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The distinction that arbitration results in a binding decision by an arbitrator or panel is crucial in understanding the differences between arbitration and mediation. In arbitration, a neutral third party—often an arbitrator or a panel of arbitrators—listens to the evidence presented by both sides and then makes a decision that is typically legally binding. This means that the parties must adhere to the arbitrator's decision, and it can be enforced in a court of law.

In contrast, mediation is a process where a neutral third party facilitates discussion and negotiation between the parties to help them reach a mutual agreement. The mediator does not make a binding decision; instead, the goal is to assist the parties in finding a resolution that both can agree upon. This fundamental difference in the outcome and enforceability is what separates arbitration from mediation, making the binding nature of arbitration a key distinguishing feature.

The other choices present misunderstandings or inaccuracies about the processes. While mediation can be formal, it is not always a judicial process. Additionally, arbitration is recognized as a legitimate legal process with binding outcomes, countering the notion that it has no legal standing.