Cognitive Shortcuts: Assessing Case Value & Litigation Risk with Homer Simpson and Spock
By Jeff Trueman, Esq. Mediator
The central question on the minds of counsel, their clients, and insurance professionals in civil litigation is, of course, “What’s the case worth?” Although lead paint litigation may be going through some changes, it remains a mature tort where enough historical settlement and verdict data exist for counsel to argue why a particular case should or should not fit within a certain settlement range. In the midst of these discussions, the human brain plays tricks on us. For example, litigators sometimes assume that their trial experience can determine how jurors will negotiate with one another and resolve factual discrepancies after closing arguments. This assumption is a “heuristic” – a cognitive shortcut called attributional error or illusion of control.
Underneath the games of litigation “chicken” that are the hallmark of settlement negotiation, heuristics lead to erroneous valuations and assessments of risk.
Although more than one hundred heuristics exist, approximately 15-20 occur commonly in the context of settlement negotiations. It is easy for potential clients to employ a heuristic similar to the illusion of control by imagining a connection between something they desire, such as a favorable case outcome, and the past successes of their prospective lawyer. Representative and confirmation biases influence how we connect “model” to “outcome.” When differences over case value intensify, litigators return to threats of relinquishing control: “Maybe we have to try this case;” or “We feel good about our chances in front of a jury.” Underneath the games of litigation “chicken” that are the hallmark of settlement negotiation, heuristics lead to erroneous valuations and assessments of risk.
Borrowing from Daniel Kahneman’s book, “Thinking Fast and Slow,” cognitive shortcuts live in our “System One” brain where we react to circumstances intuitively without giving much thought about the way in which we perceive problems or how to calculate probabilities and manage risk. “System Two” thinking is slower, more deliberate, logical, and usually more accurate. Think of the difference between Homer Simpson and Star Trek’s Spock and you get the picture.
Although we like to think that we are System Two negotiators who act analytically and rationally, we usually operate within System One. We negotiate emotionally. For example, in terms of perceiving and managing financial risk, we prefer to avoid loss rather than experience an equivalent gain. It feels better not to lose five dollars rather than find five dollars. Whether we consider something a loss or a gain depends on a reference point (our expectations, for example) which is usually based on perceived surroundings, desires, or what we think happened to others. Loss and fear of loss carry significant psychological power when we think about the future.
Many lawyers default to their role as advocates for legal rights without considering the quality of counsel they give to clients regarding risk management. This plays right into the endowment bias that potential clients carry, valuing property or experiences merely because they have them. When thinking about future risk, many lawyers exhibit an overconfidence and self-serving bias in favor of past success. Unfortunately, competitive bargainers are disinclined to compromise even when it would benefit their bottom lines. Of course, it goes without saying that clients are often better served by lawyers who have some experience in a courtroom. But prior success does not guarantee future results.
Granted, it’s hard to know whether a particular settlement number is “good” since it’s impossible to compare trial verdicts to settlement results in the same case. Although most law suits settle on terms that are good enough, practically speaking, lawyers will emphasize trial advocacy and “justice” over risk management. Few potential clients want to hear about “cognitive heuristics” and risk management when they seek a fighter for a “just” cause. Even so, litigants who are aware of the well-worn chutes and ladders of emotion that commandeer their thinking can tune out Homer Simpson in favor of Spock to make better decisions about valuation and risk.
Jeff Trueman, Esq., ADR Services, Sole Practitioner, Baltimore, MD. Private mediator of litigated civil disputes, including personal injury, premises liability, toxic and environmental torts, wrongful death, professional malpractice, partnership dissolution, employment, domestic, and guardianship petitions. Public speaker and presenter of mediation and negotiation-related dynamics at law schools, law firms, and litigation conferences. Author of ADR column that appears semi-regularly in the Maryland Daily Record.