Individual Dispute Resolution: Insights from Behavioural Economics

1. Individual Dispute Resolution: Insights from Behavioural Economics Rachel McCloy

2. Overview • Economic vs. Behavioural Economic models of decision-making • Applications of BE – current climate • Mindspace • Applying BE to Individual Dispute Resolution

3. Economic models of choice • Homo economicus • Traditional economic models of decision-making assume that: • People are rational • Rationality = Consistency • People have perfect information • People perform cost/benefit analyses • Decisions not guided by emotions or other “irrelevant” factors • This is not always the case!

4. Behavioural Economics • Homo Homer Simpsonus • Often influenced by irrelevant factors (90% fat free) • Don’t always make best possible decision • Often take to long (deciding where to jump out of way of bus) • Often don’t have all information • Can’t hold all information in mind • Make decisions that are “good enough” • satisficing

5. Current climate • Move to applying behavioural economics in understanding and influencing everyday behaviour • Kahneman – Thinking fast and slow • “Nudge” agenda • Behavioural Insights Team and Mindspace • 9 robust influences on behaviour

7. Examples • Incentives: • More than just traditional financial incentives • People do not respond to incentives in a straightforward way • More concerned with losses than gains • More concerned with short-term than long-term gain • Engage in mental accounting (with money, time etc.) • Sometimes financial incentives can get in the way

8. Incentives • Should we pay people to recycle? To lose weight? • Insulation and incentives • Council tax seen as a loss • Council tax rebates very effective as an incentive • Worth more to people than the same amount of money 

9. Examples • Norms: • Real or perceived social norms are important • Personal, local, national and international norms • E.g., “women didn’t go into a pub or club alone” • Can be implicit in how you describe events • E.g,. More people are doing X vs. Most people aren’t doing X • What norms are acting on the individual? Can these norms be changed?

11. Applying BE to individual dispute resolution • Messenger • From whom is the individual receiving messages about dispute resolution? • Do they trust them? Do they respect them? • Incentives • Insensitivity to probabilities when potential financial gains are high • High motivation to avoid loss – are mechanisms for resolving disputes seen in terms of losses or gains

12. Applying BE to individual dispute resolution • Norms • What are the norms of the workplace around dispute resolution? What are the norms of the peer group? • Broader norms – “spiraling out of control” • Overconfidence • Defaults • Is there a real or perceived default mechanism in place for dealing with disputes? • Habitual style of dealing with disputes

13. Applying BE to individual dispute resolution • Salience • What forms of dispute resolution are salient to the individual? • Do they feel they are relevant to them? • Priming • What cues? • What messages about dispute resolution are implicit in the workplace? • Affect • Role of emotions • Anticipated regret and the Omission Bias (status quo) • ACAS “It doesn’t have to get ugly”

14. Applying BE to individual dispute resolution • Commitments • Public commitments can help embed new behaviours • These can be used in dispute resolution procedures and codes of conduct • Ego • What makes the individual feel good about themselves? • What kind of person do they think they are? (Consistency)

15. Conclusions • Think of the social, emotional and environmental context in which people are making choices with regards to dispute resolution • Think about the pre-existing cognitive biases that individuals bring to these decisions