Two weeks ago, I posted a blog about “cognitive bias”. As explained on, “a cognitive bias is any of a wide range of observer effects identified in cognitive science and social psychology…that are common to all human beings.”

I recently conducted a mediation in which I saw one of these biases at work: “anchoring”. Again, as explained by

Anchoring or focalism is a term used in psychology to describe the common human tendency to rely too heavily, or “anchor,” on one trait or piece of information when making decisions. During normal decision making, individuals anchor, or overly rely, on specific information or a specific value and then adjust to that value to account for other elements of the circumstance.

Usually once the anchor is set, there is a bias toward that value.

Take, for example, a person looking to buy a used car – they may focus excessively on the odometer reading and the year of the car, and use those criteria as a basis for evaluating the value of the car, rather than considering how well the engine or the transmission is maintained.

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The matter for my mediation was a simple one; a credit card company (Plaintiff) had sued a cardholder to collect on a loan made to the card holder (Defendant). Defendant had made some payments on the loan but had defaulted or stopped paying and at present, still owed about $20,000.

Prior to the mediation, Plaintiff and Defendant had engaged in settlement negotiations.

Plaintiff’s last demand had been $8800 payable in monthly installments while Defendant’s last offer had been $1200 paid as a lump sum. Defendant had also threatened to file Bankruptcy. During the first hour of the mediation, the parties were stuck on these amounts; Defendant was not willing to move up and Plaintiff was not willing to move down. Why? From Plaintiff’s perspective, it was writing off quite a lot already and was not going to allow Defendant’s threat of filing bankruptcy to cause it to roll over and accept the $1200 in full settlement. It has a reputation in the industry to protect and did not want to become known as being “soft” in collecting its debts. From Defendant’s perspective, she believed that she had little to lose; she was representing herself (She was a licensed attorney and so knew what to do.) and had the time to litigate the matter; she believed that the Plaintiff had acted improperly in certain respects in trying to collect the debt and so had a good defense and if, the trial court did render an adverse judgment, she would file bankruptcy. She had no assets and this was one of two debts that concerned her; however, the other creditor had been silent for some months and the statute of limitations was going to soon run on that debt.

So, I went back and forth between the parties, getting nowhere. After a bit of time, I finally convinced the Defendant to offer a little more; she went up to $1600. Plaintiff found this encouraging but it was still not enough to make it come down off of its $8800 (paid in monthly installments) demand. However, Plaintiff offered an alternative of accepting $7500 if paid in a lump sum.

So, I took this latest demand to the Defendant. She then pointed out something to me that broke the logjam in the negotiations. She noted that her other debt was twice as much- $40,000 and in settlement discussions with that creditor, that creditor was willing to accept $7500 in full settlement. Here, the debt to plaintiff was one-half of that amount, yet Plaintiff was now only just willing to settle for the same $7500, or, in terms of percentage of the total debt, Plaintiff was demanding twice as much as the other creditor.

When Defendant explained her reasoning, “anchoring “came to mind along with the concept of “fairness”. The other creditor was willing to accept approximately 18.75% of the amount due in full settlement and so Defendant, “anchoring” her thoughts on this percentage, believed that Plaintiff should do the same, and thus accept approximately $3750 (18.75% of $20,000.) in full settlement. Underlying this thought process was obviously, the issue of “fairness”.

I returned to the conference room in which the Plaintiff’s representative and counsel were sitting and explained the concept of “anchoring” to them and Defendant’s thought processes. I excused myself so that they could discuss it. A few moments later, they invited me back into the room and accepted Defendant’s “anchoring” argument; Plaintiff was willing to settle for $3750.

I, immediately, took this news to Defendant who then wanted to haggle a little more. I cautioned her that she had just obtained what she wanted; to haggle more may nix the deal. She thought about it for a moment, and agreed; she accepted the demand of $3750.

The parties worked out a few minor details, drafted and signed a settlement agreement, and the litigation became a fact in the past.

Cognitive biases at work: truly astounding! Also, simply slowing down, and taking the time to chat with people and listen to them helps a great deal. It is all about “fairness”.

…. Just something to think about!

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