Gambling for the Upper Hand

Settlement Negotiations in the Lab

B:3 / Miettinen, Ropponen & Sääskilahti

Julkaisun sarjanumero: IPR Series B: 3
Tekijä: Miettinen, Topi
Muut tekijät: Ropponen, Olli, Sääskilahti, PekkaJulkaisu
Muoto: PDF
Julkaisuaika: Kesäkuu 2011
Koko (kB, sivua): 25 s.
Huomautuksia: Julkaistu myös sarjoissa: Jena Economic Research Papers HECER Discussion Paper No 326

Abstract/Tiivistelmä

We exploit a controlled frameless laboratory experiment to study settlement negotiations and the plaintiff’s decision to raise a lawsuit in case of an impasse. We find that greater variance in court outcomes increases the litigation rate and lowers the settlement rate. This latter finding goes against the received wisdom and earlier experimental evidence (Ashenfelter et al. 1992) that greater risk in arbitration outcomes increases the settlement rate. We find that self-serving biases about the protagonist’s course of action are accountable for the lower settlement rate, while an impasse payoff inferior to that of the defendant induces the plaintiffs to excessive risk-taking in an attempt to narrow the gap.

Gambling for the upper hand: settlement negotiations in the lab