Mediation Offers Better Odds Than Going To Trial

August 8, 2008

          Advocates of mediation often point to several advantages of that process over conventional courtroom litigation: the uncertainty (risk) of a litigated outcome; imperfect decision-making by the judge or jury; lack of the parties\’ control over the process;  and increased costs.  Now we can add to this list a more practical rationale:  if you are a plaintiff and you go to trial, the odds are you will do worse than if you settle. 

          At least that is the conclusion of a comprehensive study of civil lawsuits as reported by Jonathan D. Glater in The New York Times online Business Section.  The study, to be published in the September issue of the Journal of Empirical Legal Studies, is said to be “the biggest of its kind to date.”  It contrasts the results actually achieved by the parties at trial with the results that were offered to them in settlement but declined.  The decisions of both plaintiffs and defendants were separately analyzed.

          According to Randall L. Kiser, a co-author of the study and a principal analyst at DecisionSet, plaintiffs made the wrong decision by going to trial in 61 percent of the cases.  Defendants made the wrong decision far less often, in 24 percent of the cases.  Before defendants and their counsel draw too much comfort from having been “right” more often than “wrong” by choosing to go to trial (i.e., 76% v. 24%),  they should also consider that the study found getting it wrong cost plaintiffs $43,000 on average, while the cost of getting it wrong for defendants averaged $1.1 million.

          To me, the most interesting and compelling finding of the study reported by the NYTimes was this:

          “In just 15 percent of the cases, both sides were right to go to trial – meaning that the defendant paid less than the plaintiff had wanted but the plaintiff got more than the defendant had offered.”

          What this means is that in 85 percent of the cases that went to trial, the outcome was outside the last zone of settlement determined by the parties prior to trial.  If the plaintiff offered to settle for $100 and the defendant offered to pay $50, they both might intuitively expect  the trial to yield an outcome somewhere between $50 and $100.  And they would be wrong 85 percent of the time!

           The NYTimes article discusses some of the potential explanations for the consistent pattern of litigants going to trial when it is clearly the wrong choice – another interesting topic in itself.  But without knowing why, parties and counsel can appreciate the consequences of these choices.  

          The smart money goes to mediation.

          [Image: A roulette wheel, by Toni Lozano via flickr]