Confidence, Optimism and Litigation: A Litigation Model under Ambiguity
AbstractThis paper introduces ambiguity into an otherwise standard litigation model. The aim is to take into account optimism and confidence on the plaintiff side. We examine the following questions : 1) How optimism and confidence affect the outcomes of the settlement stage? 2) How optimism and confidence affect the level of care? 3) As a result what are the public policy implications in terms of monitoring the level of confidence? We show that the equilibrium probability of settlement is increasing in the degree of optimism for every plaintiffs and increasing in the level of confidence for pessimistic plaintiffs, provided the sensitivity of plaintiffs to a rise in the settlement offer is high, and that the same holds for the level of care independently of the sensitivity of plaintiffs to rises in the settlement offer. Finally, assuming the objective of the government is to minimize the probability of litigation and assuming that it can only manipulate the level of confidence, we find that a clear recommendation is possible only in the case of a high sensitivity of plaintiffs to rises in the settlement offer: government intervention to raise public confidence in the judicial system is recommended only when plaintiffs are pessimistic about their chances of winning and in that case, as much as possible should be spent.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CRESE in its series Working Papers with number 2013-05.
Length: 23 pages
Date of creation: May 2013
Date of revision:
confidence; ambiguity; litigation; behavioral law and economics.;
Find related papers by JEL classification:
- K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-16 (All new papers)
- NEP-LAW-2013-06-16 (Law & Economics)
- NEP-MIC-2013-06-16 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
- Chateauneuf, Alain & Eichberger, Jürgen & Grant, Simon, 2003.
"Choice under Uncertainty with the Best and Worst in Mind: Neo-additive Capacities,"
Sonderforschungsbereich 504 Publications
03-10, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
- Chateauneuf, Alain & Eichberger, Jurgen & Grant, Simon, 2007. "Choice under uncertainty with the best and worst in mind: Neo-additive capacities," Journal of Economic Theory, Elsevier, vol. 137(1), pages 538-567, November.
- Grant, Simon & Chateauneuf, A. & Eichberger, J., 2002. "Choice under Uncertainty with the Best and Worst in Mind: Neo-additive Capacities," Working Papers 2002-10, Rice University, Department of Economics.
- Waldfogel, Joel, 1998.
"Reconciling Asymmetric Information and Divergent Expectations Theories of Litigation,"
Journal of Law and Economics,
University of Chicago Press, vol. 41(2), pages 451-76, October.
- Joel Waldfogel, 1998. "Reconciling Asymmetric Information and Divergent Expectations Theories of Litigation," NBER Working Papers 6409, National Bureau of Economic Research, Inc.
- Christine Jolls & Cass R. Sunstein, 2006. "Debiasing through Law," The Journal of Legal Studies, University of Chicago Press, vol. 35(1), pages 199-242, 01.
- Farmer, Amy & Pecorino, Paul, 2002. "Pretrial bargaining with self-serving bias and asymmetric information," Journal of Economic Behavior & Organization, Elsevier, vol. 48(2), pages 163-176, June.
- Babcock, Linda, et al, 1995. "Biased Judgments of Fairness in Bargaining," American Economic Review, American Economic Association, vol. 85(5), pages 1337-43, December.
- Schmeidler, David, 1989.
"Subjective Probability and Expected Utility without Additivity,"
Econometric Society, vol. 57(3), pages 571-87, May.
- David Schmeidler, 1989. "Subjective Probability and Expected Utility without Additivity," Levine's Working Paper Archive 7662, David K. Levine.
- George L. Priest & Benjamin Klein, 1984. "The Selection of Disputes for Litigation," The Journal of Legal Studies, University of Chicago Press, vol. 13(1), pages 1-56, January.
- Linda Babcock & George Loewenstein, 1997. "Explaining Bargaining Impasse: The Role of Self-Serving Biases," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 109-126, Winter.
- Joshua C. Teitelbaum, 2007. "A Unilateral Accident Model under Ambiguity," The Journal of Legal Studies, University of Chicago Press, vol. 36(2), pages 431-477, 06.
- Landes, William M, 1971. "An Economic Analysis of the Courts," Journal of Law and Economics, University of Chicago Press, vol. 14(1), pages 61-107, April.
- Johanna Etner & Meglena Jeleva & Jean‐Marc Tallon, 2012. "Decision Theory Under Ambiguity," Journal of Economic Surveys, Wiley Blackwell, vol. 26(2), pages 234-270, 04.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Denis Jeanney).
If references are entirely missing, you can add them using this form.