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Settling with salience-biased defendants

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  • Friehe, Tim
  • Pham, Cat Lam

Abstract

This paper analyzes how a salience bias of the defendant influences the settlement process and outcome. We consider the classic screening model in which the plaintiff makes a settlement demand on the privately informed defendant. In our framework, the plaintiff’s settlement demand increases with the defendant’s salience bias and the defendant’s salience bias may make the plaintiff worse off.

Suggested Citation

  • Friehe, Tim & Pham, Cat Lam, 2020. "Settling with salience-biased defendants," Economics Letters, Elsevier, vol. 192(C).
    • Handle: RePEc:eee:ecolet:v:192:y:2020:i:c:s0165176520301658
    DOI: 10.1016/j.econlet.2020.109235
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    References listed on IDEAS

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    1. Theodore Eisenberg & Charlotte Lanvers, 2009. "What is the Settlement Rate and Why Should We Care?," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 6(1), pages 111-146, March.
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    4. Thomas J. Miceli, 2008. "An Equilibrium Model of Lawmaking," Working papers 2008-16, University of Connecticut, Department of Economics.
    5. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2013. "Salience and Asset Prices," American Economic Review, American Economic Association, vol. 103(3), pages 623-628, May.
    6. Friehe, Tim & Pham, Cat Lam, 2020. "Products liability when consumers are salient thinkers," Economics Letters, Elsevier, vol. 186(C).
    7. Dessaint, Olivier & Matray, Adrien, 2017. "Do managers overreact to salient risks? Evidence from hurricane strikes," Journal of Financial Economics, Elsevier, vol. 126(1), pages 97-121.
    8. Booth, Alison & Nolen, Patrick, 2012. "Salience, risky choices and gender," Economics Letters, Elsevier, vol. 117(2), pages 517-520.
    9. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2012. "Salience Theory of Choice Under Risk," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(3), pages 1243-1285.
    10. Barry Nalebuff, 1987. "Credible Pretrial Negotiation," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 198-210, Summer.
    11. Herweg, Fabian & Müller, Daniel & Weinschenk, Philipp, 2017. "Salience, competition, and decoy goods," Economics Letters, Elsevier, vol. 153(C), pages 28-31.
    12. Farmer, Amy & Pecorino, Paul, 2002. "Pretrial bargaining with self-serving bias and asymmetric information," Journal of Economic Behavior & Organization, Elsevier, vol. 48(2), pages 163-176, June.
    13. Mungan, Murat C., 2019. "Salience and the severity versus the certainty of punishment," International Review of Law and Economics, Elsevier, vol. 57(C), pages 95-100.
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    Citations

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    Cited by:

    1. Cédric Argenton & Xiaoyu Wang, 2023. "Litigation and settlement under loss aversion," European Journal of Law and Economics, Springer, vol. 56(2), pages 369-402, October.
    2. Fabio Römeis & Fabian Herweg & Daniel Müller, 2022. "Salience Bias and Overwork," Games, MDPI, vol. 13(1), pages 1-22, January.

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    More about this item

    Keywords

    Litigation; Screening; Salience;
    All these keywords.

    JEL classification:

    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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