The Evolution and Persistence of Optimism in Litigation

Empirical evidence suggests that lawyers and litigants are systematically optimistic with respect to the outcome at trial. Using evolutionary game theory, this paper seeks to provide a theoretical explanation for the persistence of the optimism bias. The adaptive force of optimism derives from its function as a commitment device in the pre-trial bargaining stage. Optimistic lawyers, by credibly threatening to resort to costly litigation, succeed in extracting more favorable settlements. Therefore, market selection forces and cultural transmission dynamics dictate an equilibrium with a positive level of optimism. Understanding the dynamics leading to optimism provides new insight regarding the different factors that influence the level of this cognitive bias. In particular, it is shown that the design of legal rules affects the equilibrium level of optimism, which in turn affects the relative efficiency of the different legal designs. Methodologically, by enabling a more systematic exploration of the perception-shaping role of the law, this paper seeks to expand the conventional boundaries of behavioral law and economics