Most parties in a dispute eventually face a decision problem: whether to settle their dispute upon certain terms or not. Whether negotiating toward settlement directly or with the assistance of counsel and a mediator, parties are best able to make decisions in their own best interest if they understand their alternatives. Those alternatives necessarily include possible outcomes of the litigation process and their anticipated effect, as well as the proffered settlement and its anticipated effect. To this end, decision analysis or risk analysis 1 presents an important opportunity for the parties who want to assess the relative values of their alternatives. This article does not suggest that quantitative comparisons of the dollar values of a party’s alternatives represent the only wise way to make a decision. An individual party might wisely decide to reject a significant settlement offer for a claim of modest dollar value in favor of the personal, emotional satisfaction of watching the defendant’s executives being cross examined, or the goal of exposing alleged corporate immorality. That might be exactly the right decision, numbers analysis aside. However, I believe that all parties (and their lawyers) benefit from thoughtful analysis of their alternatives through careful and rigorous consideration of the value and cost to them of settlement options and of the embedded risks and possible outcomes of the litigation process. Settlements are truly informed and voluntary only if the parties choose them with a full understanding of their Handbook of Dispute Resolution – October 2004 Manuscript Ch. 13. Page 1alternatives. This chapter assumes the reader is familiar with basic decision or risk analysis in a tree structure. The “how-tos ” of decision tree analysis are straightforward and are clearly described in many other texts. 2 My goal is to articulate how decision or risk analysis can assist parties and lawyers in negotiation and dispute settlement
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