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

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 solely as calculating creatures. These theories disregard any role emotion might play in litigation decision making. Guthrie proposes a mplementary theory-the Regret Aversion Theory of Litigation Behavior-that 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 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 the Regret Aversion Theory for lawyers and for the legal system as a whole