Advanced Search
MyIDEAS: Login to save this paper or follow this series

Cognitive dissonance, risk aversion and the pretrial negotiation impasse

Contents:

Author Info

  • Langlais, Eric

Abstract

There exist evidence that asymmetrical information do exist between litigants: not in a way supporting Bebchuk (1984)'s assumption that defendants' degree of fault is a private information, but more likely, as a result of parties' predictive power of the outcome at trial (Osborne, 1999). In this paper, we suggest an explanation which allows to reconcilie different results obtained in experimental economics. We assume that litigants assess their estimates on the plaintiff's prevailing rate at trial using a two-stage process. First, they manipulate the available information in a way consistent with the self-serving bias. Then, these priors are weighted according to the individual's attitude towards risk. The existence of these two different cognitive biases are well documented in the experimental literature. Within this framework, we study their influence in a model of litigation where the self-serving bias of one party is private information. We show that the influence of the former is consistent with the predictions of the "optimistic approach" of trials. However, we show that the existence of risk aversion and more generally non neutrality to risk, is more dramatic in the sense that it has more unpredictable effects.

Download Info

If 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.
File URL: http://mpra.ub.uni-muenchen.de/8844/
File Function: original version
Download Restriction: no

Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8844.

as in new window
Length:
Date of creation: Mar 2008
Date of revision:
Handle: RePEc:pra:mprapa:8844

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

Related research

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

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Diecidue, Enrico & Wakker, Peter P, 2001. " On the Intuition of Rank-Dependent Utility," Journal of Risk and Uncertainty, Springer, Springer, vol. 23(3), pages 281-98, November.
  2. Waldfogel, Joel, 1998. "Reconciling Asymmetric Information and Divergent Expectations Theories of Litigation," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 41(2), pages 451-76, October.
  3. Joel Waldfogel, 1993. "The Selection Hypothesis and the Relationship between Trial and Plaintiff Victory," NBER Working Papers 4508, National Bureau of Economic Research, Inc.
  4. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, Springer, vol. 5(4), pages 297-323, October.
  5. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn.
  6. 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.
  7. Daughety, Andrew F. & Reinganum, Jennifer F., 1994. "Settlement negotiations with two-sided asymmetric information: Model duality, information distribution, and efficiency," International Review of Law and Economics, Elsevier, Elsevier, vol. 14(3), pages 283-298, September.
  8. Osborne, Evan, 1999. "Who should be worried about asymmetric information in litigation?," International Review of Law and Economics, Elsevier, Elsevier, vol. 19(3), pages 399-409, September.
  9. 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.
  10. 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.
  11. Katz, Avery, 1987. "Measuring the Demand for Litigation: Is the English Rule Really Cheaper?," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 3(2), pages 143-76, Fall.
  12. 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.
  13. Farber, Henry S & Bazerman, Max H, 1987. "Why Is There Disagreement in Bargaining?," American Economic Review, American Economic Association, American Economic Association, vol. 77(2), pages 347-52, May.
  14. Akerlof, George A & Dickens, William T, 1982. "The Economic Consequences of Cognitive Dissonance," American Economic Review, American Economic Association, American Economic Association, vol. 72(3), pages 307-19, June.
  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. 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.
  17. Tversky, Amos & Wakker, Peter, 1995. "Risk Attitudes and Decision Weights," Econometrica, Econometric Society, Econometric Society, vol. 63(6), pages 1255-80, November.
  18. 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.
  19. Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, Econometric Society, vol. 55(1), pages 95-115, January.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Eric Langlais, 2008. "Asymmetric information, self-serving bias and the pretrial negotiation impasse," EconomiX Working Papers 2008-30, University of Paris West - Nanterre la Défense, EconomiX.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:8844. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.