OptiSettle™ is a proprietary software application developed by SettlementAnalytics™ to advise clients involved in high value commercial litigation on matters of claim valuation and settlement bargaining strategy. The application represents a generalised model-driven litigation analytics platform incorporating both settlement bargaining optimization and a comprehensive litigation risk management framework. With OptiSettle, we seek to bridge the “computational gap” between the economic analysis of trial and the resulting consequences for legal claim valuation as a whole and settlement bargaining optimization.
OptiSettle is based on proprietary complex mathematical models of litigation and settlement and integrates theoretical concepts from a number of theoretical disciplines including:
- Information economics
- Game theory
- Financial economics
- Bargaining theory
Although our models are proprietary in nature, the approach we take is based on work that has been academic orthodoxy for over 25 years.
Leveraging Expert Opinion
OptiSettle is a tool for maximising the use of expert opinion in litigation and settlement decision-making – it does not seek to replace it. Inputs to OptiSettle are very similar to the quantitative information that is already gathered by corporate litigants and their legal counsel in their analysis of trial and its economic consequences. In this way, OptiSettle represents a more complete leveraging of a company’s existing expert system, not its displacement.
The Economic DNA of Legal Dispute
Where OptiSettle differs from the conventional analytic approach is in its application of a game theoretic framework as opposed to a decision theory framework. The typical economic analysis of litigation focuses on the use of expected value and, on occasion, the application of decision trees. But this technology limits the perspective to a strictly trial-centric view of the dispute. Such approaches can only frame the settlement bargaining problem rather than solve it. Using trial value and decision theory tools, no attempt can be made to explore the rational distribution of the cost surplus, settlement optimization or estimate the probability of settlement.
By using a game theoretic framework, OptiSettle allows litigants and counsel to examine legal disputes in a more complete economic context — across the dyad of trial and settlement. Using this approach yields greater analytic insights:
- Instead of just calculating a value of trial, OptiSettle examines the value of the dispute as a whole
- Instead of looking at trial in isolation, OptiSettle recognises that trial only occurs if it firsts ‘survives’ settlement bargaining − this can have important consequences for the effective economic exposure represented by trial
- Essentially, our models treat trial for what it is: the ‘economic residue’ of a failed settlement bargaining process
Unlike conventional litigation analysis, OptiSettle generates an explicit theoretical probability of settlement and impasse based on the economics of the dispute, the uncertainty in the trial outcome and the bilateral interaction of the disputants. Overall, our models, process and software give a more complete analytic consideration of the factors that are fundamental to legal dispute. These include:
- Bilateral nature of the conflict
- Uncertainty in the trial outcome
- Strategic interaction of the disputants
- The contingent nature of legal claims
- The filtering process of settlement bargaining
We refer to these characteristics of legal dispute as the ‘Economic DNA’ of legal dispute, because they are the building blocks of conflict and are formative to both claim value and settlement decision making. However, these fundamental economic aspects of litigation are nowhere present in the conventional approach to litigation analysis.
An added benefit of OptiSettle’s game theoretic framework is that it also allows litigants to examine the economic risk of the entire dispute rather than just the risk of the trial outcome. OptiSettle explores litigation risk visually – allowing litigants to look at the potential dispersion in the total litigation cash flow, and the relationship between a settlement offer and various dimensions of the economic response to that offer such as:
- Litigation wealth
- The weighted average term of dispute cash flows (we introduce the concept of lawsuit ‘duration’)
- Various measures of wealth variance (standard deviation, semi-deviation, mean absolute deviation)
- Expected capital at risk (we look at the sum of future legal costs as a capital call that is put at risk by a bargaining failure)
- Average, minimum, maximum trial value residue
Fully Specified Models
OptiSettle is a comprehensive model of the litigation and settlement bargaining “game” that includes vital real world characteristics of ligation economics such as cost of capital, cost shifting rules, risk aversion, fixed and contingent fee structures and even the potential for sunk cost indemnification. In all, OptiSettle accepts over 40 different quantitative metrics of trial and settlement in plaintiff and defendant modules.
OptiSettle solves a number of particularly difficult problems associated with the analysis of litigation settlement bargaining. Some of these include:
- A fully-specified, fully-automated set of game theoretic models of settlement bargaining – including the canonical screening and signaling games
- Risk aversion discounting adjustments to the standard model
- Integration of different types and dimensions of uncertainty
- Concession value analytics
- A comprehensive litigation risk measurement and visualization framework
OptiSettle’s main analytic module presents a generalized model of legal conflict. Accepting over 40 different user inputs, OptiSettle is able to encode and analyze any type of lawsuit or disputed insurance claim with point and click simplicity.
In the main dashboard, OptiSettle delivers a rich array of model-based litigation analytics. Users can graphically dissect and visualize any dispute with 32 different hover-over charts and 40 quantitative outputs. With OptiSettle’s unique perspective, litigants and counsel gain quantitative insights that were previously unavailable, including:
- Pricing legal claims from an investment management perspective
- Identifying the optimum settlement offer or demand
- Quantifying the risk of settlement offer rejection
- Reverse engineering the information implied in settlement decisions
- Calculating the implied information contained in settlement offer rejection
OptiSettle also delivers innovative risk measurement tools with its LitigationSimulator™ technology. This module utilizes Monte Carlo simulation to statistically ‘interrogate’ the application’s game theoretic models. Using LitigationSimulator, plaintiffs and defendants can bench-test their settlement decisions before going into live-fire negotiations.
As output, LitigationSimulator generates animated wealth dispersion charts, summary statistics, PDF reports and spreadsheet data downloads. The option to create dual simulations side-by-side allows users to visually compare the risk-return profile of alternative settlement offers and adopt settlement policies that better match corporate risk tolerance. We believe this is the first time that simulation and game theory have been combined to explore the financial variance of legal claims.
To learn more about the extensive range of OptiSettle capabilities, click on the ‘Functionality’ tab above.
To see a video of OptiSettle, screenshots, click on the ‘Screenshots’ tab above.
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