Arbitral Decision-Making: Legal Realism and Law & Economics

Abstract

As the social impact and role of international arbitration receives increasing attention, one central theme in this conundrum gains prominence: how do arbitrators decide cases? What influences arbitral decision-making? With the progressive opening of scholarship in the field to interdisciplinary approaches and studies going beyond doctrinal work, the question often takes the following form: do arbitrators apply the law, or do they make decisions based on something else – personal preferences, political biases, etc? When empirical studies fail to find significant statistical evidence of the role of extra-legal factors in their decision-making, the conclusion is drawn that arbitrators do indeed nothing else than apply the law. This article argues that the question so posed is an argumentative fallacy. Using the epistemology of legal realism and a simple methodology of law & economics, this article maintains that arbitrators, like every dispute resolver, are likely to always rely on both legal and extra-legal factors. It focuses on identifying, in the abstract, possible extra-legal factors which may amount to incentives and constraints placed by the current ecosystem of arbitration on arbitral decision-making.

Keywords: arbitration, decision-making, legal realism, law and economics, adjudication

JEL Classification: K33, K41