Economics Dictionary of ArgumentsHome
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| Settlement bargaining: Settlement bargaining is a legal negotiation between parties involved in a dispute, aiming to reach a mutually acceptable resolution outside of court. It involves discussions, offers, and compromises, often resulting in agreements that avoid trial, save time, and reduce costs for all involved parties. See als Court proceedings, Jurisdiction._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Experimental Economics on Settlement Bargaining - Dictionary of Arguments
Parisi I 85 Settlement bargaining/Experimental economics/Sullivan/Holt: One popular hypothesis - explored by many scholars but most often attributed to Priest and Klein (1984)(1) - is the idea that litigants may fail to settle their disputes when they form incompatible expectations about the prospects of a trial outcome.* Of present concern, an important series of experimental studies explore the idea that self-serving bias may cause litigants to develop incompatible beliefs about the strength of their respective sides of a legal dispute.** Methodology/study design: (see Loewenstein et al. 1993(9)) subjects were randomly paired and assigned roles as either plaintiff or defendant in a mock tort dispute. Each subject was then provided about 30 pages of case materials (testimony, reports, diagrams, etc.) describing the events and transactions alleged to support a cause of action. Both sides were given the same information; (...). Self-serving bias: Of the many experiments conducted using this basic framework, two in particular demonstrate the explanatory power of self-serving bias in driving settlement impasse. In the first such experiment, subjects were assigned roles and given time to read the case materials as above; but before engaging in any actual negotiation, they were first asked to guess what the judge’s secret damages award Parisi I 86 had been (Loewenstein et al., 1993)(9). These predictions were provided in strict confidence to the experimenter and were incentivized by small monetary rewards for guesses sufficiently close to the actual award. The collected data reveal strong evidence of self-serving bias (...). In a second experiment, the authors confirmed the causality of self-serving bias in explaining the systematic divergence of expectations by modifying the experimental design so that subjects read the case materials and provided damages estimates before being assigned their roles as plaintiff or defendant (Babcock et al., 1995)(10). In contrast to the previous results, predictions evinced no systematic bias by eventual role assignment in this experiment. Furthermore, after being assigned their litigation roles, the subjects that had interpreted the case information from an ex ante neutral posture achieved significantly higher rates of settlement than the subjects that had read the case information already aware of their litigation roles. Information asymmetry: Another popular hypothesis for the failure of litigants to achieve efficient settlement posits that verdict-relevant information is asymmetrically distributed between the parties to a legal dispute. Settlement inefficiencies are then explained by the strategic attempts of litigants to signal or extract private information during the litigation process (e.g. Bebchuk, 1984(11); Reinganum and Wilde, 1986(12)).*** Economic models of settlement bargaining under asymmetric information predict both settlement failure (i.e. trials) and settlement delay (i.e. late settlement) under appropriate conditions (see e.g. Spier, 1992(13), 1994(14)). A recent experiment on settlement bargaining clearly demonstrates both predictions of the asymmetric information hypothesis (Sullivan, 2016(15)). For in-court-bargaining see >Jurisdiction/Experimental economics. * This general model of settlement failure has been advocated by Gould (1973)(2) and Shavell (1982(3)) among many others. For an experimental study specific to Priest and Klein's selection hypothesis, see Stanley and Coursey (1990)(4). ** For details and additional background, see Babcock and Loewenstein (1997)(5). For alternative studies conducted with the same basic design, see Babcock, Loewenstein, and Issacharoff (1997)(6), Babcock and Pogarsky (1999)(7), and Pogarsky and Babcock (2001)(8). *** Kennan and Wilson (1993)(16) provide a detailed treatment of the role of asymmetric information in general bargaining models. For a survey of economic experiments on bargaining under asymmetric information, see Roth (1995)(17). 1. Priest, G. L. and B. Klein (1984). “The Selection of Disputes for Litigation.” Journal of Legal Studies 13(1): 1–55. 2. Gould, J. P. (1973). “The Economics of Legal Conflicts.” Journal of Legal Studies 2: 279–300. 3. Shavell, S. (1982). “Suit, Settlement, and Trial: A Theoretical Analysis under Alternative Methods for the Allocation of Legal Costs.” Journal of Legal Studies 11(1): 55–81. 4. Stanley, L. R. and D. L. Coursey (1990). “Empirical Evidence on the Selection Hypothesis and the Decision to Litigate or Settle.” Journal of Legal Studies 19(1): 145–172. 5. Babcock, L. and G. Loewenstein (1997). “Explaining Bargaining Impasse: the Role of Self-Serving Biases.” Journal of Economic Perspectives 11(1): 109–126. 6. Babcock, L., G. Loewenstein, and S. Issacharoff (1997). “Creating Convergence: Debiasing Biased Litigants.” Law & Social Inquiry 22(4): 913–925. 7. Babcock, L. and G. Pogarsky (1999). “Damage Caps and Settlement: a Behavioral Approach.” Journal of Legal Studies 28(2): 341–370. 8. Pogarsky, G. and L. Babcock (2001). “Damage Caps, Motivated Anchoring, and Bargaining Impasse.” Journal of Legal Studies 30(1): 143–159. 9. Loewenstein, G., S. Issacharoff, C. Camerer, and L. Babcock (1993). “Self-Serving Assessments of Fairness and Pretrial Bargaining.” Journal of Legal Studies 22(1): 135–159. 10. Babcock, L., C. Camerer, G. Loewenstein, and S. Issacharoff (1995). “Biased Judgments of Fairness in Bargaining.” American Economic Review 85(5): 1337–1343. 11. Bebchuk, L. A. (1984). “Litigation and Settlement Under Imperfect Information.” RAND Journal of Economics 15(3): 404–415. 12. Reinganum, J. F. and L. L. Wilde (1986). “Settlement, Litigation, and the Allocation of Litigation Costs.” RAND Journal of Economics 17(4): 557–566. 13. Spier, K. E. (1992). “The Dynamics of Pretrial Negotiation.” Review of Economic Studies 59(1): 93–108. 14. Spier, K. E. (1994). “Pretrial Bargaining and the Design of Fee-Shifting Rules.” RAND Journal of Economics 25(2): 197–214. 15. Sullivan, S. P. (2016). Why Wait to Settle? An Experimental Test of the Asymmetric Information Hypothesis, Journal of Law & Economics, forthcoming. 16. Kennan, J. and R. Wilson (1993). “Bargaining with Private Information.” Journal of Economic Literature 31(1): 45–104. 17. Roth, A. E. (1995). “Bargaining Experiments,” in J. H. Kagel and A. E. Roth, eds., Handbook of Experimental Economics, 253–348. Princeton, NJ: Princeton University Press. Sullivan, Sean P. and Charles A. Holt. „Experimental Economics and the Law“ In: Parisi, Francesco (ed) (2017). The Oxford Handbook of Law and Economics. Vol 1: Methodology and Concepts. NY: Oxford University Press._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Experimental Economics Parisi I Francesco Parisi (Ed) The Oxford Handbook of Law and Economics: Volume 1: Methodology and Concepts New York 2017 |
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