Litigation Visualization: Legal Dynamics™ App
Legal Dynamics Chart
Months to trial
Months to trial: 4
This analysis tracks the changing shape of the plaintiff’s wealth-
demand curve as time to trial decays from 40 to 4 months and as future (prospective) costs are incurred and transitioned to sunk.
- The user can see how time decay has the effect of flattening the wealth-demand curve from the plaintiff’s perspective. As the trial approaches and the plaintiff has increasingly already incurred the large bulk of his litigation expense then, on a forward looking basis, trial begins to compare well with settlement. In this case, aggressive settlement demands that would very likely be rejected are economically comparable to more conciliatory bargaining postures.
- Essentially this chart illustrates how, after three years of pre-trial litigation expense, the plaintiff has not much more to lose by going all the way to court. The settlement surplus that might have induced both parties to settle has been eroded over time, leaving very little incentive to settle.
- This analysis further illustrates how this time decay effect impacts the plaintiff’s optimum settlement bargaining demand. Absent the converging effects of information exchange and conciliation, the simple erosion of the settlement surplus over time pushes the plaintiff’s optimum demand from about $5.5 million to $6.8 million.
Litigation Visualization: How it works
The Legal Dynamics™ application allows the reader to graphically visualize the dynamic way in which each economic variable of trial and settlement can impact expected wealth from the legal claim and the optimum settlement bargaining decision. The application is for illustration purposes only.
In the examples presented, we’ve taken a fairly typical commercial lawsuit and, using our game theoretic model of legal claims, we’ve examined the relationship between settlement policy and the theoretical expected wealth response. Here, expected wealth is defined as the probability-weighted combination of gains from settlement and trial (that is, the value of the legal claim having regard for the potential for settlement). This distinguishes our approach from conventional models of valuing legal claims, which typically equate claim value to trial value. Our model is also distinguished because we explore the economics of legal disputes in their bilateral context as opposed to the more conventional individual or unilateral view of trial.
The Legal Dynamics application illustrates the impact on the settlement offer v wealth relationship caused by a change in one of several key economic assumptions about the case, such as: cost of capital, contingent fee structure, trial risk etc. Registered Visitors will be able to view the chart for our groundbreaking analysis of punitive damages risk, and other restricted access analyses which will be added to the Legal Dynamics application over time.
Isolating Economic Variables
The reader can use the Legal Dynamics app to isolate the effect of individual economic variables that are pertinent to the analysis of litigation and settlement, and visually explore the impact of these individual factors across some range in their value. Use the dropdown menu (above right) to select from a range of different model inputs and load the relevant analysis by clicking “Go”. The reader can then use the blue button at the bottom of each chart to adjust the variable over its range to demonstrate its impact on the economics of the legal claim and the optimisation of settlement. Notice how sensitive the settlement v wealth relationship is to each variable, and also how the optimal settlement policy varies with each setting of the input variable.
A key purpose of the Legal Dynamics tool is to graphically illustrate how the sensitivity of legal disputes to these individual factors can be nonlinear and sometimes counterintuitive. The application illustrates how variation in just one trial or settlement assumption has a profound and often complex effect on the settlement v expected wealth opportunity set – its location, shape and the optimum settlement offer and wealth coordinates. Given the complex nature of this relationship and its sensitivity to assumptions, it is clearly challenging for any litigant to correctly factor the impact of just one economic assumption about trial and settlement. But real legal disputes involve the consideration of many more economic variables – simultaneously!
Optimizing Real World Legal Claims
As difficult as this “single variable” problem can be, real world legal disputes require the simultaneous factoring and analysis of up to 40 different economic assumptions – normally under conditions of uncertainty. These can include, uncertainty as to the trial award or defendant liability, discount rates for each of the disputants, time to trial, risk aversion, legal fees, contingent cost structures and indemnity rates, etc.
Needless to say, this simultaneous analysis and optimization across all trial and settlement economic variables is a considerably more complex challenge; especially using a game theoretic model of dispute that factors bilateral considerations, uncertainty and the contingent nature of legal claims. It is this more complex and integrated multi-factor analysis of legal disputes that is the primary function of our OptiSettle™ software application. Indeed, all of the data sets used to create the sensitivity analyses displayed by the Legal Dynamics application were created with OptiSettle.
To learn more about OptiSettle click here.