Litigation and Settlement in a Game with Incomplete Information: An Experimental Study

by Wolfgang Ryll

Overview

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.

Product Details

ISBN-13:	9783540613046
Publisher:	Springer Berlin Heidelberg
Publication date:	07/12/1996
Series:	Lecture Notes in Economics and Mathematical Systems , #440
Edition description:	Softcover reprint of the original 1st ed. 1996
Pages:	176
Product dimensions:	6.10(w) x 9.17(h) x 0.02(d)

Table of Contents

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.- 4.2 Behavioural Characteristics and Learning Behaviour.- 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.- 7.2 Results of the Second Play.- 7.3 Results of the Third Play.- 7.4 Summary of the Simulations and the Comparison of the Two Theories.- 8. Summary.- Appendix A.- Appendix B.- Appendix C.- Appendix D.- References.