¡Descarga Framing Effects & Anchoring in Decision Making: Study on Settlement Offers & Risk Aversion y más Apuntes en PDF de Negocios Internacionales solo en Docsity! CHAPTER 24: FRAMING EFFECTS This chapter is based in the idea of choosing between A or B or instead choosing between A B or C. let’s explain this idea. First we will define the concepts and then we will show them on an specific case, then the risk aversion, and the role of lawyers within those facts. Choosing A over B or A / B / C Sometimes decisions are affected by the way the are framed, how they are described or what order they are arranged. The simples example is the compromise effect, which implies that people choose the middle option. Also we have the contrast effects, which make an option les appealing than the other. The case is that the plaintiff has a complaint aganst a noisy nightclub next to his house. The subjects were to pick between settlement offers from the nightclub: A) an offer to reduce the nightclub’s noise and b) an offer to compensate the plaintiff with cash and stay in a nice hotel on weekends. This is a case where we have A vs. B, total different options. Obiously people choses A. Let’s see whant happens when we introduce C : Then they where offered a third proposal C) less cahs, but some vouchers that could be used at other nighclubs. This offer seems inferior to B. Now we have A (best) B (middle) C (worst). When this worst option is added B becomes the middle-option, and then people tends to choose thisone (compromise effect). This happens too when juries have to chose between some options, they have compromise veredicts that follow the same theory. The look of moderation in achoice often is comforting, but it tends to be ans artifact of the other options that are seet around it- which in turn may be arbitrary and easily mainipulade. That means that if I want you to choose B I will made up C to make this theory work. Risk aversion As in business Economics we have here the Asymetric Value function. People are loss averse, so when considereing various good outcomes, they usually are more inclined to grab sure thing than take riscs in hopes of doing even better; but when thinking about bad outcomes, they usually are more inclined to gamble and risk a worse outcome than to take the sure thing. This makes the prospect theory that explains how people react to different gains or losses. This theory suggests that settling a case out of court will tend to seem more attractive to a plaintiff than to a defendant. For a plaintiff, a settlement means a sure gain rather than a gamble on a lawsuit that may or may not produce an even better result. But for a defendant a settlement is the opposite: the acceptance of a certain loss rather than a gamble. So for the plaintiff a settlement means WIN and for a defendant means LOSS! The defendants are more interested in taking chances wiith their losses than the plaintiffs with their gains. The role of lawyers NOTA INTERESSANT NO IMPORTANT PER L’EXAMEN : Jeffrey Rachilinski diu que el Sistema Americà no vol adoptar la norma anglesa de que “el que perd ho paga tot” perquè la prospect theory diu que els Anglesos fan que arribar a un acord fora de judici (settlement) sigui més complicat perquè els deffendants tenen més a perdre (pagar les despeses del judici + pagar el que el jutge digui al pleintiff), això implicaría que els deffendants volguessin anar a judici amb més facilitat (tema risky actions). Però que també sería més desencoratgedor per els pleintiffs pel fet de que poder no només perden sinó que han de pagar la part de l’altre. When it isn’t so obious who is going to win or lose lawyers have to act to elp defendant to view a settlement offer in ways that get away form the loss frame and thus make it more atractive. Then paying a settlement may seem a gain if it is compared to the defendan’ts worst-case scenario rather than to his best hopes; taking in to account al the costs of going to court. CHAPTER 25: ANCHORING TAKING SETTLEMENTS OFFER INOT ACCOUNT IS FORBBIDEN. But anyway we have anchoring which makes it impossible: We know that people prefer not to make judgments from unknowing; they find it more comfortable to take some point of reference, a suggestions about the answer from elsewhere and then adjust it until their own sounds right. Then an initial suggestion about how a judgment might be made can have a large influence on how it is made. This is called anchoring which means taking a reference point to serve for the future judgments. We tell a group of people A that 1000 people dies every year by electricity accidents and to a group of people B that 500.000 people die by a car accident each year. When asking how many people dies every year as an average group A is tempted to tell lower values than B. they have different anchors. The same finds in the way of asking questions. If I ask you to tell me whether the probability of starting IIIWW is between 0 and 5 % or what is de probability of starting the IIIWW. You have different anchors. Anchors by the way are less important when you have a firm sense of your own about a question. Noneconomic headings: Damages for pain and suffereing or loss of society that are hard to calculate their value because there is not a market for damages of death where one can look. So jurors have to pick whatever numbers feel rights and exercise so unguided naturally lends itself to reliance on anchors. Asking a jury for a lot of money tends to yield a lot of money. If for a fact the plaintiff asks for 1 million, he probably gets half million. If it asks for 9 million he probably gets 5. But that can be damaging because increasing the size of a demand may hurt when lawyers loses its credibility. (it depends on the facts and on the anchor, reference point, or similar cases) The same potential for anchoring exists in settlement negotiations when each side throws out a figure that may serve an anchoring function even if it is sure to be rejected. The door in the face: An anchoring can work in two directions, signaling not only the high value one puts on one’s own case but the low value one puts on te case of the adversary. Thus an early settlement offer can create an anchor that affects the reception of a later one
