A new book out this year entitled Beyond Right and Wrong: The Power of Effective Decision Making for Attorneys and Clients by Randall Kiser analyzes 11,306 attorney-client decisions in actual litigation matters and summarizes over 40 years of research regarding judge, jury, litigant and attorney decision making.

Settling Better than Going to Trial?

One of the more interesting conclusions is from an extensive study that Kiser and others conducted which found that most plaintiffs who decide to pass up a settlement offer and go to trial end up getting less money than if they had taken that offer. (See New York Times article “Study Finds Settling Is Better than Going To Trial,” summarized in part and quoted below.)

In an analysis of 2,054 cases that went to trial from 2002 to 2005, plaintiffs realized smaller recoveries than the settlement offered in 61% of cases.  Defendants made the wrong decision by proceeding to trial far less often–in 24% of cases. In just 15% of cases, both sides benefited from going to trial — the defendant paid less than the plaintiff had wanted but the plaintiff got more than the defendant had offered.

On average, getting it wrong by going to trial cost plaintiffs $43,000 or more in their recovery. Defendants, who were less often wrong about going to trial, nonetheless suffered a much greater cost– an average of $1.1 million–when they did make the wrong decision.  Corporations who are frequent targets of lawsuits, take note.

The vast majority of cases do settle — from 80-92% by some estimates, Kiser says — and there is usually no way to know whether either side in those cases could have done better at trial. But this book raises provocative questions about how lawyers and clients make decisions, the quality of legal advice and lawyers’ motives.

Insight or Wishful Thinking?

An article by Martha Neil in the May 10th ABA Journal entitled “Lawyers–Especially Men–May Be Too Optimistic About Case Outcomes, Survey Says,” notes that a survey co-authored by Elizabeth Loftus, a University of California-Irvine psychologist and law professor, reaches a similar conclusion about the quality of trial analysis: when asked to predict the outcome of both civil and criminal cases, lawyers are often overconfident.

According to “Insightful or Wishful: Lawyers’ Ability to Predict Case Outcomes”  published in the American Psychological Association’s Psychology, Public Policy & Law,  481 American lawyers representing plaintiffs and defendants expecting to go to trial within a year were asked their “win situation in terms of your minimum goal” and how confident they were of achieving that goal on a scale of 0 to 100.

Following-up after the trials, researchers found that 32% of lawyers met their goals, 24% exceeded their goals and 44% were less successful than they predicted. Surprisingly, the higher the expressed level of confidence, the more likely lawyers were to fall short of their goals, with male attorneys being more overconfident than female attorneys. Also, the accuracy of lawyers’ predictions about case outcomes was not enhanced by length of practice experience.

Overall, this might be considered a reasonable success rate for the majority of practitioners –56% met or exceeded their minimum goal.  But the fact that almost half the lawyers were not able to meet their minimum goal, even in spite of high levels of confidence, still amounts to glaring misjudgment and disservice to clients.

What’s The Reason?

The studies examined in Beyond Right and Wrong make it difficult to determine where the breakdown in the decision-making is occurring–are lawyers themselves not able to determine the likely results of trial, which the Loftus survey seems to indicate is the case for almost half of attorneys? Are lawyers not explaining the odds to their clients? Or are clients not listening? Lawyers certainly complain that clients often don’t realize the vagaries of trial or even hear and understand them when they are explained.

Some argue that fee structures favor trial over settlement, and therefore color lawyers’ judgment.  With contingency fee arrangements, lawyers may have an incentive to go to court to try to get a higher award than the settlement offer or because the fee structure pays a higher contingency percentage for awards won in court.  SeeAre Lawyers Just Kidding Themselves About Delivering True Service to Clients?” The Kiser study did conclude that mistakes were made more often in cases in which trial contingency fees were involved.

Where there is an hourly fee arrangement, critics contend that lawyers are often financially incentivized to go to trial simply because they are able to bill more for the additional hours required to prepare for and go to trial.  (A charge that is not confined to the litigation arena in this AFA-aware climate.)

All In Our Head?

