Arbitration is a process by which parties to a dispute decide that a third party will settle the matter. Arbitration is therefore considered an alternative to resolving the case through litigation in the courts. The decision to opt for arbitration is determined either before the dispute arises--typically a clause in a contract between the parties will specify arbitration instead of the courts--or after the dispute arises, in an effort to save time and money. Many people consider arbitration to be cheaper than going to court, because generally there are fewer costs. However, that is not to say that arbitration is not expensive.

Another benefit of arbitration is that the parties can choose someone who is knowledgeable about the subject matter of the dispute. For example, in a construction dispute, the parties may want to retain an arbitrator who has a vast knowledge of construction, rather than rolling the dice with a judge who may have little or no knowledge of the industry. Some court systems have started their own arbitration programs whereby certain types of cases (usually small cases) are referred to a court-related arbitrator for resolution.

Some of the perceived downsides to arbitration are 1) it's still expensive 2) it is more difficult to appeal an arbitrator's decision than that of a court, 3) many arbitrators, unless asked, will not provide a detailed explanation of their opinion, 4) the initial filing fees in some arbitrations (such as the American Arbitration Association) can be higher than the filing fees for the court systems.

In the end, it basically boils down to what the parties seek in terms of a resolution. Often times arbitration is considered the more cost-effective means of resolving a dispute.