with the core mediation principles of consent and autonomy.
Rather than leaving it to unintentional or uninformed design, it will be argued that we should ethically and thoughtfully design choices to nudge disputants towards mediation. Governments, mediation service providers, mediation accreditation institutes, mediators, mediation advocates and academics are all potential choice architects.7 This chapter will explore the cognitive tendencies that explain the under-utilisation of mediation, analyse existing measures based on behavioural economics insights, and make proposals for refining current approaches and for new measures.
II.Behavioural economics explanations: Why parties do not mediate as much as they should
A.Cognitive biases
(1)Status quo bias
Behavioural findings suggest that individuals prefer the status quo and will tend to stick with a default option. Three explanations have been proffered to explain this â inertia, endorsement and loss aversion.
Deciding against a default rule involves an active effort to focus on the problem, form a preference and reject that rule. Given the power of inertia, many would continue with the status quo. This is especially where the question is a complex one entailing more mental effort.8 Determining which dispute resolution method would leave one better off involves weighing difficult trade-offs between time costs, financial costs, probabilities of legal success and emotional costs. Disputants might choose to avoid this altogether by going with the default option.
Parties may also perceive the default rule as an implicit endorsement of that option by the choice architects. People may believe that the default was chosen for good reason and would defer to what has been chosen for them unless they have private information that justifies a change.9 There is a situation of significant information asymmetry for first-time or one-off disputants who lack experience when faced with intimidating court processes.
Finally, the default rule establishes a reference point. Costs incurred in deviating from the default rule are construed as a loss. Behavioural studies have found that people are loss averse â they dislike losses far more than corresponding gains. Individuals may thus prefer to stick with a default rule to avoid a loss which may take the form of time costs, financial costs and emotional costs such as regret.10
In dispute resolution, litigation or arbitration tends to be seen as the status quo. The status quo bias means that even when provided with perfect information on a better alternative, people tend to select the default. Where parties are less familiar with mediation processes, they would prefer to continue with litigation or arbitration even if mediation is the rationally better choice.
(2)Overconfidence bias
A bias that will come as no surprise to those involved in dispute resolution is the tendency for people to be unrealistically optimistic when predicting their behaviour and prospects. This systematic bias occurs even when the individual is factually informed.11
Academic literature has sought to explain bargaining impasses because of unrealistic optimism affecting both parties. In negotiations, this self-serving bias leads parties to believe they deserve more and impedes settlement.12 Not only does the bias affect behaviour during bargaining, it influences partiesâ choices on dispute resolution methods. Disputants may choose litigation because of an inflated view of their chances of success.
One reason offered for this bias is asymmetry in how people process information. Individuals are more likely to change their beliefs when given good news, whilst their views are more likely to stay the same when the news is bad.13
The implication of this behavioural finding is that merely providing statistical information that mediation is better than adjudication in a general sense may be defeated by partiesâ unrealistic optimism. Measures taken would instead need to go further and persuade parties that mediation is better than litigation in their augmented perception.14
(3)Salience bias
Some aspects of decision-making are vivid and perceptible while others are diffused, shrouded and difficult to quantify. Our limited attention span and imperfect information cause a bias in our behaviour towards what is most salient. There may be attributes that are important but do not receive sufficient consideration because they are not salient and do not catch our attention.15
One form of salience is the visibility of litigation over mediation in the media. Simply by dint of media exposure, parties feel more familiar with the litigation process.16
Another shrouded but important attribute is long-term costs and benefits. This leads to present bias where individuals pay too much attention to the short-term and apply very high discount rates to future costs and benefits.17 At the beginning of a dispute, parties might be more preoccupied with defending their legal rights and underestimate the financial and emotional costs of doing so.
Our limited attention span and inability to apply appropriate temporal discount rates means that the simple provision of information may not be enough to produce optimal behaviour. Information should be presented in a way that ensures salient attributes are made known to the individual. Complexity and information overload may lead to important features being missed.18
B.Inability to accurately predict utility
While we might assume individuals to be the best judge of their own utility, research has shown that people have difficulties predicting their own experience. Mapping is the ability to predict the relationship between a choice and the ultimate utility derived from that decision. Individuals are not able to accurately map and select options that will make them better off especially if the decision is complex.
Comparing dispute resolution processes involves weighing time costs, financial costs, probabilities of legal success and emotional costs. These complex trade-offs will not be immediately evident to disputants unless they are repeat players.19 Efforts to educate the objective benefits of the various dispute resolution methods cannot replicate stakes, emotions and pressure involved in real adjudication.
C.Focus on appearance of fairness
Classical economics presumes that individuals are self-interested. However, experiments suggest that people want to be seen to act fairly and will not violate norms of fairness even when it is in their economic interest to do so.
On the flip side, when an individual perceives something to be unfair to themselves they may choose to defend their interests through litigation even when doing so is not in their self-interest. Self-serving bias further complicates things as our notion of fairness may be biased in favour of ourselves. When parties have different self-interested notions of fairness, they interpret behaviours by the other party not as an attempt to get what they perceive as fair but as an attempt to gain an unfair advantage.20
Under a narrow, rights-based conception, fairness may seem to require vindication of legal rights. In his 2017 keynote address at the Law Society Mediation Forum, Chief Justice Sundaresh Menon talked about the need to move away from this restricted conception of Rule of Law based on legal rights.21 However, some may nevertheless persist with the view that the informality and interest-based approach of mediation does not accord fairness in the context of legal rights and responsibilities.22
III.Applying behavioural economics insights to practice: Evaluating existing measures and proposing reforms
A.Presumption of ADR in setting a defau...