NEGOTIATING IN THE SHADOW OF A PANDEMIC-CAUSED SEVERE ECONOMIC CONTRACTION
We all know that people, including lawyers and their clients, are anxious right now. During the period March 19-24, 2020, the Pew Research Center conducted a poll of 11,537 adults in the United States. The poll revealed that 77 percent of American adults would feel uncomfortable eating out in a restaurant during the current pandemic. In addition, 60 percent of American adults had experienced at least some difficulty sleeping during the immediately preceding seven days. A Monmouth University poll, of 857 American adults, conducted during the period April 3-7, 2020, described increasing levels of stress experienced by Americans as the pandemic continues to affect daily life. When asked how much their daily stress level had changed during the pandemic, 55 percent of the respondents indicated that the level had increased at least to some extent, while 27 percent responded that the level had “gone up a lot.”
In 1979, the Yale Law Journal published Robert Mnookin and Lewis Kornhauser’s seminal article, Bargaining in the Shadow of the Law: The Case of Divorce. Their central point is that private parties in a divorce proceeding are not entirely free to craft with each other what will become a legally binding divorce decree. For example, the court that enters the decree retains jurisdiction to determine custodial arrangements that are in the best interests of a child. The law of divorce affects how private parties negotiate with each other in attempting to fashion what will become a divorce decree. The article’s conclusion notes that divorce negotiations are not unique in this regard. “Few automobile accident claims are ever tried; most are settled out of court,” as is now true for the vast majority of civil litigation matters. As with divorce actions, applicable law affects the behavior of all participants in negotiations seeking to resolve civil disputes. Additionally, Mnookin and Kornhauser point out that other factors influence the negotiating behavior of the parties including, for example, the parties’ respective preferences and attitudes toward risk.
In the current environment, one’s personal experience of the pandemic as well as national and global economic and health conditions will be the externalities that affect negotiation. On April 14, 2020, the International Monetary Fund released its World Economic Outlook, April 2020 (available at https://www.imf.org/en/Publications/WEO/Issues/2020/04/14/weo-april-2020 ). According to its projections, the IMF expects global GDP to experience a negative growth rate of 5.8% in 2020, with a slightly worse projection for the United States at -5.9%. While the IMF projects positive GDP growth rates for 2021, those projections come with an unsettling caution, as the Outlook’s Executive Summary explains:
“There is extreme uncertainty around the global growth forecast. The economic fallout depends on factors that interact in ways that are hard to predict, including the pathway of the pandemic, the intensity and efficacy of containment efforts, the extent of supply disruptions, the repercussions of the dramatic tightening in global financial market conditions, shifts in spending patterns, behavioral changes (such as people avoiding shopping malls and public transportation), confidence effects, and volatile commodity prices. Many countries face a multi-layered crisis comprising a health shock, domestic economic disruptions, plummeting external demand, capital flow reversals, and a collapse in commodity prices. Risks of a worse outcome predominate.”
Along those lines, on April 9, 2020, the US Department of Labor reported that for the week ending April 4, 2020, seasonally adjusted first-time unemployment claims reached a landmark 6,606,000. https://www.dol.gov/ui/data.pdf The previous high, since DOL began compiling such figures, was 695,000 in October 1982.
The March 2020 Pew survey referenced above contained at least one other question that bears potentially on the behavior of negotiators during this period. When asked to indicate on how many of the past seven days they had felt hopeful about the future, Sixteen percent of respondents indicated less than one day, 33% indicated 1-2 days, and 28% indicated 3-4 days. Three weeks have elapsed since the poll was taken.
Negotiators thus face conditions of extreme personal, economic and health insecurity and fear for which we have no previous experience, so that uncertainty pervades everything. The “extreme uncertainty” and recognition of the substantial risk that the economic contraction could be considerably worse than what the IMF projects are sufficient to add to the stress levels and level of optimism that most Americans feel about the future. To date, the Trump Administration has yet to formulate and communicate any comprehensive plan for addressing the severe pandemic-caused economic contraction that the country faces. Consequently, business entities and individual citizens are unable to plan for the future beyond adapting to, for example, the current lockdown of large sectors of the society. On the April 14, 2020 edition of Amanpour & Company on PBS, Nobel laureate Paul Romer explained that this uncertainty is the greatest problem that the country faces. Only an implemented national policy that clearly describes how the country will proceed to address both the pandemic and the severe economic effects of the pandemic will reduce the uncertainty. https://www.youtube.com/watch?v=PRMZ7vVXs4w&t=937s. Thus, until that policy is adopted, clearly communicated to the American public, and implemented, the extreme uncertainty to which the IMF referred is likely to affect most aspects of daily life in this country. It seems safe to infer that negotiators will bring with them heightened levels of stress generated by that uncertainty in their efforts to resolve with each other civil litigation matters.
