Litigation and Settlement in a Game with Incomplete Information

An Experimental Study

Lecture Notes in Economics and Mathematical Systems Band 440

Wolfgang Ryll

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We investigate a two-person game of litigation and settlement with incomplete information on one side. So far, various theoretical attempts have been made to answer the question of why some people choose not to resolve their disputes and instead go to court and incur litigation costs, even if bargaining leaves room for both parties to fare better when avoiding the conflict. We can distinguish between games which focus on strategic elements like games with incomplete information (see, for example, P'ng (1983), Samuelson (1982) and Schweizer (1989» and decision-theoretic models neglecting strategic elements (see, for example, Landes (1971) and Gould (1973». The single-person decision theory approach to litigation assumes litigants to have a subjective estimate of the likelihood that the plaintiff will win the action. Differing views on the probability of winning the court case help to explain the fraction of cases that actually go to trial. Among others, P'ng (1983) points out the shortcomings of the single-person decision theory approach which does not take into account, for example, the different fee systems in England and the U.S. and the differences in information conflicting parties may have. P'ng constructs a model of one-sided incomplete information where the settlement terms are given exogenously. Schweizer (1989), on the other hand, extends P'ng's model and allows for two-sided asymmetric information where the settlement terms are determined endogenously.


Einband Taschenbuch
Seitenzahl 176
Erscheinungsdatum 12.07.1996
Sprache Englisch
ISBN 978-3-540-61304-6
Verlag Springer Berlin
Maße (L/B/H) 23.5/15.5/1 cm
Gewicht 295 g
Abbildungen 7 schwarzweisse Abbildungen
Auflage Softcover reprint of the original 1st ed. 1996

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  • 1. Introduction.- 2. The Game-Theoretic Model and Equilibrium Sets.- 2.1 The Game Model.- 2.2 Pure Strategy Equilibria.- 2.3 One-Step and Iterative Elimination of Weakly Dominated Strategies.- 3. Experimental Design and Organisation of the Experiment.- 4. Experimental Results.- 4.1 General Results.- 4.1.1 Offer and Acceptance Behaviour of Inexperienced Subjects — Observed Behaviour Versus Equilibrium Behaviour.- 4.1.2 Analysis of First-Level Experienced And Second-Level Experienced Subjects.- 4.2 Behavioural Characteristics and Learning Behaviour.- 4.2.1 Frequency of Adjustment and Variation of Settlement Offers and Acceptance Limits.- 4.2.2 Prominence Level.- 4.2.3 First-Round Values and Decision Heuristics.- 4.2.4 Litigation Behaviour.- 4.2.5 Simultaneous Adjustment of Settlement Offers.- 4.2.6 Machiavellianism and Tendency Of Adjustment.- 4.2.7 Polarization of Plaintiffs’ Acceptance Limits in the Second Play.- 5. Learning Theories.- 5.1 Alternative Approaches to Learning.- 5.2 A Descriptive Theory for the Adjustment Behaviour.- 5.3 Deviations from Direction Learning.- 5.4 Learning Theory of the Polarization Effect.- 5.5 Discriminant Analysis of the Polarization Effect.- 5.6 Summary Of Experimental Findings.- 6. Monte-Carlo Simulations and Testing of Learning Direction Theory Against a Simple Alternative Theory.- 6.1 Monte-Carlo Approach to our Models of Learning Direction Theory and the Simple Alternative Theory.- 6.2 Modeling of Direction Learning and the Experimental Design.- 6.3 Estimation of the Adjustment Curves of Inexperienced and Experienced Subjects.- 6.4 Relative Frequencies of Deviations from Direction Learning.- 6.5 Increments of Settlement Offers and Acceptance Limits.- 6.6 Tests for the Comparison of the Two Alternative Theories.- 7. Comparison of the Results of Direction Learning and the Simple Alternative Theory.- 7.1 Results of the First Play.- 7.1.1 Distributions of Means.- 7.1.2 Results of the Scoring Rule.- 7.2 Results of the Second Play.- 7.2.1 Distributions of Means.- 7.2.2 Results of the Scoring Rule.- 7.3 Results of the Third Play.- 7.3.1 Distributions of Means.- 7.3.2 Results of the Scoring Rule.- 7.4 Summary of the Simulations and the Comparison of the Two Theories.- 8. Summary.- Appendix A.- Appendix B.- Appendix C.- Appendix D.- References.