Legal Interpretative Process and Litigants’ Cognitive Biases

For contemporary legal theory, law is essentially an interpretative and hermeneutic practice (Ackerman (1991), Horwitz (1992)). A straightforward consequence is that legal disputes between parties are motivated by their divergent interpretations regarding what law says on their case. This point of view fits well the growing evidence showing that litigants' cognitive performances display the optimistic bias or self-serving bias (Babcock and Lowenstein (1997)). This paper provides a theoretical analysis of the influence of such a cognitive bias on pretrial negotiations. However, we also consider that this effetcs is mitigated because of litigants' confidence about their own ability to predict the verdict; we model this issue assuming that litigants are risk averse in the sense of Yaari (1987), i.e. they display a kind of (rational) probability distorsion which is also well documented in experimantal economics. In a model à la Bebcuck (1984), we show that the consequences of the self-serving bias are partially consistent with the "optimistic model", but that parties' risk aversion has more ambiguous/unpredictable effects. These results contribute to explain that the believes about the result of the trial are not sufficient by themselves to understand the behaviors of litigants. As suggested by legal theory, the confidence the parties have in their believes is probably more important.