In a legal action it is often the case that one party is more informed than the other — perhaps as to the extent of the defendant’s liability or the scope of true damages. In the field of information economics, litigants are said to hold private information and a skew in the distribution of this information can provide a measurable bargaining value to the more informed litigant. Using the right analytic methods, litigants can quantify the value of their private information and adjust their settlement bargaining strategy to reflect it. That is, litigants can “price” their informational advantage and seek to receive good value for it in settlement. Conversely, litigants with an informational deficit can quantify the cost of their informational deficit or uncertainty and assess how it impacts their settlement bargaining position.
The results of this analysis are an invaluable consideration as litigants and their legal counsel work to formulate both legal strategy and settlement policy in advance of settlement negotiations. For plaintiffs, information about their claim can be as influential to the question of settlement valuation as the threat of trial itself. Likewise for defendants, an informational advantage can serve to moderate the pricing of legal liabilities in the settlement bargaining process.
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