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Legal Interpretative Process and Litigants’Cognitive Biases

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  • Bruno Deffains
  • Eric Langlais

Abstract

For contemporary legal theory, law is essentially an interpretative and hermeneutics practice (Ackerman (1991), Horwitz (1992)). A straightforward consequence is that legal disputes between parties are motivated by their divergent interpretations regarding what the law says on their case. This point of view fits well with the growing evidence showing that litigants’ cognitive performances display optimistic bias or self-serving bias (Babcock and Lowenstein (1997)). This paper provides a theoretical analysis of the influence of such a cognitive bias on pretrial negotiations. However, we also consider that this effect is mitigated because of the litigants’ confidence in their own ability to predict the verdict; we model this issue assuming that litigants are risk averse in the sense of Yaari (1987), i.e. they display a kind of (rational) probability distortion which is also well documented in experimental economics. In a model à la Bebcuck (1984), we show that the consequences of self-serving bias are partially consistent with the "optimistic model", but that parties’ risk aversion has more ambiguous/unpredictable effects. These results contribute to explaining that the beliefs in the result of the trial are not sufficient in themselves to understand the behaviors of litigants. As suggested by legal theory, the confidence the parties have in their beliefs is probably more important.

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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 2009-8.

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Length: 21 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:drm:wpaper:2009-8

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

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  1. Joel Waldfogel, 1993. "The Selection Hypothesis and the Relationship between Trial and Plaintiff Victory," NBER Working Papers 4508, National Bureau of Economic Research, Inc.
  2. Michael R. Baye & Dan Kovenock & Casper G. de Vries, 2004. "Comparative Analysis of Litigation Systems: An Auction-Theoretic Approach," Working Papers, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy 2004-24, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  3. Andrea Ichino & Michele Polo & Enrico Rettore, . "Are Judges Biased by Labor Market Conditions?," Working Papers 192, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  4. Landes, William M, 1971. "An Economic Analysis of the Courts," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 14(1), pages 61-107, April.
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  7. Linda Babcock & George Loewenstein, 1997. "Explaining Bargaining Impasse: The Role of Self-Serving Biases," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 11(1), pages 109-126, Winter.
  8. Farmer, Amy & Pecorino, Paul, 2002. "Pretrial bargaining with self-serving bias and asymmetric information," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 48(2), pages 163-176, June.
  9. Joel Waldfogel, 1998. "Reconciling Asymmetric Information and Divergent Expectations Theories of Litigation," NBER Working Papers 6409, National Bureau of Economic Research, Inc.
  10. Tversky, Amos & Wakker, Peter, 1995. "Risk Attitudes and Decision Weights," Econometrica, Econometric Society, Econometric Society, vol. 63(6), pages 1255-80, November.
  11. Oren Bar-Gill, 2006. "The Evolution and Persistence of Optimism in Litigation," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 22(2), pages 490-507, October.
  12. Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, Econometric Society, vol. 55(1), pages 95-115, January.
  13. Farmer, Amy & Pecorino, Paul, 1994. "Pretrial negotiations with asymmetric information on risk preferences," International Review of Law and Economics, Elsevier, Elsevier, vol. 14(3), pages 273-281, September.
  14. Ross, Stephen A, 1981. "Some Stronger Measures of Risk Aversion in the Small and the Large with Applications," Econometrica, Econometric Society, Econometric Society, vol. 49(3), pages 621-38, May.
  15. Viscusi, W Kip, 2001. "Jurors, Judges, and the Mistreatment of Risk by the Courts," The Journal of Legal Studies, University of Chicago Press, University of Chicago Press, vol. 30(1), pages 107-42, January.
  16. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn.
  17. Diecidue, E. & Wakker, P.P., 2000. "On the Intuition of Rank-Dependent Utility," Discussion Paper, Tilburg University, Center for Economic Research 2000-74, Tilburg University, Center for Economic Research.
  18. Loewenstein, George, et al, 1993. "Self-Serving Assessments of Fairness and Pretrial Bargaining," The Journal of Legal Studies, University of Chicago Press, University of Chicago Press, vol. 22(1), pages 135-59, January.
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Cited by:
  1. Landeo, Claudia & Nikitin, Maxim & Izmalkov, Sergei, 2012. "Playing against an Apparent Opponent: Incentives for Care, Litigation, and Damage Caps under Self-Serving Bias," Working Papers 2012-9, University of Alberta, Department of Economics.

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