Modelling Arbitration : Evaluating Risks and Settlements of Disputes Using Regret Theory

This paper presents a mathematical model to evaluate the risks of arbitration in contractual disputes to decide whether or not to raise an arbitration case for a claim. It adds the ingredient of a regret theory approach for taking that decision, if an amicable settlement amount is not agreed. Many other models that are based on decision trees, game theory, and neural networks lack a regret theory approach. The inclusion of regret theory in this model may be adaptable to any other models available making the decision more realistic through a stochastic approach of optimizing the maximum benefit for the minimum regret