Heads I Win, Tails you Lose: The Psychological Barriers to Economically Efficient Civil Settlement and a Case for Third-Party Mediation · University of Wisconsin Law School Digital Repository · University of Wisconsin Law School Digital Repository

Heads I Win, Tails you Lose: The Psychological Barriers to Economically Efficient Civil Settlement and a Case for Third-Party Mediation

Nearly ninety-five percent of all civil suits are settled outside the courts. Thus, a vast majority of litigation is resolved outside a system with controls for fairness and equity. Judges and legislators rely on standard economic theory, which suggests that litigants are rational actors seeking to optimize their self-interest, and assume that litigants will negotiate an efficient, equitable result outside the confines of the judiciary. While this seems rather intuitive, this simple assumption is largely unfounded. This Comment, utilizing prospect theory, suggests that litigants are subject to a wide range of decision-making biases that affect their ability to reach economically rational and efficient settlements. These inherent psychological biases result in suboptimal, and ultimately unfair, civil settlements for all parties involved. This Comment proceeds to suggest that the use of third-party mediation promotes fairness and economic efficiency and eliminates many of the inherent biases that plague traditional civil settlement negotiations. As such, courts and legislatures should attempt to increase the use of mediation in settling civil disputes.