Damage Caps, Motivated Anchoring, and Bargaining Impasse

Greg Pogarsky and Linda Babcock

The Journal of Legal Studies, 2001, vol. 30, issue 1, 143-59

Abstract: This paper reports results from a bargaining experiment testing the effect on settlement rates of a damage cap set much higher than the value of the underlying claim. We presented 462 student subjects with materials outlining a personal injury lawsuit and permitted randomly assigned subject pairs to negotiate a pretrial settlement. We find that imposition of a $1 million cap reduced the settlement rate through a process termed "motivated anchoring," in which a relatively high damage cap disproportionately anchors the plaintiff's estimate of the likely damage award. The result is a widened disparity in opposing litigants' judgments and less settlement. These results contrast with findings from previous experiments where a relatively low cap constrains the parties' judgments and produces more settlement. This pair of results suggests the effect of a cap will depend on its size relative to the stakes of the case. Copyright 2001 by the University of Chicago.

Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:ucp:jlstud:v:30:y:2001:i:1:p:143-59

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