Amended Final-offer Arbitration Outperforms Final-offer Arbitration

Amended final-offer arbitration (AFOA) has been developed asan attractive alternative mechanism to final-offer arbitration(FOA). Under AFOA, more reasonable offers win, but the outcomeis determined by the loser's offer and the arbitrator's value.In AFOA, disputants making extreme offers are penalized, therebyencouraging compromise. This article compares the theoreticaland behavioral properties of AFOA and FOA. Controlled laboratoryexperiments indicate that AFOA significantly outperforms FOA,generating substantially greater prearbitration settlement.Consistent with theoretical predictions, offers converge underAFOA; however, FOA offers neither converge nor are consistentwith theoretical predictions. This work suggests practitionersshould consider adopting AFOA over FOA.