Demand for Artificial Intelligence in Settlement Negotiations

Joshua S. Gans

Journal of Law and Economics, 2026, vol. 69, issue 4, 733 - 754

Abstract: When prediction by artificial intelligence (AI) substantially resolves trial uncertainty, a party purchasing a prediction from an AI supplier will disclose the prediction if it is in their favor and not otherwise, which signals the outcome to the other party. Thus, the trial outcome becomes common knowledge. However, this implies that the parties will settle rather than purchase the AI prediction. When parties have differing prior beliefs regarding trial outcomes, these differences are resolved only if the prediction is purchased and utilized. In this case, the AI prediction will be purchased in equilibrium. Different allocation rules awarding all trial costs to the losing party (the English rule) or having each party bear their own costs (the American rule) can impact the demand for AI during settlement negotiations, but this demand interacts with the expectations regarding whether a settlement will occur in the absence of an AI prediction.

Date: 2026
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