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Asymmetric information, self-serving bias and the pretrial negotiation impasse

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  • Eric Langlais

Abstract

There is evidence that asymmetric information does exist between litigants: not in a way supporting Bebchuk (1984)’s assumption that defendants’ degree of fault is private information, but more likely as a result of parties’ predictive capacity about the outcome at trial (Osborne, 1999). In this paper, we investigate the incidence of one component of this asymmetric predictive power, which has been examplified in experimental economics. We assume that litigants assess their priors on the plaintiff’s prevailing rate at trial in a way consistent with the self-serving bias, which is the source of the asymmetric information. We compare the predictions of this model regarding the influence of individual priors with those in the literature. Finally, we analyse the influence of another reason for probability distorsion, i.e. risk aversion in the sense of Yaari (1987).

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Bibliographic Info

Paper provided by University of Paris West - Nanterre la Défense, EconomiX in its series EconomiX Working Papers with number 2008-30.

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Length: 19 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:drm:wpaper:2008-30

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Keywords: litigation; pretrial bargaining; self-serving bias; risk aversion;

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References

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  1. Langlais, Eric, 2008. "Cognitive dissonance, risk aversion and the pretrial negotiation impasse," MPRA Paper 8844, University Library of Munich, Germany.
  2. Joel Waldfogel, 1993. "The Selection Hypothesis and the Relationship between Trial and Plaintiff Victory," NBER Working Papers 4508, National Bureau of Economic Research, Inc.
  3. Katz, Avery, 1987. "Measuring the Demand for Litigation: Is the English Rule Really Cheaper?," Journal of Law, Economics and Organization, Oxford University Press, vol. 3(2), pages 143-76, Fall.
  4. Osborne, Evan, 1999. "Who should be worried about asymmetric information in litigation?," International Review of Law and Economics, Elsevier, vol. 19(3), pages 399-409, September.
  5. Farber, Henry S & Bazerman, Max H, 1987. "Why Is There Disagreement in Bargaining?," American Economic Review, American Economic Association, vol. 77(2), pages 347-52, May.
  6. Viscusi, W Kip, 2001. "Jurors, Judges, and the Mistreatment of Risk by the Courts," The Journal of Legal Studies, University of Chicago Press, vol. 30(1), pages 107-42, January.
  7. Michael R. Baye & Dan Kovenock & Casper G. de Vries, 2000. "Comparative Analysis of Litigation Systems: An Auction-Theoretic Approach," Tinbergen Institute Discussion Papers 00-103/2, Tinbergen Institute.
  8. Ross, Stephen A, 1981. "Some Stronger Measures of Risk Aversion in the Small and the Large with Applications," Econometrica, Econometric Society, vol. 49(3), pages 621-38, May.
  9. Farmer, Amy & Pecorino, Paul, 1999. " Legal Expenditure as a Rent-Seeking Game," Public Choice, Springer, vol. 100(3-4), pages 271-88, September.
  10. Ichino, Andrea & Polo, Michele & Rettore, Enrico, 2003. "Are judges biased by labor market conditions?," European Economic Review, Elsevier, vol. 47(5), pages 913-944, October.
  11. Akerlof, George A & Dickens, William T, 1982. "The Economic Consequences of Cognitive Dissonance," American Economic Review, American Economic Association, vol. 72(3), pages 307-19, June.
  12. Farmer, Amy & Pecorino, Paul, 1994. "Pretrial negotiations with asymmetric information on risk preferences," International Review of Law and Economics, Elsevier, vol. 14(3), pages 273-281, September.
  13. 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.
  14. Diecidue, Enrico & Wakker, Peter P, 2001. " On the Intuition of Rank-Dependent Utility," Journal of Risk and Uncertainty, Springer, vol. 23(3), pages 281-98, November.
  15. Joel Waldfogel, 1998. "Reconciling Asymmetric Information and Divergent Expectations Theories of Litigation," NBER Working Papers 6409, National Bureau of Economic Research, Inc.
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Cited by:
  1. Andrea Gallice, 2011. "Self-serving biased reference points," Carlo Alberto Notebooks 223, Collegio Carlo Alberto.

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