Loss Aversion in Settlement Negotiations

Settlement negotiations regarding legal claims can generally be successful only if discussions lead to a compromise which leaves both parties fearful that litigation may lead to a result potentially far worse. When there are strong competing arguments that make it difficult to judge who will win at trial this is especially true. After all, why settle if the other side has only offered something that barely covers your expense or only compensates a plaintiff with a minimal amount after costs and attorneys fees.

As noted in an article by Floyd J. Siegal, an Encino area mediator, a settlement is “the functional equivalent of purchasing insurance against an uncertain risk.”

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