Definition:

Arbitration (n.)is the process of bringing a business dispute before a disinterested third party for resolution. The third party, an arbitrator, hears the evidence brought by both sides and makes a decision. Sometimes that decision is binding on the parties.

To arbitrate (v.)a matter is to bring it before an arbitrator.

Arbitration is a form of alternative dispute resolution (ADR), used in place of litigation in the hope of settling a dispute without the cost and time of going to court.

Arbitration is often confused with mediation, which is an informal process of bringing in a third party who goes between the disputing parties to help them settle a dispute. The mediation process is not binding on the parties, and the mediator does not hear evidence.

In recent years, the arbitration process has become more widespread, and many retailers are using mandatory arbitration in their contracts, requiring that customers consent to arbitration instead of litigation. 

Pronunciation: ar-bit-RAY-shun, AR-bit-rate

Examples: At the end of the arbitration process, the arbitrator made her decision, which was binding on both parties.