Dateline: December, 2010, Issue 1
Settlement decisions are difficult to make. Cases go to trial and parties sometimes fail to achieve a more favorable result than could have been achieved by accepting an adverse party's demand or offer.
A settlement decision error is defined by researchers as a plaintiff who refuses an offer of as much as the verdict or more, and a defendant who could settle for as much as the verdict or less and does not.
Kiser and colleagues (2008) studied settlement decision error rates in 2,054 California cases that were tried before a jury or a judge.
Plaintiffs committed more settlement decision errors when the case subsequently was tried before a jury than before a judge (64% versus 43%). Defendants committed more settlement decision errors when the case subsequently was tried before a judge than before a jury (43% versus 22%).
In arbitration cases, settlement decision error rates for both plaintiffs and defendants differed substantially from their respective rates for jury and bench trials. Plaintiffs' erred in rejecting prior settlement offers in 29% of cases heard by arbitrators (versus 43% for cases heard by judges, and 64% for jury trials). Defendants erred in rejecting prior settlement offers in 45% of cases heard by arbitrators (similar to the 43% for cases heard by judges, and greater than the 22% for jury trials).
Plaintiffs and defendants make errors when rejecting settlement offers. Plaintiffs make more settlement decision errors when jury trials follow rejected settlement offers. Defendants make more settlement decision errors when bench trials or arbitration follow rejected settlement offers.
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.