Most civil lawsuits settle out of court. If this were not so the legal system would be quickly overwhelmed. When a case settles later than it could have, or a case that should have settled goes to trial, there are costs and consequences for both litigants and society as a whole, and the reputation of counsel may suffer.
Recent research by Andrew Wistrich, a magistrate judge with the U.S. District Court for the Central District of California, and Jeffrey Rachlinski, a professor at Cornell University Law School and Erasmus University School of Law, suggests lawyers, in common with many other groups that have been studied, are prone to a number of faulty cognitive strategies.
Despite their specialized training and experience lawyers are all too often susceptible to the same kinds of errors that mislead their clients. When lawyers trust their intuitions, influenced by these faulty strategies, they delay negotiations or reject settlement offers that should be accepted.
Wistrich and Rachlinski’s research is informed by a widely held view of the mind. According to this model our mind is made up of two different systems and we rely on two types of mental processes in decision-making.
“System 1” is fast, habitual, intuitive, with no sense of voluntary control. When we perform a task automatically, or crinkle up our face in disgust at a vile smell, or detect hostility in someone’s voice, System 1 is responsible.
“System 2” is slow, plodding, logical, and requires deliberate attention. When we compare different investment plans, or scan a room in search of a particular person, or solve a complicated math problem, System 2 is at work.
In order to understand how counsel make judgments about settlement offers Wistrich and Rachlinski asked groups of lawyers in continuing education courses to respond to questionnaires containing three to five hypothetical cases, changing a key factor in different versions of the case. Their work identifies four types of faulty cognitive strategies to which lawyers are vulnerable.
Attention to how these strategies may influence reasoning can help counsel assist their clients to make good decisions.
People evaluate their options on a comparative basis. A $52 bottle of wine seems expensive if the other bottles on the menu are in the $35-$40 range, and looks like a bargain if it is surrounded by bottles that cost upwards of $80. Similarly, people will evaluate equivalent settlement offers differently depending on whether the offer is presented as a gain or a loss.
Merely assigning lawyers to assess a settlement proposal from the perspective of a plaintiff or a defendant caused them to make different recommendations, with those advising plaintiffs willing to accept 10- to 20-per-cent less than the expected settlement value. Not surprisingly, those advising defendants had the opposite tendency.
Once people form a hypothesis, they tend to seek information that supports it and to be skeptical towards information that undermines it. Lawyers might be especially vulnerable to this tendency as their professional obligations demand they find support for their clients’ positions.
The problem is a bias towards confirming what we already believe to be true can lead to an overly optimistic reading of the merits of a case and can make us blind to flaws in an argument that neutral outsiders find obvious.
The more information, the better, right? Not necessarily.
People tend to over-value additional information and to under-value the cost of obtaining that information, and they fail to think through what the upshot of the unknown information will be for their decision making.
Wistrich and Rachlinski presented two groups of lawyers with a simple or a complex version of a personal injury file, and told them their plaintiff client was anxious to settle the case. While 66 per cent of the lawyers who received the simple version would have advised their client to accept the offered settlement, only 44 per cent who received the complex version made the same recommendation.
The key difference between the simple and complex versions was in the simple version lawyers were told the defendant was liable, and in the complex version they were told that a government report assessing liability was not yet available. So a significant number of lawyers were willing to wait for additional information, even though it was not clear the information would be useful.
Sunk cost fallacy
This tactic is also known as “throwing good money after bad.” Once we have made an investment — whether in time, money, or effort — we have a strong tendency to persist and great reluctance to walk away and cut our losses. Yet walking away or agreeing to accept a less-than-ideal settlement so as not to incur further losses is sometimes the wisest decision.
Wistrich and Rachlinski found the same settlement offer made at different points in a case (and after varying degrees of sunk costs) resulted in different recommendations by lawyers, with greater reluctance to recommend settlement with more time and money spent. Yet, they quote American judge and legal theorist Richard Posner: “Rational people base their decisions on their expectations of the future rather than on their regrets about the past.”
Wistrich and Rachlinski’s demographic information about their subjects also yields some fascinating insights. Factors such as a lawyer’s gender, age, years of experience, and litigation experience tended to have little or no effect on to what extent they relied on these faulty strategies.
When they did this research with judges, they found judges performed no better than lawyers. But there was one exception — judges and lawyers with more experience tended to be even more susceptible to confirmation bias than were lawyers with less experience. It seems old habits die hard.
Daniel Kahneman. Thinking Fast and Slow. Farrar, Strauss and Giroux. 2011
Andrew J. Wistrich and Jeffrey J. Rachlinski. “How Lawyers’ Intuitions Prolong Litigation.” Southern California Law Review. Vol. 86 (2013), pp. 101-166.
Jeanette Bicknell, Ph.D., Q. Med., is a Toronto-based mediator with the Sadowski Resolutions Group.You can reach her at firstname.lastname@example.org.