Psychology, Economics, and Settlement: A New Look at the Role of the Lawyer
Year: 1997
Type: preprint
Abstract: Russell Korobkin* & Chris Guthrie** Given the high cost of litigation,1 it is not surprising that most lawsuits settle out of court prior adjudication. But the rate of settlement is extraordinarily high-approximately ninety ninety-five percent or more of civil lawsuits not dismissed by courts in the early stages of litigation settle short of trial.2 The traditional law and economics model of litigation suggests that this is readily predictable.3 This model assumes that litigants seek maximize their wealth through the legal system, and that they pursue this goal in a consistent, rational4 way. In what has become the classic statement of this model, Priest and Klein predicted that litigants will compare the financial value of a settlement offer the expected financial value of trial and select the course of action with the highest expected value.5 The model predicts that trials will occur between risk-neutral parties only when the difference between the parties' projected risk-adjusted outcome of trial exceeds their joint costs of staging a trial.6 If at least one party is risk averse, even many disputes that fit this description will settle.7 Because trial involves high fixed costs for both litigants, it follows from the basic law and economics model that trials will occur only when one or both parties greatly overestimate the quality of his or her case.8 Given this model's assumptions, its predictions are sensible. From the perspective of expected value analysis, trial costs avoided through settlement are gains in trade that can be divided between the parties, leaving both better off than they would have been had they invested resources in formal adjudication. But the model's basic assumptions of wealth maximization and completely rational behavior ring hollow in the ears of lawyers who have observed the behavior of litigants. The model's assumptions are also undermined by a growing body of empirical evidence demonstrating that litigants often make decisions in ways that depart from these paradigms.9 The list of reasons litigants might not behave in accordance with the model's predictions is impressively long: Litigants litigate not just for money, but attain vindication;10 establish precedent;11 to express their feelings;12 obtain a hearing;13 and satisfy a sense of entitlement regarding use of the courts,14 all of which can easily preclude out of court settlement. Moreover, their decisions settle or litigate may be affected by the context of the choice,15 the frame in which it is presented,16 the identity of the person describing the choice,17 whether the litigants have faced similar choices before,18 the litigants' self-serving biases concerning the fairness of their position,19 habit, unyielding conceptions of justice,20 and myriad other factors.21 All of this raises a puzzling question: How does the economic model accurately predict the high rate of settlement if disputant behavior systematically departs from the assumptions of the model in ways that suggest lower rates of settlement? One likely answer, we submit, is the role of lawyers in the litigation system. Although most accounts of lawsuit settlement-including our own prior work22-share the simplifying assumption that litigation is a two-party activity carried out by a plaintiff and a defendant,23 the feature of litigation bargaining that most differentiates it from other types of negotiation is the presence of lawyers.24 In this article, we provide experimental evidence supportive of the hypothesis that lawyers as a class share an analytical orientation decisionmaking that can facilitate a higher rate of settlement than behavioral scientists would expect litigants negotiate on their own.25 Our argument has three major components: First, relying on the results of a series of controlled experiments, we conclude that lawyers and litigants, on average, are likely evaluate litigation options differently. …
Source: SSRN Electronic Journal
Authors: Russell Korobkin, Chris Guthrie
Institutions: University of California, Los Angeles, Vanderbilt University
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3121628088