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Legal Interpretative Process and Litigants’ Cognitive Biases

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  • Deffains, Bruno
  • Langlais, Eric

Abstract

For contemporary legal theory, law is essentially an interpretative and hermeneutic practice (Ackerman (1991), Horwitz (1992)). A straightforward consequence is that legal disputes between parties are motivated by their divergent interpretations regarding what law says on their case. This point of view fits well the growing evidence showing that litigants' cognitive performances display the 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 effetcs is mitigated because of litigants' confidence about 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 distorsion which is also well documented in experimantal economics. In a model à la Bebcuck (1984), we show that the consequences of the self-serving bias are partially consistent with the "optimistic model", but that parties' risk aversion has more ambiguous/unpredictable effects. These results contribute to explain that the believes about the result of the trial are not sufficient by themselves to understand the behaviors of litigants. As suggested by legal theory, the confidence the parties have in their believes is probably more important.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14370.

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Date of creation: Nov 2008
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Handle: RePEc:pra:mprapa:14370

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

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References

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  1. Michael R. Baye & Dan Kovenock & Casper G. de Vries, 2000. "Comparative Analysis of Litigation Systems: An Auction-Theoretic Approach," CIG Working Papers, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) FS IV 00-13, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  2. 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.
  3. Roell, Ailsa A, 1987. "Risk Aversion in Quiggin and Yaari's Rank-Order Model of Choice under Uncertainty," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 97(388a), pages 143-59, Supplemen.
  4. Ichino, Andrea & Polo, Michele & Rettore, Enrico, 2003. "Are judges biased by labor market conditions?," European Economic Review, Elsevier, Elsevier, vol. 47(5), pages 913-944, October.
  5. 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.
  6. Tversky, Amos & Wakker, Peter, 1995. "Risk Attitudes and Decision Weights," Econometrica, Econometric Society, Econometric Society, vol. 63(6), pages 1255-80, November.
  7. Joel Waldfogel, 1998. "Reconciling Asymmetric Information and Divergent Expectations Theories of Litigation," NBER Working Papers 6409, National Bureau of Economic Research, Inc.
  8. 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.
  9. 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.
  10. Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, Econometric Society, vol. 55(1), pages 95-115, January.
  11. 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.
  12. 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.
  13. 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.
  14. 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.
  15. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn.
  16. William M. Landes, 1974. "An Economic Analysis of the Courts," NBER Chapters, National Bureau of Economic Research, Inc, in: Essays in the Economics of Crime and Punishment, pages 164-214 National Bureau of Economic Research, Inc.
  17. Weber, Elke U & Kirsner, Britt, 1997. "Reasons for Rank-Dependent Utility Evaluation," Journal of Risk and Uncertainty, Springer, Springer, vol. 14(1), pages 41-61, January.
  18. Joel Waldfogel, 1993. "The Selection Hypothesis and the Relationship between Trial and Plaintiff Victory," NBER Working Papers 4508, National Bureau of Economic Research, Inc.
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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, University of Alberta, Department of Economics 2012-9, University of Alberta, Department of Economics.

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