CMS Disputes Digest
Conflict Analytics: The Game Theory of Legal Dispute
From an economic perspective, legal conflict has an inherently game theoretic quality to it. Disputes are a game of competing bilateral interests involving strategic interaction in the presence of a high degree of uncertainty. Sophisticated litigants already factor much of this complexity using experience, intuition and expert judgment. But since the mid-1980s a large body of theoretical research into the game theory of litigation and settlement has developed, providing for a more formal analysis of the problems that confront litigants.
In this article we will examine the parallels between these formal and informal applications of game theory in legal conflict. Given that disputes themselves and the strategies already employed by corporate litigants are innately game theoretic, the more formal application of this analytic approach may be worth considering.
The litigation game
In the midst of a dispute, litigants attempt to solve two problems simultaneously. On the one hand they seek to maximise the strength of their legal case. At the same time, they seek to identify and implement legal and settlement bargaining strategies that will also maximise their economic outcome.
This latter objective clearly involves substantial complexity. The economic outcome of any legal conflict is not simply a function of unilateral action or individual decision-making. The value that is extracted from or incurred in a dispute turns critically on bilateral processes including settlement bargaining and strategic interaction of the disputants throughout the entire pre-trial process.