IMPLEMENTING EFFECTIVE ADR STRATEGIES: WHAT CAN GAME THEORY TEACH LITIGATORS?
In the enduring words of the late Kenny Rogers: “you got to know when to hold ‘em, know when to fold ‘em, know when to walk away and know when to run”, which some say should come instinctively to capable, experienced litigators.
But instincts pale when clients require formal modelling for complex claims, when outcomes vary and when identifying liabilities and sunk costs over a long period. Can the mathematical study of game theory teach valuable lessons for practitioners and the parties to such litigation? Can it provide a certain answer for the optimum time and approach to settlement, for example, and how much a dispute is really worth? We consider below what many say is the future of advanced litigation theory.
What is game theory?
Game theory is a branch of mathematics which studies decision making where outcomes depend on the combined actions of both the decision maker and other parties.
In litigation, game theory can be used to model settlement outcomes and optimise strategy by considering how: (i) the sunk costs of litigation reduce the net value of any award; (ii) settlements are simply negotiations on how to divide costs; (iii) the range of available settlement outcomes on any given facts can be driven by the parties’ approaches; and (iv) aggressive approaches may lead to poorer available settlement outcomes.
Game theory is therefore an incredibly useful tool which helps litigators settle claims on the best available terms by providing probability-based assessments in a form accessible to a range of sophisticated clients, from investors to insurers.
Apr-Jun 2023 issue
Shoosmiths LLP