Many discussions of negotiations focused on the potential settlement of a civil lawsuit, highlight instrumental, i.e., monetary, value as all that matters to the respective parties. But this isn’t necessarily the case. Leigh Thompson, in a 1990 article, titled Negotiating Behavior and Outcomes: Empirical Evidence and Theoretical Issues, set in motion a research stream that expands our understanding of what negotiators care about in negotiations. In short, the typical negotiation is not all about the money. For example, a hypothetical plaintiff might feel that her employer’s HR department personnel failed to listen to her when she attempted to tell her story of discrimination. During a negotiation, by listening to the employee and acknowledging her perception, the employer could satisfy the employee’s interest in being heard.( Building on Thompson’s work, a 2006 article, What do people value when they negotiate? Mapping the domain of subjective value in negotiation, Jared Curhan and his co-authors demonstrated that, for example, how negotiators feel about the negotiation process matters to them. For example, what was the nature of the interactions between the negotiators? Did they feel respected by their counterparty during the negotiation? Did they feel that the counterparty took their expressed concerns/interests seriously? Did the negotiators conclude that they could trust their counterparty? Or, did the negotiators conclude that their counterparty was seeking purely maximum instrumental gain through, for example, lack of candor? The perception of the quality of the negotiation process has value for negotiators in addition to the obvious instrumental value that appears to be the focus of civil litigation.
The voluminous scholarship that tells us what we know about human behavior in negotiations did not develop during a period of severe economic contraction, or a pandemic. Consequently, we know very little about how true existential uncertainty, generated by what appears to be a Black Swan of global proportions, might affect negotiating behavior. We do know, however, that before today, under what we had come to regard as ordinary life, subjective value is important to negotiators. It seems worth pondering whether during a severe pandemic-generated economic crisis, several magnitudes beyond anything in the life experience of most negotiators today, subjective value takes on greater importance than it might have before the arrival of the current Black Swan.
According to Mnookin and Kornhauser, negotiators commonly engage in strategic behavior “in which the parties misrepresent their own intentions, desires, or chances of winning in order to obtain a strategic advantage in negotiation.” Imagine a negotiation in the current climate in which the respective parties and their lawyers attempt to resolve an employment discrimination lawsuit. Suppose that the employer is a retail establishment that relies on in-person sales transactions. Because the business does not qualify as “essential,” its doors are closed. As Paul Romer explains, that employer cannot predict what the future will look like for the business. Similarly, the lawyers who represent the employer cannot predict what their law practice will look like, particularly if it depends heavily on providing representation for retail businesses that rely on in-person sales. If the hypothetical plaintiff is unemployed, she, too, cannot even venture an estimate of when she might secure new employment. As the IMF explains, GDP in the United States could grow in 2021. Or, the economic contraction could worsen such that the United States and the rest of the world’s economies experience something akin to what transpired during the Great Depression. The effects of extreme uncertainty are likely to visit the hypothetical lawyer for the plaintiff as well. Like the employer’s lawyer(s), the plaintiff’s lawyer will not be able to predict the composition of the pool of potential paying clients. Many might ask, as Monookin and Kornhauser posit, what are the incentives for the parties to engage in strategic behavior? But this is the wrong question! Don’t the participants, instead, have an incentive to engage in behavior that reduces the uncertainty inherent in a lawsuit as opposed to attempting to heighten that uncertainty? In ordinary times, one might think that misrepresenting one’s interests or estimate of the chances of winning could lead to a better outcome for the party that engages in such behavior. Of course, this is no ordinary time. In fact, accurately communicating one’s interests ( a la Getting to Yes) and estimates of the chance of winning at trial can reduce uncertainty for the clients and their lawyers. Further, if all participants were to refrain from engaging in strategic behavior, the parties might discover that they have, for example, a common interest in perceiving that the negotiation process itself has value for them. It seems not farfetched to imagine that treating each other with respect, compassion, and showing empathy towards one another during a negotiation today can have greater subjective value for the parties than would be true during ordinary times.
Curhan, J.R., Elfenbein, H.A., & Xu, H. (2006). What do people value when they negotiate? Mapping the domain of subjective value in negotiation. Journal of Personality and Social Psychology. 91(3), 493-512.
Mnookin, R.H. and Kornhauser, L. (1979). Bargaining in the Shadow of the Law: The Case of Divorce. Yale Law Journal. 88, 950-997.
Thompson, L. (1990). Negotiation behavior and outcomes: Empirical evidence and theoretical issues. Psychological Bulletin. 108(3), 515-532.