A Simple Theory of Complex Valuation

Anthony J. Casey* & Julia Simon-Kerr**

Complex valuations of assets, companies, government programs, damages, and the like cannot be done without expertise, yet judges routinely pick an arbitrary value that falls somewhere between the extreme numbers suggested by competing experts. This creates costly uncertainty and undermines the legitimacy of the court. Proposals to remedy this well-recognized difficulty have become increasingly convoluted. As a result, no solution has been effectively adopted and the problem persists. This Article suggests that the valuation dilemma stems from a misconception of the inquiry involved. Courts have treated valuation as its own special type of inquiry distinct from traditional fact-finding. We show that reintroducing fundamental principles of fact-finding can provide a simpler and more accurate method of complex valuation. Our conclusion rests on the premise that valuations are nothing more than exercises in routine fact-finding. Valuation is not an ethereal question with no right answer. Rather, valuation is a process of inferring the value that a relevant community places on an asset. This basic point has been ignored in practice and received almost no attention in the academy. Recognizing this foundational point can both restore the legitimacy of the process and reduce the costs of uncertainty and biased testimony. We demonstrate that a return to traditional evidentiary rules, including attention to burdens of proof, will discourage courts from resorting to ad hoc calculations and will encourage courts to arrive at valuations through vetted methodologies that are shown to be reasonably accurate and, most importantly, supported by the record. We further show that this will lead to an improvement in the quality of information provided by expert witnesses.

* Assistant Professor of Law, The University of Chicago Law School.

** Associate Professor of Law, The University of Connecticut School of Law. We thank Mathilde Cohen, Florian Ederer, James Kwak, Alexandra Lahav, Saul Levmore, Jennifer Mnookin, Anthony Niblett, Peter Siegelman, James Stark and workshop participants at Albany Law School for helpful comments and discussion. Sarah Nudelman and Thomas Malinowsky provided excellent research assistance. The Jerome F. Kutak Faculty Fund provided research support.

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