Among the factors contributing to the inability of environmental and economic interest groups to resolve conflicts are the processes of social perception and social decision making. This article identifies social psychological dynamics that cause opposing parties to misunderstand each other's interests and the facts presented to support them, thus hindering efficient conflict settlement. The authors review research elucidating the sources of these problems and potential remedies. They discuss how such dynamics arise within the contexts of procedures for settling environmental conflicts, governmental adjudication procedures, and alternative free-market-based procedures. The conclusion is that purely market-based procedures avoid the obstacles most endemic to governmental adjudication but exacerbate other problems. The authors conclude by analyzing emerging hybrid procedures that avoid the greatest obstacles associated with purely adjudicatory and purely market-based procedures.