Designing Arbitration: Biological Substrates and Asymmetry in Risk and Reward

14 Pages Posted: 26 Jan 2011 Last revised: 7 Feb 2011

See all articles by Gregory Todd Jones

Gregory Todd Jones

University of Georgia - Terry College of Business; Georgia State University - Consortium on Negotiation and Conflict Resolution; Max Planck Institute for Research on Collective Goods

Doug Yarn

Georgia State University - College of Law

Date Written: January 26, 2011

Abstract

What constitutes a rational decision? Much of our thinking about rational decision-making depends on traditional economic theories of maximized expected value. While these theories have demonstrated normative and even prescriptive value in general microeconomic contexts, they have spectacularly failed descriptively; they do a poor job of explaining how we make everyday decisions. Relatively new multidisciplinary efforts at the intersection of biology, behavioral economics, and evolutionary psychology have suggested predictable deviations from the standards of rational expectations based on decision rules that may have been adaptive, in the sense of conferring fitness advantages, in the environmental context in which our cognitive capacities evolved. While this predictability may offer hope of a descriptively accurate and prescriptively useful framework for examining human decision making, we argue that the human brain, rather than being a single decision making device, is a collection of such devices, each with different operating characteristics, and each highly domain specific, in the sense that their influence depends on adaptively relevant features of the current environment. Specifically, as regards decision making about agreements to arbitration, it is easy to imagine many such domain specific devices that may influence expected value and related preferences. Here, we concentrate on loss aversion and risk aversion, providing evidence that these mechanisms have separate biological substrates, and demonstrating that in plausible contexts of arbitration agreement decision-making, they may operate counter to one another. Divergent influence, along with domain specificity, produces an arbitration agreement decision-making system so complex as to challenge the prescriptive utility of behavioral theories, at least at current levels of scientific rigor.

Keywords: arbitration, ADR, alternative dispute resolution, decision-making, rationality, arbitration agreement

Suggested Citation

Jones, Gregory Todd and Yarn, Douglas Hurt, Designing Arbitration: Biological Substrates and Asymmetry in Risk and Reward (January 26, 2011). Georgia State University College of Law, Legal Studies Research Paper No. 2011-04. Available at SSRN: https://ssrn.com/abstract=1748521

Gregory Todd Jones (Contact Author)

University of Georgia - Terry College of Business ( email )

Brooks Hall
Athens, GA 30602-6254
United States

Georgia State University - Consortium on Negotiation and Conflict Resolution ( email )

PO Box 4037
Atlanta, GA 30302-4037
United States

Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

Douglas Hurt Yarn

Georgia State University - College of Law ( email )

P.O. Box 4037
Urban Life Building, Room 448
Atlanta, GA 30302-4037
United States
(404) 651-2096 (Phone)

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