Regret Model for Arbitration: Predicting the Outcome
International Journal of Innovation, Management and Technology, Vol. 2, No. 2, pp. 471-476, December 2011
6 Pages Posted: 1 Jan 2012 Last revised: 18 Dec 2013
Date Written: December 1, 2011
Abstract
Going through arbitration has many costs, both tangible and intangible. Going to arbitration may also result in the severance of a mutual relationship between a contractor and a client. It may result that the contractor would lose potential future profits by being barred from participating in future projects by the client. Therefore, it carries lots of risks associated with arbitration. Hence, even if the contractor is certain to win an arbitration case, the losses may outweigh the gains, resulting in regretting such a decision. This paper illustrates a mathematical multivariate matrix to determine the best decision to be taken considering a regret theory approach. A challenge for corruption in the decision- making process for arbitration is also highlighted based on a corrupt system of rewards within the organization for the pursuit of claims. Using the regret model reduces or eliminates possible decisions borne by a corrupt system. An example is provided to illustrate the difference between a typical decision theory approach and regret theory.
Keywords: Arbitration, Construction Contracts, Decision Theory, Dispute, Regret Modelling, Risk, Settlement
JEL Classification: D70, D72, D74, D78, D81
Suggested Citation: Suggested Citation