FORMING BELIEFS ABOUT ADJUDICATED OUTCOMES - PERCEPTIONS OF RISK AND RESERVATION VALUES

In negotiations where impasse is resolved via a dispute resolution mec hanism (like the courts or arbitration), beliefs about a potential adj udicated outcome are central in determining the bargaining environment . The present research investigates how negotiators (trial attorneys a nd students) involved in a hypothetical product liability case use the information encompassed in damage awards from previous, similar cases in forming beliefs about their own case. In particular, we examine ho w the parameters of the distribution of previous outcomes (variance an d range) affect the expected adjudicated outcome and the parties' rese rvation values. We find that the range of previous outcomes has no sig nificant effect on subjects' reservation values, but that the variance does have a systematic effect, particularly on plaintiffs' behavior, A pair of separate findings may have important implications for the ne gotiation process. First, whether or not subjects exhibited risk avers e behavior depended on the role to which they were assigned in a way t hat is consistent with research in behavioral decision theory that hig hlights the relationship between attitudes toward risk and how a decis ion problem is framed. Second, only subjects assigned to roles for whi ch they had extensive experience exhibited over optimism about the lik ely outcome.