Mediators will sometimes tell the parties that the measure of whether a proposed settlement is fair is that it should make both sides equally unhappy. In other words, a party accepting less (or paying more) than they think they should is supposed to be consoled by the fact that the other side feels exactly the same way. I think this is a very negative way of looking at settlement. I tell the parties in a mediation exactly the opposite. I tell them that if they think they will be better off rejecting the settlement and taking their case to trial, by all means they should do that. No one should accept a settlement that makes them worse off than the alternative. But it is hardly ever the case that both sides are better off going to trial, which means that at least one side almost always is making a serious mistake by rejecting settlement. (Here is a summary of an economic study published in the Journal of Empirical Legal Studies demonstrating the extent of such errors.) More often than most people expect, and even in hindsight, both sides are often worse off taking a case to trial rather than accepting a reasonable settlement offer.
What people need to appreciate in a settlement negotiation are the true costs and risks of the alternative to a negotiated resolution. Once they understand those costs and risks, they should feel that a reasonable settlement will actually make them better off than taking their case to trial. It is true that a settlement may represent a worse result than the best possible outcome at trial, but no one can count on the best possible outcome 100% of the time. In the vast majority of cases, if the best possible outcome is discounted by the probabilities of other possible outcomes, and if the savings in costs, attorneys’ fees as well as the stress and distraction of continued litigation are figured in, the resulting value should be one that makes both sides better off than the alternative.