76 Tex. L. Rev. 77 (1997-1998)
Psychology, Economics, and Settlement: A New Look at the Role of the Lawyer

handle is hein.journals/tlr76 and id is 95 raw text is: Psychology, Economics, and Settlement: A New
Look at the Role of the Lawyer
Russell Korobkin* & Chris Guthrie**
Given the high cost of litigation,' it is not surprising that most law-
suits settle out of court prior to adjudication. But the rate of settlement is
extraordinarily high-approximately ninety to ninety-five percent or more
of civil lawsuits not dismissed by courts in the early stages of litigation
settle short of trial.2
* Assistant Professor, University of Illinois College of Law and University of Illinois Institute
of Government and Public Affairs.
** Associate Professor of Law and Senior Fellow, Center for the Study of Dispute Resolution,
University of Missouri School of Law.
The authors are grateful to Janet Cooper Alexander, Paul Brest, Frank Partnoy, Mark Kelman,
Don Langevoort, Robert Mnookin, Janice Nadler, Richard Painter, Jeff Rachlinski, Len Riskin, Lee
Ross, Josh Stulberg, and Tom Ulen for advice and comments on earlier drafts. We are also grateful
for helpful comments received from attendees at the 1996 Stanford Law School Conference on
Behavioral Economics, Organizations, and Law, the 1996 Central States Law School Association
Annual Meeting, and numerous faculty workshops.
We also acknowledge financial support from the Stanford Center on Conflict Negotiation, where
both authors were previously Research Fellows, and the John M. Olin Foundation.
1. Financial costs include both out-of-pocket expenses-legal fees and expert witness fees, among
other costs-and the monetary value of the time clients spend on cases. David M. Tmbek et al., The
Costs of Ordinary Litigation, 31 UCLA L. REV. 72, 91 (1983). Generally speaking, the further a case
progresses through the system, the higher the costs incurred-increased legal fees (at least if attorneys
charge on an hourly basis), trial fees (including expert witness fees, stenographic costs, and travel
expenses), and client time away from work. See id. at 104-06; cf id. at 91 (listing the average amount
of time lawyers spent on each step of the litigation process). Trials cost so much more than settlement
that some theorists comparing the two assume the costs of settling to be equal to zero. See, e.g.,
Robert D. Cooter & Daniel L. Rubinfeld, Economic Analysis of Legal Disputes and Their Resolution,
27 J. ECON. LrrERATURE 1067, 1075 (1989).
The psychic costs of trials are also notoriously high. See, e.g., Marc Galanter, The Day After
the Litigation Explosion, 46 MD. L. REV. 3, 9 (1986) (For plaintiffs and defendants alike, litigation
proves a miserable, disruptive, painful experience. Few litigants have a good time or bask in the
esteem of their fellows-indeed, they may be stigmatized. Even those who prevail may find the process
very costly. (footnotes omitted)); David Luban, Settlements and the Erosion of the Public Realm, 83
GEO. L.J. 2619, 2621 (1995) (Learned Hand once wrote, 'I must say that as a litigant I should dread
a lawsuit beyond almost anything short of sickness and death.' This is conventional wisdom. Lawsuits
are expensive, terrifying, frustrating, infuriating, humiliating, time-consuming, perhaps all-
consuming.).
2. Estimates of the precise rate of settlement vary according to methodology and types of disputes
analyzed, but virtually no one seriously doubts that, as one author has put it, Settlement is where the
action is. Michael J. Saks, Do We Really Know Anything About the Behavior of the Tort Litigation

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