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Confidence, Optimism and Litigation: A Litigation Model under Ambiguity

  • Nathalie Chappe

    ()

    (CRESE, Université de Franche-comté)

  • Raphaël Giraud

    ()

    (LED, University Paris 8)

This 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.

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File URL: http://crese.univ-fcomte.fr/WP-2013-05.pdf
File Function: First version, 2013
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Paper provided by CRESE in its series Working Papers with number 2013-05.

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Length: 23 pages
Date of creation: May 2013
Date of revision:
Handle: RePEc:crb:wpaper:2013-05
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  9. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
  10. 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.
  11. 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.
  12. 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.
  13. 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.
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