Volume 1999    Issue 1

Better Settle Than Sorry: The Regret Aversion Theory of Litigation Behavior

Chris Guthrie^*

Legal scholars have developed two dominant theories of litigation behavior: the Economic Theory of Suit and Settlement, which is based on expected utility theory, and the Framing Theory of Litigation, which is based on prospect theory. While Professor Guthrie acknowledges the explanatory power of these theories, he argues that they are flawed because they portray litigants as solely calculating creatures. These theories disregard any role emotion might play in litigation decision making.

Guthrie proposes a theory complementary to those above--the Regret Aversion Theory. The proposed Regret Aversion Theory views litigants as both calculating and emotional creatures. With roots in economics, cognitive psychology, and social psychology, the Regret Aversion Theory predicts that individuals will seek to make decisions that minimize the likelihood that they will experience postdecision regret. Because regret is most likely to arise when individuals discover that they would have obtained better outcomes if they had decided differently, the Regret Aversion Theory predicts that people will make decisions that shield them from this knowledge.

Using an experimental survey methodology, Guthrie tests this theory in the litigation context and finds that litigants, when choosing between settlement and trial, systematically prefer settlement because it minimizes the likelihood that they will experience regret. Settling reduces regret by allowing litigants to avoid discovering that trial might have been the better decision; trial offers no such protection. Guthrie concludes by examining the implications of Regret Aversion Theory for lawyers and for the legal system as a whole.

* Associate Professor of Law and Senior Fellow at the Center for the Study of Dispute Resolution, University of Missouri School of Law. B.A. 1989, Stanford; Ed.M. 1991, Harvard; J.D. 1994, Stanford. For their advice and comments on earlier drafts of this article, I am grateful to Tracey George, Brad Joondeph, Russell Korobkin, Don Langevoort, Bob Mnookin, Jeff Rachlinski, Len Riskin, Josh Stulberg, Cass Sunstein, Tom Ulen, and participants in a faculty colloquium at the University of Missouri School of Law. I am also grateful to Erik Edwards for his capable research assistance, Diane Collins for her diligent interlibrary loan assistance, and the University of Missouri Law School Foundation for financial support.