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Litigation with Negative Expected Value Suits: An Experimental Analysis

Author

Listed:
  • Cary Deck

    (University of Alabama and Economic Science Institute, Chapman University)

  • Paul Pecorino

    (University of Alabama)

  • Michael Solomon

    (Colby College)

Abstract

The existence of lawsuits providing plaintiffs a negative expected value (NEV) at trial has important theoretical implications for signaling models of litigation. The signaling equilibrium possible absent NEV suits breaks down with NEV suits because plaintiffs do not have a credible threat to proceed to trial undermining the ability to signal type. Using a laboratory experiment, we analyze behavior with and without the possibility of NEV suits. Absent NEV suits, behavior largely follows predicted patterns. However, the possibility of NEV suits does not cause the signaling equilibrium to unravel and does not cause the dispute rate to increase. Plaintiffs only drop NEV lawsuits three-fourths of the time, the rejection rate by defendants for revealing demands rises less than predicted and, contra theory, the rejection rate on demands in the semipooling range remains unchanged.

Suggested Citation

  • Cary Deck & Paul Pecorino & Michael Solomon, 2022. "Litigation with Negative Expected Value Suits: An Experimental Analysis," Working Papers 22-17, Chapman University, Economic Science Institute.
    • Handle: RePEc:chu:wpaper:22-17
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    File URL: https://digitalcommons.chapman.edu/esi_working_papers/378/
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    More about this item

    Keywords

    Dispute Resolution; Negative Expected Value Lawsuits; Laboratory Experiment;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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