In negotiations where disputes are resolved via adjudication (as in the courts or
arbitration), beliefs about a potential adjudicated outcome are central in determining the
bargaining environment. The present research investigates how negotiators (trial attorneys and
students) involved in a hypothetical product liability case use information about adjudicated
outcomes regarding the amount of damages in previous similar cases in forming beliefs about
their own case. In particular, we examine how the parameters of the distribution of previous
outcomes (variance and range) contribute to the differences between the expected outcome and
the parties’ reservation values. We find that the range of earlier outcomes has no significant
effect on subjects’ reservation values but that the variance does have a systematic effect,
particularly on plaintiffs’ behavior.
A pair of separate findings may have important implications for the negotiation process.
First, whether or not subjects exhibited risk averse behavior depended on the role to which they
were assigned in a way that is consistent with the risk attitudes and framing notion implied by
Kahneman and Tversky’s prospect theory (1979). Second, only subjects assigned to roles for
which they had extensive experience exhibited over-optimism about the likely outcome.

A central feature of the litigation process that affects case outcomes is the selection of
cases for litigation. In this study, we present a theoretical framework for understanding the
operation of this suit selection process and its relationship to the underlying distribution
of potential claims and claimants. We implement the model empirically by assuming that
individuals vary more in their litigiousness (inverse costs of litigation) than do corporations.
This assumption, coupled with the case selection process we present, yields clear predictions
on trial rates as a function of whether the plaintiff and defendant were individuals or
corporations. The model also yields a prediction on the plaintiff ’s win rate in lawsuits as
a function of the plaintiff ’s identity. Our empirical analysis, using data on over 200,000
federal civil litigations, yields results that are generally consistent with the theory. Lawsuits
where the plaintiff is an individual are found to have higher trial rates and lower plaintiff
win rates.

We develop a model of the plaintiff’s decision to file a law suit that has
implications for how differences between the federal government and private litigants and
litigation translate into differences in trial rates and plaintiff win rates at trial. Our case
selection model generates a set of predictions for relative trial rates and plaintiff win rates
depending on the type of case and whether the government is defendant or plaintiff. In
order to test the model, we use data on about 350,000 cases filed in federal district court
between 1979 and 1997 in the areas of personal injury and job discrimination where the
federal government and private parties work under roughly similar legal rules. We find
broad support for the predictions of the model.

In this study we examine the experience of a single large hospital with an
informal pre-litigation “complaint” process that resolves some cases outside of the legal
system. The empirical results are generally consistent with an information structure where
patients are poorly informed about the quality of medical care and the hospital does not
know whether particular patients are litigious or not. The complaint process seems to
resolve many complaints in a less costly manner than filing lawsuits. Almost half of all
complaints are resolved before a lawsuit is filed. The large majority of these are dropped,
and they are cases that would likely have been dropped even if they had been initiated as
lawsuits. Very few cases are settled with a cash payment to patients before a lawsuit is
filed, suggesting that patients must file lawsuits in order to convince the hospital that they
are litigious enough to justify a settlement. Cases initiated through the complaint process
are not resolved (dropped, settled, tried to a verdict) significantly differently from cases
initiated as lawsuits, controlling for observable case characteristics. When settlements
of lawsuits occur, the amounts paid do not vary depending on how the case originated,
but settlements of complaints are much higher for cases settled after a lawsuit is filed.
We conclude that the complaint process is a cost-effective “front-end” for the litigation
process that provides information to patients regarding the quality of their medical care
and, hence, the likelihood of negligence.

Although The Economics of Discrimination has left a large schol
legacy. we believe the empirical methods associated with the study of
and sex discrimination have had a still larger impact on practical mat
Our purpose in this paper is to give some small insight into how this
scholarly literature has ended up as a major factor in the litigation
many civil disputes where race and sex discrimination are alleged.