Abstract
Many litigants – especially individual natural persons – are probably risk averse in litigation. But risk aversion is a personal characteristic that is unrelated to the merits and makes the risk averse litigant act ‘as if’ he is more pessimistic about the true probability of prevailing. As a result, many litigation outcomes are biased against risk averse litigants, whether in the form of litigation that they never bring, in settlements with risk neutral corporate defendants that are lower than the merits justify, or through plea bargains with risk neutral governments and their prosecutors that do not reflect the strength of the evidence. After demonstrating the observational equivalence of risk aversion and risk neutral pessimism, I argue that this equivalence adds an argument for three important legal mechanisms: (1) the availability of risk transfer mechanisms like contingency fees and litigation funding; (2) calls for prohibitions on, or judicial participation in, plea bargains; and (3) broader judicial review of the fairness, reasonableness, and adequacy of settlements beyond that which occurs in connection with federal class actions.
Heaton, JB, Risk Neutral Justice (May 16, 2018).
First posted 2018-05-30 15:47:50
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