APA Dictionary of Psychology

a form of dispute resolution in which the parties in conflict submit their preferred terms for a settlement to a neutral party (the arbitrator), who must choose the entire package of demands submitted by one of the parties rather than selectively accepting some demands from one party and some demands from the other. The knowledge that a dispute will be settled in this way often motivates parties in conflict to reach consensus prior to arbitration, since a compromise will yield a better outcome than the binding imposition of the other party’s package.