Others point to basic psychology as the culprit. Martin A. Asher, an economist at the University of Pennsylvania and a co-author of the study, found that people are more averse to taking a risk when they are expecting to gain something, and more willing to take a risk when they have something to lose. Confronted with the choice of the certainty of receiving $200, or flipping a coin to receive nothing or $500, most people take the $200 rather than risk getting nothing.  But if the payer is reversed, people will choose to flip the coin, risking a bigger loss because they hope to pay nothing at all.

Still another aspect of this decision-making dynamic is that lawyers as a group are psychologically less resilient, i.e. less able to recover from setbacks, and therefore less likely to willingly contemplate a loss. The anticipation of having to deal with a setback encourages us to avoid the scenario altogether by giving a more optimistic forecast–one that the client is happy to hear.

Doctors Do It Too

While the estimation process in other fields may involve different factors, the difficulty in making accurate estimates seems to cross professions.  Harvard researcher Nicholas Cristakis asked doctors of almost 500 terminally ill patients to estimate how long their patients would survive.  63% of doctors overestimated survival time, and by an average of 530% too long (no, there is no missing decimal in that percentage).  Only 17% underestimated survival time.  Strikingly, the better the doctors knew their patient, the more likely they were to overestimate survival.  See The New Yorker, August 2, 2010, p. 43.

Similarly, the more important the client is to the firm or the closer the personal relationship, the more a lawyer may let her wishes for the client to prevail cloud her candid assessment of the likelihood of improving a result by going to trial.

What Doesn’t Help

The Kiser study’s findings are not, as some lawyers might suspect, the result of the disproportionate inclusion in the sample of young or inexperienced lawyers. On the contrary, the study found that factors like years of experience, rank of the lawyer’s law school and size of the law firm did not increase the accuracy of decisions about whether to go to trial.

The more significant factor affecting decision-making was the type of case. For example, poor decisions by plaintiffs to go to trial “are associated with cases in which contingency fee arrangements are common,” according to the report. “On the defense side, high error rates are noted in cases where insurance coverage is generally unavailable.”

Are We Ever Going to Get Any Better?

Another significant conclusion reached in the book is that over the time period reviewed the rate of poor decision-making has actually increased.

“It’s peculiar if any field is not improving its performance over a 40-year period,” Kiser said. “That’s a troubling finding.”

Of course law schools do not teach how to handicap trials, nor do they help develop the important skill of telling a client that a case is not a winner, a message that requires both judgment and diplomacy.

So What’s to Be Done?

According to the website for Kiser’s DecisionSet®, Karl Weick, a psychology professor and expert in organizational behavior, identified multiple factors that protect against catastrophic results in fast-paced, high-risk working environments, such as nuclear power plants, aircraft carriers, emergency rooms, and wildfire fighters, calling these “high-reliability organizations” or HROs. Other researchers have studied a wide range of experts who make hundreds of critical decisions in an ordinary day – intensive care unit nurses, fighter pilots, chess masters, platoon leaders, paramedics, and air traffic controllers — to determine what conditions and types of personal interactions contribute to avoidable errors.

The conclusion is that HROs continually monitor their systems and practices, including communication, leadership, culture, reward systems, training and risk perception and mitigation, to assure superior performances and avert low-probability, high-damage adverse events.

Kiser believes that the law firm environment presents challenges similar to those confronting HROs– multiple actors, intense time pressures, highly skilled professionals, inaccurate, misleading and insufficient information, and critical decision-making coupled with irreparable results – yet many law firms operate with a business model derived from trade guilds.

He recommends that firms fashion policies to promote accountability for case results, adherence to uniform performance standards, deterrence of information hoarding, sensitivity to faint signals of evolving problems, and resiliency in learning and recovering from close calls and actual mistakes.

Loftus suggests that many of the most overconfident lawyers are likely to be senior partners who may not typically seek out review or feedback.  She recommends that law firms take affirmative steps to insure third-party feedback in all their case management systems.

She also suggests that lawyers regularly obtain feedback by sending their clients anonymous survey questionnaires at the close of every case, including questions that target the issues surrounding the management of client expectations about the achievement of goals in a particular case.