Litigation and Settlement under Loss Aversion

Cedric Argenton, Xiaoyu Wang

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In this paper, we investigate how loss aversion affects people's behavior in civil litigation. We find that a loss-averse plaintiff demands a higher offer for small claims to maintain her threat to proceed to trial compared to a loss- neutral plaintiff. For larger claims, a loss-averse plaintiff demands a lower offer to increase the settlement probability as loss pains her extra in trial. We also investigate how various policies affect loss-averse litigants' settlement decisions. Only a reduction in the asymmetry of information about trial odds uniformly leads to higher settlement rates.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages28
Publication statusPublished - 24 Mar 2020

Publication series

NameCentER Discussion Paper


  • settlement
  • loss aversion
  • Asymmetric Information


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