Dateline: August, 2010, Issue 1

Who most often mistakenly rejects settlement -- plaintiffs or defendants?

Civil plaintiffs and defendants are often thought to be equally capable of valuing and winning cases, and equally capable of making mistakes. Said differently, decision errors in case valuation are thought to be no different for plaintiffs and defendants because it is believed that:

Researchers have investigated whether mistakes in case valuation, and the cost of those mistakes, are evenly distributed among plaintiffs and defendants.

Gross and Syverud (1991, 1996) studied the relative number of mistakes by plaintiffs and defendants in 888 actual cases to determine if a party would have been better off settling rather than going to trial. Instead of a 50-50 distribution of mistakes between plaintiffs and defendants, plaintiffs were more likely than defendants to make a mistake, that is, to reject a settlement proposal that turned out to be the same as or more favorable than the actual trial award. Plaintiffs were clear losers in almost 65% of the cases, while defendants made mistakes in only 25% of the cases.

Rachlinski (1996) studied both the number of mistakes and the cost of mistakes in refusing settlement and going to trial. Plaintiffs erred in refusing settlement and going to trial in 56% of the cases versus 23% of cases for defendants. Although the plaintiff's decision error rate rejecting settlement in favor of trial was markedly higher than defendant's decision error rate, the average cost of the plaintiff's decision error was dramatically smaller ($27,687) than the defendant's ($354,900). Rachlinski concluded that plaintiffs generally benefit from litigation while defendants as a class pay heavily for their decision to litigate.

Kiser and colleagues (2008) studied 2,054 California cases and also found that the incidence of decision error for plaintiffs (61%) is higher than for defendants (24%), and that the cost of that decision error is higher for defendants ($1,140,000) than for plaintiffs ($43,100). From 1964 to 2004, plaintiffs experienced nearly a 3-fold real (inflation adjusted) increase in the cost of error, whereas defendants experienced in excess of a 14-fold increase.

Plaintiffs make more errors in rejecting settlements and proceeding to trial, but when defendants err, the cost of that error is significantly larger.

Source Gross, S. & Syverud, K. (1991). Getting to No: A study of settlement negotiations and the selection of cases for trial. Michigan Law Review, 90, pp. 319-393.

Source Gross, S. & Syverud, K. (1996). Don't try: Civil jury verdicts in a system geared to settlement. UCLA Law Review, 44, pp. 1-64.

Source Rachlinski, J. (1996). Gains, losses and the psychology of litigation. Southern California Law Review, 70, pp. 113-185.

Source Kiser, R. L., Asher, M. A., & McShane, B. B. (2008). Let's not make a deal: An empirical study of decision making in unsuccessful settlement negotiations. Journal of Empirical Legal Studies, 5, pp. 551-591.