© University of Reading 2008www.reading.ac.uk Centre for Applied Behavioural Science (CABS) April 16, 2014 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 2

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! 3

Behavioural Economics Homo Homer Simpsonus Often influenced by irrelevant factors (90% fat free) Dont always make best possible decision –Often take to long (deciding where to jump out of way of bus) –Often dont have all information –Cant hold all information in mind –Make decisions that are good enough satisficing 4

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 5

MessengerWe are heavily influenced by who communicates information IncentivesOur responses to incentives are shaped by predictable mental shortcuts such as strongly avoiding losses NormsWe are strongly influenced by what others do DefaultsWe go with the flow of preset options SalienceOur attention is drawn to whats novel and seems relevant to us PrimingOur acts are often influenced by cues in the world around us AffectOur emotional associations can powerfully shape our actions CommitmentsWe seek to be consistent with our public promises, and reciprocate acts EgoWe 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 7

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 8

Examples Norms: –Real or perceived social norms are important –Personal, local, national and international norms E.g., women didnt 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 arent doing X What norms are acting on the individual? Can these norms be changed? 9

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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 11

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 12

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 doesnt have to get ugly 13

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) 14

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 15