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Tort Reform, Disputes and Belief Formation

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  • Landeo, Claudia M.

Abstract

We experimentally study the effects of the split-award tort reform, where the state takes a share of the plaintiff's punitive damage award, on litigants' beliefs and bargaining outcomes. In addition, we study the formation of litigants' beliefs in a strategic environment. Our results provide support for coherence-based reasoning theories: coherence shifts in litigants' background beliefs (elicited before a role is assigned and after commitment to a choice at the pretrial bargaining stage) suggest bi-directionality between choices and beliefs. Our findings also suggest role-specific bias in the updating of plaintiffs' beliefs about firm's negligence. Finally, our findings indicate that split-awards affect plaintiffs' beliefs about fairness and lower out-of-court settlement amounts.

Suggested Citation

  • Landeo, Claudia M., 2009. "Tort Reform, Disputes and Belief Formation," MPRA Paper 13453, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:13453
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    References listed on IDEAS

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    1. Christine Jolls & Cass R. Sunstein, 2006. "Debiasing through Law," The Journal of Legal Studies, University of Chicago Press, vol. 35(1), pages 199-242, January.
    2. Andrew F. Daughety & Jennifer F. Reinganum, 2003. "Found Money? Split-Award Statutes and Settlement of Punitive Damages Cases," American Law and Economics Review, Oxford University Press, vol. 5(1), pages 134-164.
    3. Claudia M. Landeo & Maxim Nikitin, 2006. "Split-Award Tort Reform, Firm's Level of Care, and Litigation Outcomes," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 162(4), pages 571-600, December.
    4. Landeo, Claudia M. & Nikitin, Maxim & Babcock, Linda, 2007. "Split-awards and disputes: An experimental study of a strategic model of litigation," Journal of Economic Behavior & Organization, Elsevier, vol. 63(3), pages 553-572, July.
    5. Babcock, Linda & Pogarsky, Greg, 1999. "Damage Caps and Settlement: A Behavioral Approach," The Journal of Legal Studies, University of Chicago Press, vol. 28(2), pages 341-370, June.
    6. Babcock, Linda & Farber, Henry S. & Fobian, Cynthia & Shafir, Eldar, 1995. "Forming beliefs about adjudicated outcomes: Perceptions of risk and reservation values," International Review of Law and Economics, Elsevier, vol. 15(3), pages 289-303, September.
    7. Babcock, Linda, et al, 1995. "Biased Judgments of Fairness in Bargaining," American Economic Review, American Economic Association, vol. 85(5), pages 1337-1343, December.
    8. Cooper, David J. & Kagel, John H., 2003. "The impact of meaningful context on strategic play in signaling games," Journal of Economic Behavior & Organization, Elsevier, vol. 50(3), pages 311-337, March.
    9. Michelle J. White, 2004. "Asbestos and the Future of Mass Torts," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 183-204, Spring.
    10. Michelle J. White, 2004. "Asbestos and the Future of Mass Torts," NBER Working Papers 10308, National Bureau of Economic Research, Inc.
    11. Claudia M. Landeo & Maxim Nikitin & Scott Baker, 2007. "Deterrence, Lawsuits, and Litigation Outcomes Under Court Errors," Journal of Law, Economics, and Organization, Oxford University Press, vol. 23(1), pages 57-97, April.
    12. Anat Bracha, 2004. "Affective Decision Making in Insurance Markets," Yale School of Management Working Papers amz2665, Yale School of Management, revised 01 Sep 2004.
    13. Linda Babcock & Xianghong Wang & George Loewenstein, 1996. "Choosing the Wrong Pond: Social Comparisons in Negotiations That Reflect a Self-Serving Bias," The Quarterly Journal of Economics, Oxford University Press, vol. 111(1), pages 1-19.
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    More about this item

    Keywords

    Tort Reform; Belief Formation; Split-Award Statute; Coherence-Based-Reasoning; Role-Specific Bias; Self-Serving Bias; Motivated Reasoning; Settlement; Litigation; Experiments; Debiasing through Law;

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • K0 - Law and Economics - - General
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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