Differentiate between mediation and arbitration

What will be an ideal response?

Mediation requires a third party to facilitate the dispute resolution process, though this third party has no formal authority to dictate a solution. In essence, a mediator plays the role of a neutral, objective party who listens to the arguments of each side and attempts to help two parties come to an agreement. In serious, potentially litigious situations, trained mediators offer a relatively easy and quick way out of difficult disputes.

Arbitration occurs when a third party determines a binding settlement to a dispute. The arbitrator can be an individual or a group (board) whose job is to listen to the various arguments and then make a decision about the solution to the conflict. In some ways, arbitration is much riskier for both parties because the outcome of the dispute rests solely in the arbitrator's hands. The arbitrator's role isn't to make everyone happy, but rather to arrive at the most equitable solution in his or her opinion.