Behavioral Insights Into International Arbitration: An Analysis of How to De-Bias Arbitrators – Vol. 27 No. 1

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Author: Jan-Philip Elm*

Published: October 2016

Description: Empirical evidence indicates that national court judges fall prey to cognitive biases and heuristics. The same may be assumed for international arbitrators. Improving third-party adjudication through behaviorally informed rules on procedure thus seems to be an avenue of research worth being pursued. In applying behavioral law and economics to international commercial arbitration, the present article shows (1) that behavioral economics can help to understand arbitrators’ behaviour and (2) suggests how the law may mitigate their cognitive biases and heuristics in order to design more effective, efficient, and fair arbitral proceedings under the UNCITRAL Arbitration Rules. The article focuses on (i) the representativeness heuristic, (ii) anchoring, (iii) the hindsight bias, (iv) framing effects, and (v) the egocentric bias. Building on their underlying dynamics and recent research on context-dependent decision-making, corresponding de-biasing mechanisms may be implemented into arbitral proceedings through either behaviorally informed (model) arbitration clauses or by complementing existing frameworks such as the UNCITRAL Notes on Organizing Arbitral Proceedings in a behaviorally informed manner. Hence, in applying insights from economics and psychology to international arbitration, this article adopts a prescriptive approach, examining how to actively mitigate arbitrators’ cognitive shortcomings as much as possible. Accuracy in fact determination – or the search for the truth – is perceived as the central motivation of this approach. As prescriptive insights from behavioral economics are able to allow for more accurate judgment, behaviorally informed rules on procedure not only benefit disputing parties by enhancing due process, but in doing so, they also empower international arbitration as a legal institution when confronted with national legal systems.

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*M.A. HSG in Law and Economics. This article is based on a Master’s Thesis written under the supervision of Anne von Aaken, Professor of Law and Economics, Legal Theory, Public International Law and European Law at the Univeristy of St. Gallen. Related empirical research will be published by Prof. von Aaken and others in Inside the Arbitrator’s Mind, EMORY L.J. forthcoming 2017.