Why Not Settle? Risk Preference Explanations

다국어 초록 (Multilingual Abstract)

This paper argues that optimists are risk lovers. If a small fraction of the population is risk loving, they would rather opt for a trial than settle out of court. Because they love risks, they are more likely to institute cases with uncertain outcomes that is, where either party has a chance of winning. Moreover, if parties to a specific type of case are more risk loving than the overall population, they will be less hesitant to institute unfavorable cases, thus increasing the trial rate and decreasing the winning probability. The paper further argues that because the English rule of litigation increases the risk of trial, it encourages risk lovers to try their cases in court.

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