Luck

Last week I heard Randall Kiser talk about research he and others have done on so-called “decision error” in taking cases to trial. This study got a fair amount of publicity when it was first published, and is frequently cited by judges and mediators in attempting to persuade parties to litigation that they are generally better off accepting a settlement than in pursuing cases to trial. This research found that about 60% of the time, plaintiffs who reject the defendant’s best settlement offer get a worse result at trial. Defendants only guess wrong about 25% of the time, but tend to lose a lot more money when they do.

Even though I agree that parties are usually better off settling than going to trial, the trial lawyer in me is somewhat resistant to the idea that too many cases are tried. These days, it seems more likely that too few cases are tried. (The real problem is that too many cases are litigated to death.) So I have to question the use of the term “error” to describe a rejection of a settlement offer that is better than the eventual result at trial. It seems to me that a lot of people who do that might not be making an error at all. Instead, they might just be willing to accept some risk. Let’s say for example, that the parties are able to forecast accurately that a case has a 3 in 10 chance of resulting in a million dollar verdict, a 3 in 10 chance of a defense verdict, and a 4 in 10 chance of some result in between. This is not an uncommon kind of prediction in some of the mediations I see. In such a situation, and even in situations in which each side predicts somewhat different odds of success from the other side’s prediction, both lawyers might, and probably should, recommend that their clients accept some number in between.

But what if one side wants to take the risk? A plaintiff might say, I would rather take the chance of having the jury award me nothing than agree to settle for less than the million that I think I am entitled to. Or a defendant might say, I would rather have the jury award a million dollars against me (which might put me in bankruptcy anyway, or which I can easily afford because I’m so wealthy) than agree to give this plaintiff money that he doesn’t deserve. Parties who make an accurate assessment of their chances, but choose to reject an “average” result offered in settlement might just be people who prefer to gamble and lose, rather than settle. Their decisions cannot be second-guessed simply because they turned out to be wrong, just as if you choose to take another card in blackjack, you cannot be faulted just because the next card busts you. Even if you calculate the odds correctly, sometimes you are going to win, and sometimes you are going to lose.

If I understand Kiser’s terminology, however, if my hypothetical case results in a million dollar verdict, he would say the defendant made an error by refusing to settle, and if the case results in a defense verdict, he would say the plaintiff made an error by refusing to settle.

I asked Mr. Kiser to correct whatever error might appear in my own thinking, and he pointed out that “error” was a defined term in the study. It simply means that a party obtained a worse result at trial than they would have obtained by accepting the other side’s settlement offer, and does not necessarily imply that the attorney made a mistake. Moreover, as pointed out in a study cited in the article, very few parties who go to trial, whether they obtain a better or worse result than they expected, attribute the result to luck.

Sometimes when I’m watching a basketball game, I think about how even a perfectly executed shot will sometimes roll off the rim the wrong way, or a poor shot might go in unexpectedly. But when a team loses (or wins) a close game, hardly anyone ever says, it was just luck. People naturally prefer to attribute results to superior play or mistakes by one side or the other. We want to find someone to blame for defeat, and someone to thank for our victories. Even when parties are fully advised of the risks they are assuming by going to trial, they are probably still expecting they should get a favorable outcome, and they are likely to feel they made a mistake if the result goes against them. But I would still prefer a term like “miss” to “error” because “error” implies that the parties or their attorneys made a deliberate decision that was flawed in some way. Instead, it may be that most litigants actually receive one of the possible results they were forecasting, just not the one they were hoping for in their best case scenario. (But see my post on irrationality below, which suggests that there is a lot of flawed decision-making in the system also.)

Anyway, if you try enough cases, your unexpected victories might even out your unwelcome losses. Our clients, however, usually only get one chance to vindicate their claims, and they have to think seriously about whether they really want to roll the dice.

(photo from TV tropes)

                       

Joe Markowitz

Joseph C. Markowitz has over 30 years of experience as a business trial lawyer.  He has represented clients ranging from individuals and small businesses to Fortune 500 corporations.  He started practicing with a boutique litigation firm in New York City, then was a partner in a large international firm both… MORE >