According to a recent study published in the Journal of Empirical Legal Studies (print), parties who reject a settlement offer and proceed to trial often make a costly mistake. Plaintiffs obtain less money at trial 61 percent of the time. Defendants make the wrong decision 24 percent of the time, but the amount of the error tends to be larger: The amount paid in damages that is in excess of their best settlement offer averages $1,140,000. The study was based on a sample of over 2,000 civil cases tried in California between November 2002 and December 2005. Other studies have shown similar results.
How can you help your client avoid a costly mistake and make the right decision between settlement and litigation? Conduct a rigorous analysis of your case's monetary value in preparing for settlement negotiations. Consider using a decision tree to aid your analysis. A valuation analysis helps to guide discussions between counsel and clients about the risks of continued litigation and facilitates reasoned decisions regarding settlement.
The study: Randall L. Kiser, Martin A. Asher and Blakeley B. McShane, "Let's Not Make a Deal: An Empirical Study of Decision Making in Unsuccessful Settlement Negotiations," Journal of Empirical Legal Studies, Vol. 5, Issue 3, pp. 551-591 (September 2008).