LET’S NOT MAKE A DEAL:
An Empirical Study of Decision Making in Unsuccessful Settlement Negotiations
- This study quantitatively evaluates the incidence and magnitude of errors made by attorneys and their clients in unsuccessful settlement negotiations.
- The study analyzes 2,054 contested litigation cases between 2002 and 2005 in which the plaintiffs and defendants conducted settlement negotiations.
- The parties’ settlement positions are compared with the ultimate award or verdict, revealing a high incidence of decision-making error by both plaintiffs and defendants.
- Decision error is defined as rejection of the adversary’s settlement offer and proceeding to trial with an outcome that is financially the same or worse than the rejected settlement.
- Distribution of “mistakes” by plaintiff and defense bars was not 50/50.
- Plaintiff behavior is consistently risk averse; defendant behavior is consistently risk-seeking.
- Decision error rate for plaintiffs was 61.2 percent of cases and decision error for defendants was 24.3 percent.
- Average cost of decision error for plaintiffs was $43,100 compared to average cost of decision error of $1,140,000 for defendants.
Comparison of 998 offers revealed lower decision making errors for the party serving the 998 as opposed to the party receiving a 998, likely due to the evaluative process by the party serving the 998 offer.