Settlement vs. Going to Trial: Do Litigants Make Poor Decisions?

Posted By Cliff Tuttle | August 8, 2008

Posted by Cliff Tuttle

A study to be published in the September issue of the Journal of Empirical Legal Studies concludes that, in the cases reviewed, “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 the offer,” according to an article published in the New York Times on August 7, 2008. To read the story, click here.

According to the study, Plaintiffs made the wrong decision in 61% of cases.

The study involved civil lawsuits in California and elsewhere in which a settlement was rejected in favor of going to trial. The authors of the study concluded that defendants made the wrong decision far less often. However, those decisions were more costly. Wrong decisions cost plaintiffs an average of $43,000. The average case where defendants passed up a settlement and lost resulted in a verdict of $1.1 million greater than the proposed settlement.

This study, involving cases occurring over 40 years, is claimed to be the largest of its kind. It is apparent from the article that a significant number of the cases involve personal injuries, with and without insurance coverage. However, the article did not contain enough detail to determine what kinds of cases were reviewed and the relative mix.

Wrong decisions by plaintiffs, according to this study, were more likely to be made in contingent fee cases. This, they stated, is consistent with psychological studies which confirm that people are more risk averse when the decision involves a gain than a loss. Faced with a sure gain of $200 against a 50-50 chance of gaining $500 or nothing, psych study participants have shown a clear preference for the sure thing. But when a sure loss of $200 is presented against the same chance of losing $500 or nothing, a similar group of participants will prefer taking the chance in hope of losing nothing.

This would indicate that, all things being equal, plaintiffs would prefer a particular settlement more than defendants. However, as eveyone knows, things are never equal.

CLT

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CLIFF TUTTLE has been a Pennsylvania lawyer for over 45 years and (inter alia) is a real estate litigator and legal writer. The posts in this blog are intended to provide general information about legal topics of interest to lawyers and consumers with a Pittsburgh and Western Pennsylvania focus. However, this information does not constitute legal advice and there is no lawyer-client relationship created when you read this blog. You are encouraged to leave comments but be aware that posted comments can be read by others. If you wish to contact me in privacy, please use the Contact Form located immediately below this message. I will reply promptly and in strict confidence.

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