Are You Better Off Settling Or Going to Trial?

There comes a moment in many mediations when the parties reach an impasse, generally because the defendant’s last offer is less than the plaintiff wants.   At that moment, when negotiations have stalled and neither side wants to budge, each must decide whether to accept the other’s pending offer or go to trial.

How often do lawyers and clients make the right decision?  A 2008 study of 2,054 California trials that took place between 2002 and 2005 and 554 New York 2005 state court trials addressed that question.

The study found that plaintiffs who rejected settlement offers and went to trial ended up with less money in 61% of the cases.   On average, they gave up $43,000.   Defendants, on the other hand, made the wrong decision in 24% of the cases, but their error cost them an average of $1.14 million.  The study attributed the large discrepancy to plaintiffs being more risk averse than defendants.

Recently, the study was updated with results through 2007 and includes more New York cases.  In the new study, plaintiff’s decision-error rate in California dropped from 61% to 60%, and the defense error rate changed from 24% to 25%.   However, plaintiff’s average cost of error rose to $73,400, while the average cost of defendants’ misjudgments increased to $1.4 million.

The New York results were similar.  Plaintiffs made the wrong decision in 56% of the cases, costing them an average of $52,183.  Defendants erred in 29% of the cases.  On average, they paid $920,874 more than plaintiffs had demanded.

In both studies in both states, both sides made the right decision by going to trial in 15% of the cases – the defendants ended up paying less than plaintiffs demanded, but plaintiffs got more than defendants offered.

Neither study calculated the additional costs and legal fees the parties incurred by going to trial.

The initial study, Let’s Not Make a Deal: An Empirical Study of Decision-Making in Unsuccessful Settlement Negotiations, by Randall L Kiser, Martin A. Asher and Blakely B. McShane, was published in the September 2008 issue of the Journal of Empirical Legal Studies.

The updated data and conclusions are reported in Beyond Right and Wrong: The Power of Effective Decision Making for Attorneys and Clients (R. Kiser, Springer Science + Business Media, 2010).

These studies merit consideration by lawyers and clients weighing last settlement offers.

Copyright January 2013 by Richard S. Weil