© University of Reading 2008 www.reading.ac.uk

Centre for Applied Behavioural Science (CABS)

April 10, 2023

Individual Dispute Resolution: Insights from Behavioural Economics

Rachel McCloy

Overview• Economic vs. Behavioural Economic models of

decision-making

• Applications of BE – current climate

• Mindspace

• Applying BE to Individual Dispute Resolution

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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!

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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

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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

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Messenger We are heavily influenced by who communicates information

Incentives Our responses to incentives are shaped by predictable mental shortcuts such as strongly avoiding losses

Norms We are strongly influenced by what others do

Defaults We “go with the flow” of preset options

Salience Our attention is drawn to what’s novel and seems relevant to us

Priming Our acts are often influenced by cues in the world around us

Affect Our emotional associations can powerfully shape our actions

Commitments We seek to be consistent with our public promises, and reciprocate acts

Ego We act in ways that make us feel better about ourselves 6

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

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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

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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?

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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

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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

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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”

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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)

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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

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