Ever wonder how well plaintiffs and defendants judge possible outcomes in their cases when evaluating settlement? Well the recent article, “Let’s Not Make a Deal: An Empirical Study of Decision Making in Unsuccessful Settlement Negotiations,” which appears in Journal of Empirical Legal Studies, discusses this topic.
This article looks at 2,054 California cases between November 2002 and December 2005 and compares the final settlement offers and demands with the final verdict following trial or arbitration. In situations where the verdict yields a monetary award less than the amount offered by the defendant, the plaintiff is said to have committed a decision error. Likewise, where the final verdict yields a monetary award greater than the amount demanded by the plaintiff, the defendant is said to have committed a decision error. If the final verdict falls between the amount offered by the defendant and demanded by the plaintiff there is no error.
The study yields some very interesting results, finding that plaintiffs make more decision errors than defendants, but that the defendants’ errors are much more costly.
The study found that plaintiffs committed decision errors in 61.2% of cases that went to trial. In these cases, the mean offer was $48,700, the mean demand was $565,800 and the mean award was $5,700. Thus, the average cost of a plaintiff’s error was $43,100 (the difference between what the defendant offered and what the plaintiff actually received on final verdict).
On the other hand, the study found that defendants committed decision errors in only 24.3% of cases that went to verdict, but that their errors were much more costly. In these cases, the mean offer was $222,400, the mean demand was $770,900 and the mean award was $1,910,900. Thus, the average cost of a defendant’s error was $1,140,000 (the difference between what the defendant could have settled the case for had it accepted the plaintiff’s offer and the amount of the final verdict).
The study also breaks the amounts down by type of case, type of damage claimed, and other factors. For employment cases, the plaintiffs commit relatively fewer decision errors (51.1% as opposed to 61.2%) but these errors are slightly more costly ($64,800 as opposed to $43,100). On the other hand, defendants commit errors more frequently (32.4% as opposed to 24.3%) and these errors are more costly ($1,417,700 as opposed to $1,140,000).
--Michael Sachs
Sometimes seeds fall on the ground and just roll along.
Posted by: Louis Vuiton Online | February 24, 2011 at 04:42 PM