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Should You Settle? Probably

- August 10, 2008

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That’s the implication of a study that will be published in the September issue of the Journal of Empirical Legal Studies. Yesterday’s New York Times describes it:

bq. Avoid a trial, Randall Kiser [the author of the study] advises. That is the clear lesson of a soon-to-be-released study of civil lawsuits that has found that most of the plaintiffs who decided to pass up a settlement offer and went to trial ended up getting less money than if they had taken that offer.

bq. “The lesson for plaintiffs is, in the vast majority of cases, they are perceiving the defendant’s offer to be half a loaf when in fact it is an entire loaf or more,” said Randall L. Kiser, a co-author of the study and principal analyst at DecisionSet, a consulting firm that advises clients on litigation decisions.

The article also speaks to the effects of the differing logics that people use — avoiding losses v. pursuing gains:

bq. [P]oor decisions by plaintiffs to go to trial “are associated with cases in which contingency fee arrangements are common,” according to the report. “On the defense side, high error rates are noted in cases where insurance coverage is generally unavailable.”

bq. The findings are consistent with research on human behavior and responses to risk, said Martin A. Asher, an economist at the University of Pennsylvania and a co-author. For example, psychologists have found that people are more averse to taking a risk when they are expecting to gain something, and more willing to take a risk when they have something to lose.

For Jim Wilson’s Times story about this article, click here.