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Damage Caps, Motivated Anchoring, and Bargaining Impasse

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  • Pogarsky, Greg
  • Babcock, Linda

Abstract

This paper reports results from a bargaining experiment testing the effect on settlement rates of a damage cap set much higher than the value of the underlying claim. We presented 462 student subjects with materials outlining a personal injury lawsuit and permitted randomly assigned subject pairs to negotiate a pretrial settlement. We find that imposition of a $1 million cap reduced the settlement rate through a process termed "motivated anchoring," in which a relatively high damage cap disproportionately anchors the plaintiff's estimate of the likely damage award. The result is a widened disparity in opposing litigants' judgments and less settlement. These results contrast with findings from previous experiments where a relatively low cap constrains the parties' judgments and produces more settlement. This pair of results suggests the effect of a cap will depend on its size relative to the stakes of the case. Copyright 2001 by the University of Chicago.

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  • Pogarsky, Greg & Babcock, Linda, 2001. "Damage Caps, Motivated Anchoring, and Bargaining Impasse," The Journal of Legal Studies, University of Chicago Press, vol. 30(1), pages 143-159, January.
    • Handle: RePEc:ucp:jlstud:v:30:y:2001:i:1:p:143-59
    DOI: 10.1086/468114
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    Cited by:

    1. Peter A. Ubel & George Loewenstein, 2008. "Pain and Suffering Awards: They Shouldn't Be (Just) about Pain and Suffering," The Journal of Legal Studies, University of Chicago Press, vol. 37(S2), pages 195-216, June.
    2. Eric Cardella & Carl Kitchens, 2017. "The impact of award uncertainty on settlement negotiations," Experimental Economics, Springer;Economic Science Association, vol. 20(2), pages 333-367, June.
    3. Claudia M. Landeo, 2018. "Law and economics and tort litigation institutions: theory and experiments," Chapters, in: Joshua C. Teitelbaum & Kathryn Zeiler (ed.), Research Handbook on Behavioral Law and Economics, chapter 9, pages 247-268, Edward Elgar Publishing.
    4. Doron Teichman & Eyal Zamir & Ilana Ritov, 2023. "Biases in legal decision‐making: Comparing prosecutors, defense attorneys, law students, and laypersons," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 20(4), pages 852-894, December.
    5. Matteo Migheli & Margherita Saraceno, 2023. "On the propensity to settle or litigate in laboratory disputes," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 40(2), pages 615-642, July.

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