Positive Negotiations, Part 13: Negotiations and the Bell Curve of Risks

Video Transcript

Hello, and welcome.

In my last video, I introduced the Bell Curve of Risks.  Here, I am going to explain how we can use this bell curve to visualize and explain the role of risk in negotiations. 

To start, let’s do a quick recap on what is the Bell Curve of Risks.  

This is a graph that is based on the premise that “risk” - in any context, including litigation - is a combination of two things: (1) the probability of any particular event occurring, and (2) the consequence of that particular event should it occur.

The Bell Curve of Risks shows the range of consequences along the X axis, and the range of probabilities along the Y axis.    

For litigated claims seeking money damages, the consequences are the array of potential trial verdicts expressed in dollars.  These dollar consequences increase as we move to the right and decrease as we move to the left.  

The probability of each of these potential dollar consequences increases as we go up the Y axis and decreases as we go down.  

The bell curve represents a normal distribution of trial verdicts.  The apex of the curve represents the highest probability consequences, while the far right and far left of the curve represent the lowest probability consequences.  

Here is how this curve reflects each side’s risk.  If we drop a centerline from the apex of the bell curve, either side of that centerline represents each side’s area of risk.  The left side is party A’s, or a plaintiff’s, area of risk.  The right side is party B’s, or a defendant’s, area of risk. 

Of course, for any individual case the big questions will always be (1) what scale, in dollars, should we use for the Consequence axis, and (2) where on that scale should the centerline of this bell curve fall?

Those are case-specific questions that go beyond the scope of this video.  In very general terms, however, different fact patterns will dictate the dollar scale and whether this entire curve, and its centerline, should shift to the right or the left.  

Nevertheless, the distribution of consequences will always spread out either side of the curve’s centerline in symmetrical distributions, and those symmetrical distributions represent each side’s respective areas of risk. 

The far left and the far right of this bell curve represent the risk of a catastrophic consequence - or verdict - for each side.  The middle areas on both the left and the right of this curve represent moderate to major adverse consequences for each side.  The middle area, around the apex of the curve, represents the most probable result - which, at worst - has negligible to minor adverse consequences for each side.

The important thing to note is that wherever we are on one side of this curve, there is a mirror-opposite point on the other side of the curve.  That is, while Side A may reasonably argue Side B faces the risk of a particular verdict, Side B may reasonably argue Side A faces the mirror image - or exact opposite - level of risk.  

At the end of the day, all pre-trial negotiations are really attempts to identify and manage the specific risks each side faces with going to trial.  The Bell Curve of Risks can help us visualize and explain negotiations as a back-and-forth effort to mirror perceived risks until all sides reach a resolution that successfully minimizes those risks.   

Let’s take a closer look at this.  

Typically, negotiations begin with a plaintiff making a demand for a specific dollar amount.  

If that initial demand is on the outer edge of - or even beyond - what the defense considers to be a reasonably plausible, or negotiable, risk it will likely respond with what it considers to be the mirror image of that demand.  That is, the defense may well make an offer that is on the outer edge of - or beyond - what the plaintiff considers to be a plausible or negotiable risk . . . or it may make no offer at all.   

If, however, a plaintiff makes an opening demand that represents a plausible - even if extreme - trial risk for the defendant, the defense may still mirror that demand, and move to a number that represents a comparable risk for the plaintiff, but in doing so it has signaled - at least implicitly - that it is willing to continue in this shared risk management effort.  

Of course, the one thing each side should consider to appreciate their respective risks is the particular evidence they have each developed through their investigations and discovery.  By helping each party both articulate the risks their evidence creates, and appreciate the risks their opponent’s evidence creates, a mediator can encourage each side to reach a resolution that successfully manages those risks by demanding and offering amounts that bring them closer together until they reach a negotiated settlement. 

The real benefit in visualizing and explaining negotiations as a shared effort to manage risk - using this Bell Curve of Risks if that helps - is that it is inherently positive.  Instead of asking people to compromise - that is, to give up on strongly held beliefs or positions - we help them not just to appreciate their respective risks, but to take control of, and manage, those risks as they collectively see fit.  

I  hope you found this video  helpful.  Until the next time, goodbye.