Cognitive Coherence and Tort Reform
35 Pages Posted: 19 Feb 2007 Last revised: 9 Sep 2009
Date Written: July 26, 2009
Abstract
We experimentally study the effects of the split-award tort reform, where the state takes a share of the plaintiff's punitive damage award, on litigants' beliefs and bargaining outcomes. In addition, we study the formation of litigants' beliefs in a strategic environment. Our results provide support for coherence-based reasoning theories: coherence shifts in litigants' background beliefs (elicited before a role is assigned and after commitment to a choice at the pretrial bargaining stage) suggest bi-directionality between choices and beliefs. Our findings also suggest role-specific bias in the updating of plaintiffs' beliefs about firm's negligence. Finally, our findings indicate that split-awards affect plaintiffs' beliefs about fairness and lower out-of-court settlement amounts.
Keywords: Tort Reform, Belief Formation, Split-Award Statute, Coherence-Based Reasoning, Role-Specific Bias, Self-Serving Bias, Motivated Reasoning, Settlement, Litigation, Experiments, Debiasing through Law, Experiments
JEL Classification: K41, C90, D83, A12
Suggested Citation: Suggested Citation