Psychological Barriers to Litigation Settlement: An Experimental Approach

In this article, we seek to substantiate “psychological barriers,” as illustrated by the constructs described above, as a third explanation for the failure of legal disputants to settle out of court. Although we are not the first to hypothesize that psychological processes can, in theory, affect legal dispute negotiations, we attempt to give more definition to the otherwise vague contours of the psychological barriers hypothesis by bringing empirical data to bear on the question. To achieve this end, we conducted a series of nine laboratory experiments – involving nearly 450 subjects – designed to isolate the effects of the three psychological processes outlined above on parties’ decisions about whether to accept settlement offers or to opt for formal adjudication. Our results substantiate the basic hypothesis that non-value-maximizing considerations can affect decisions about whether to settle or try disputes, and our experimental findings cast light on the circumstances U!lder which psychological barriers are more or less likely to affect settlement possibilities. The clearer understanding that stems from empirical research, we believe·, will benefit future research on the impact of psychological barriers to litigation settlement.

Part I of this article describes the dominant rational actor paradigms of legal dispute resolution and suggests a theoretical role for the psychological barriers hypothesis. Part II describes the research methodology employed in our experiments. Parts III, IV, and V review the results of our experiments on how the psychological constructs of framing, equity seeking, and reactive devaluation can affect litigation settlement negotiations. Part VI discusses some of the implications of our findings for practitioners seeking to resolve litigation in the economic interests of their clients. Finally, the article concludes with a discussion of how an understanding of the effect of psychological processes on litigation settlement combines with the insights provided by existing economic models to create a richer understanding of how litigants perceive, think about, and respond to settlement offers.