Working Paper Alfred P. Sloan School of Management Judicial Decision Making in Interest Arbitration: Equity, Equality, or Anchoring?-^ Judicial Decision Making in Interest Arbitration: Equity, Equality, or Anchoring?^

This study uses a simulation methodology to systematically analyze the explanatory power of three alternative distributive justice norms (equity, equality, and anchoring) in describing the judgments of arbitrators in conventional arbitration. Specifically, 69 experienced arbitrators determined a wage settlement for 25 simulated disputes. Each dispute was described by the same seven criteria, which provided data relevent to the three alternative norms of arbitration. The weightings of the criteria were determined for each arbitrator by regressing wage settlement on the seven criteria. In addition, clusters of arbitrators employing similar policies were Identified. Results indicated that arbitrators are very consistent in their judgments. However, they do not subjectively know the factors that affect their judgment. In addition, the results showed that the most common arbitration norm was anchoring; to maintain the status quo by simply adjusting the present wage by the average arbitrated increase in the industry. Equity^ (inflation rate, financial condition of the firm, average local wage) and equality (union and management final offers) factors were far less Important in the judgment policies of arbitrators. In addition to investigating these issues, the discussion section critically examined the benefits and limitations of the developed simulation procedures for understanding and improving the arbitration process. The use of arbitration Is creating a quiet revolution In the way Industrial disputes are being resolved. While arbitration represents a well used resolution technique in the labor-management conflict arena, its use has recently begun to extend to a wider variety of conflict. Under binding arbitration, if two parties do not reach a resolution on their own, they are compelled to accept the decision of a mutually agreed upon third party. While arbitrators have readily expressed their views on how arbitrators decide cases, very little is known objectively about the decision processes of actual arbitrators. More broadly, the decision literature has not focused on decision makers trying to make judicial decisions. This knowledge void inhibits the training of new arbitrators and the diffusion of the arbitration procedure to other conflict domains (e.g., divorce, budget determination, consumer disputes, transfer pricing, etc.). This study examines the importance of understanding the decisions of labor-management arbitrators, specifies competing hypotheses from three alternative norms of distributive justice concerning the determinants of the judgments of arbitrators, and uses a simulation methodology to systematically identify the distributive justice norms used by arbitrators in award determination.

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