Mediation Tip #18: Piggies Get Fat and Hogs Get Slaughtered

Being the first party to make a monetary demand at mediation can be advantageous because it may serve to anchor (a cognitive bias where an initial offer influences by serving as a reference point around which all parties’ future offers revolve) the parties’ view of the value of the matter. It is natural to make the first offer or demand greater than one’s expected “bottom line” number in order to allow oneself room to compromise in order to achieve the target amount.

The problem comes where the initial demand is so outrageously unreasonable based on the facts and circumstances of the case that the other party does not believe it is made in good faith. Often the response is to shut down the negotiations until the initial party is “reasonable,” resulting in a standoff or one party walking out of the mediation.

Mediator Eric Glenn describes the “sticker shock” problem as created in some cases, what he calls the “spiral of doom.” The spiral begins when the first party is considering an initial demand. To be clear, it could be the party making a monetary demand or the party being asked to pay a demand. Either can initiate the spiral by their actions. In our hypothetical, the bargaining at the mediation begins with the plaintiff. After deciding her claim warrants a settlement of $1 million (and not a penny less), plaintiff decides to propose $3 million as the initial settlement demand. Her lawyer persuades her that if she demands $3 million, the defendant will know that what she really wants is $1 million, and therefore her initial demand should be $6 million (so as not to telegraph her true position). The plaintiff’s husband thinks that his wife’s lawyer isn’t aggressive enough and persuades his wife to demand $10 million.

When the defendant’s decision maker hears the $10 million demand, she is incensed. The defendant thinks the case is worth $700,000-$900,000 at most, but thinks the $10 million demand is so extreme that defendant needs to send a message by offering only $50,000. The representative’s supervisor overrules her, saying that defendant needs to send a stronger message. Defendant proposes $10,000 as a settlement. The plaintiff’s attorney storms out of the mediation, claiming that the defendant never intended to bargain in good faith and that $10,000 is a “totally ridiculous” response to their $10 million demand (while simultaneously failing to acknowledge the initial demand prompted the response).

Plaintiff’s counsel knew the defense wasn’t going to be serious about settling. The defense room believed it was just as well the mediation end early, as plaintiff’s counsel had no intention of negotiating in good faith. Both were wrong in their assessment; pride and greed killed the deal that could have been made.

Other times, an outrageous initial offer or demand doesn’t result in the mediation shutting down, but it does devolve into an hours-long blinking contest where both sides nickel and dime each other, afraid to make a larger move until the other side does so first. Overreaching on initial demands often end up wasting valuable time that could have been spent coming to a resolution and the parties reach a point at 1:00 pm that they should have reached at 10:00 am.