Settlements v. Judgments: A Prospect Theory Analysis
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Abstract
When the Rational Choice model reveals itself insufficient to explain why parties in judicialized Labor disputes in the Provincia de Buenos Aires prefer to settle over waiting for a final decision, the Prospect Theory provides a sound explanation: as Labor Law and Procedural Rules become applicable, they produce a visible cost-shift to the employer, so parties expect judges to decide in favor of the workers. In this scenario, the employer’s perception of what is to be considered a cost and a benefit become altered, incentivizing her risk-aversion and leading her to bargain settlements that she wouldn’t even consider otherwise.
JEL CODE: J23, J81.
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How to Cite
Morando, J. M. (2022). Settlements v. Judgments: A Prospect Theory Analysis. Revista De La Facultad De Jurisprudencia., 1(13). https://doi.org/10.26807/rfj.vi.465
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References
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Victor, M. B. (2015). Decision Tree Analysis: A Means of Reducing Litigation Uncertainty and Facilitating Good Settlements. Georgia State University Law Review, 31 (4).
Coase, R, (1960). The Problem of Social Cost. Journal of Law and Economics, 3, pp. 1-44.
Cooter, R. & Ulen, T. (2012). Law & Economics, 6th edition. Pearson.
Gilboa, I. (2010). Rational Choice. The Massachusetts Institute of Technology Press.
Grisolía, J. (2005). Derecho del Trabajo y de la Seguridad Social, 11th edition. Editorial Lexis Nexis.
Guthrie, C. (2003). Prospect Theory, Risk Preference, and the Law. Northwestern University Law Review, 97 (3).
Hansson, S. (2005). Decision Theory: A Brief Introduction. Royal Institute of Technology.
Kahnemann, D. (2012). Pensar Rápido, Pensar Despacio. Random House.
Kahnemann, D. y Tversky, A. (1979). Teoría Prospectiva: un análisis de la decisión bajo riesgo. Econometrica, (2), pp. 263-291.
Kahnemann, D. y Tversky, A. (1981). The Framing of Decisions and the Psychology of Choice. Science New Series, 211 (4481), pp. 453-458.
Posner, R. (2013). Análisis Económico del Derecho. Fondo de Cultura Económica.
Rachlinski, J. (1996). Gains, Losses and the Psychology of Litigation. Cornell Law Faculty Publications.
Rosenberg, D. y Shavell, S. (1985). A Model in which Suits are Brought for Their Nuisance Value. International Review of Law & Economics, 5, pp. 3-13.
Shavell, S. (2004). Suit, Settlement, and Trial: A theoretical Analysis under alternative Methods for the Allocation of Legal Costs. The Journal of Legal Studies, 11 (1), pp. 55-81.
Sola, J. (2006). Metodología de la economía positiva: los límites de la predicción. Libertas, XIII (45).
Stordeur, E. (2011). Análisis Económico del Derecho. Una introducción, Abeledo Perrot.
Sunstein, C. R., Jolls, C. & Thaler, R. H (1998). A Behavioral Approach to Law and Economics. Coase-Sandor Institute for Law & Economics, (55).
Victor, M. B. (2015). Decision Tree Analysis: A Means of Reducing Litigation Uncertainty and Facilitating Good Settlements. Georgia State University Law Review, 31 (4).