The "escalation game" is costly and often ill advised.  In many lawsuits, the parties are competing for an asset that essentially has a fixed value.  Yet both parties are required to incur the costs of litigation (attorneys fees, expert fees, discovery, opportunity costs, relationship costs, etc.) to determine rights to the asset (plaintiff's right to obtain vs. defendant's right to retain).  

Because the asset is fixed in value, and parties in paying increased costs to participate in the litigation, they are participating in what game theorists call the "escalation game."  That is, litigation is forcing higher and higher costs over a fixed value prize -- the escalation game.   When in an "escalation game," economists and theorists have one piece of advice -- "get out of the game."  See Raiffa, Howard, 1982, The Art and Science of Negotiation, Cambridge, Mass.: The Belknap Press of Harvard University Press.

More options are available earlier in the dispute.  As the dispute moves forward, it is almost always true that options for resolution diminish.  Relationships deteriorate and doors are closed.  This reduction in potential solutions necessarily makes resolution more challenging, and less rewarding.  In some circumstances (e.g., employment & termination, IP disputes, potential contract termination), a single action may dramatically reduce the number and character of options for resolution.

The effects of several settlement "biases" factors are reduced.  Each bias listed below tends to make settlement more difficult.  Each bias operates against an improved understanding of the conflict - and therefore against settlement.

• Confirmation bias.  A natural consequence of the competitive nature of litigation is that parties tend to become more and more entrenched in their litigation positions.  Each new event in the litigation and discovery tends to "confirm" the version of the "truth" that the litigating party has adopted.  

• Memory adjustment.   As time passes, there is a tendency for the memory to convert somewhat vague impressions into firm memories.  Parties become more entrenched as they become more and more convinced of their position - even though it was not initially and actually as strong as they have come to believe.  Studies show memories to be malleable, and even creative (a fact well known to most trial lawyers experienced in presenting "eye witness testimony").

• Sunk costs.  Litigants tend to feel that they cannot accept a "loss" in light of the money already expended in the litigation. "I can't settle for that amount, I have too much money in this suit already."  Although the money previously spent on legal fees and other expenses is irrelevant to the settlement decision, that expenditure can often prevent a party from accepting a settlement that is reasonable, rationale and serves their interests. 

You can minimize discovery costs and discovery biases.

• Expense.   The form of generalized discovery that is typical in civil litigation is often far broader than is needed for settlement discussions and decision-making.  Discovery in civil case is by its nature retrospective.  Although settlement requires consideration of this information, the level of detail required is not the same.  Moreover, important aspects of settlement involve future action rather than a historic inquiry,

• Focus informational exchanges.  In mediation, the parties can undertake focused exchanges of information under agreements tailored to provide the information each needs for settlement decisions.  Where needed, that can include documents and depositions.

• Avoid “discovery confirmation.”  There is a confirmation bias present in, and specialized to, discovery in civil litigation.  Attorneys have a tendency to construct a case theory, and then conduct "discovery" to confirm that theory.  Consequently, the discovery (while expensive) may not lead to the real discovery of information that contradicts the case theory adopted by each party but rather work to confirm theories -- thereby causing parties to become more entrenched.  As the attorney works through discovery, he or she can escalate their commitment to the initially selected case theory - even where not rationally founded.  See Birke & Fox, Psychological Principles in Negotiating Civil Settlements, 4 Harv. Neg. L.R. 1 (1999).

Copyright ©2002 Joseph P McMahon Jr.