Calculated Risk: Blog 2
For a profession so deeply built on words, it seems strange that litigation always ultimately comes down to a number: What shall we settle for? What quantum did the court award?
These are the questions clients care about most. From the perspective of decision science, they are judgments made under uncertainty: numerical assessments based on incomplete, often contradictory evidence, and reached without knowing how the witnesses will perform, how the judge or tribunal will react, or which way the case will finally go.
A great deal rides on getting such numbers roughly right. Anyone involved in litigation should therefore understand that the first number put on the table often shapes how every later one is judged, as a result of the anchoring bias.
First Impressions
Anchoring is a cognitive bias that operates on numerical judgments (i.e. any assessment whose answer is a number). It is a systematic error in which an initial figure pulls every subsequent number towards it, even when that figure is arbitrary, implausible or obviously irrelevant.
It was first demonstrated by Tversky and Kahneman in their seminal 1974 paper in Science. They asked participants to estimate various quantities expressed as percentages, such as the proportion of African countries in the United Nations, and to give each estimate by reference to a number that had been generated by a (rigged) wheel of fortune.
The random, irrelevant number swayed the estimates heavily: those who saw the wheel stop on 10 guessed that 25% of UN member states were African, while those who saw it stop on 65 guessed 45% (these are the median estimates). The wheel obviously carried no information, yet it shifted the answers by twenty percentage points.
While the true proportion in this instance is, of course, certain, few people actually know it. Most anchoring studies since – and especially those in the legal field – examine judgments that have no single right answer, such as the value of a claim or the length of a criminal sentence.
Across studies, the anchoring bias is strong and pervasive. It has been replicated reliably across students, mock jurors, senior lawyers and judges, and it affects the exact judgment that assessing litigation risk requires: putting a number to something fundamentally uncertain.
Opening Gambit
Most litigators are at least intuitively aware of anchoring in the context of settlement negotiations, where numbers are discussed explicitly. An offer of £2m can feel like a reasonable compromise rather than a large sum when it follows an opening proposal of £7m from the other side.
The research bears out this intuition. In one experiment, people acting as a hypothetical claimant were significantly more likely to accept a settlement offer of $12,000 when it followed a low opening bid of $2,000 than when it followed a high opening of $10,000: 63% would accept after the low opening, compared with 34% after the high one (Korobkin and Guthrie, 1994).
An opening offer may not bear any relation to the true merits – though ideally it would – yet it still operates to set a psychological reference point against which subsequent numbers are judged. For anyone weighing a serious settlement offer, understanding numerical anchoring is a strategic advantage, not an academic curiosity.
Loaded
There are good reasons to think legal professionals would be, if not immune to anchoring, then far less susceptible to it.
Judges and tribunals are trained decision-makers, experienced at making the same judgments (damages awards, sentencing decisions) many times over, and motivated by their reputations to get them as nearly right as anyone can. If any group should be able to resist the anchoring bias, it is judges.
The evidence, however, suggests otherwise.
Anchoring in quantum awards
One study tested the presence of anchoring among a group of 167 US federal magistrate judges (Guthrie, Rachlinski and Wistrich, 2001).
Each judge read the same case study, describing a serious personal injury claim: a self-employed electrician left unable to use his legs after a delivery company’s truck ran into him when its brakes failed. Liability was clear on the facts; the plaintiff claimed damages for lost wages, hospitalisation and suffering, but had not put a figure on the claim.
One group of judges was simply asked what they would award in compensatory damages. A second group was first asked to rule on a hopeless motion to dismiss – which argued, meritlessly, that the claim did not clear the $75,000 minimum the court needed to hear it – and only then to set damages.
The judges in the second group were not fooled by the motion: only two of the 87 in that group granted it (and one of those said they wanted the claim amended to specify an amount). However, the $75,000 still pulled their ultimate damages awards down: judges who never saw the motion awarded around $1.25m on average; those who saw the $75,000 first went on to award around $882,000 – close to a third less.
Anchoring in sentencing decisions
A different study tested the effect with an anchor that was not merely irrelevant but plainly random.
Fifty-two junior lawyers from various German courts, all recently qualified and newly sitting as judges, were each given a case study describing a woman who had been caught shoplifting for the twelfth time. They were asked to throw a pair of dice and to treat the result as the prosecutor’s sentencing demand, then to consider whether the sentence should be higher or lower than that number, and finally to decide the sentence themselves, in months of probation.
Unknown to the participating lawyers, the dice were loaded, so that half of them rolled a three and half of them rolled a nine.
Those whose dice totalled nine recommended an average of 7.81 months as the sentence; those whose dice totalled three recommended an average of 5.28 (Englich, Mussweiler and Strack, 2006). A number which the participants had produced themselves, from a source they knew to be random, still moved their final sentence by roughly half.
For anyone valuing a claim, there are two main implications from this research:
- First, if professional judges cannot mentally disregard a number they know to be irrelevant, parties negotiating under commercial pressure are unlikely to manage it unaided.
- Second, the “value of a case” is not fixed. Settlements are considered against the sum a court would likely award, but that figure is itself movable by the numbers appearing around it.
Ultimately, no-one is immune from the anchoring bias, and figures may be more malleable than they appear.
Reasonable Doubt
There are two qualifications worth flagging here.
While anchoring undoubtedly occurs, there is considerable doubt over its influence in any particular case. Real disputes usually contain too much complexity to draw a straight line from one number to one outcome.
Also, the effect works below the level of conscious awareness, so even the individual making the decision cannot reliably report its effect.
These are not reasons to dismiss anchoring from consideration: a cognitive bias this strong and this well-evidenced is one to plan for and strategise around in advance.
Anchors Away
Anchoring is difficult to resist, and the evidence that we can train ourselves out of it is limited and mixed. So what can be done?
A few simple practices are likely to mitigate its influence.
The most important is simply to remember that the first number on the table has more influence than it should, however implausible that number may be.
Beyond this: settle on your own number before you hear the other side’s, so you have a well-reasoned and independent reference point to defend; and, when a figure is put to you, pause and deliberately generate the reasons it could be wrong before you respond.
References
Englich, B., Mussweiler, T. & Strack, F. (2006). Playing dice with criminal sentences: The influence of irrelevant anchors on experts’ judicial decision making. Personality and Social Psychology Bulletin, 32(2), 188–200.
Guthrie, C., Rachlinski, J. J. & Wistrich, A. J. (2001). Inside the judicial mind. Cornell Law Review, 86, 777–830.
Korobkin, R. & Guthrie, C. (1994). Psychological barriers to litigation settlement: An experimental approach. Michigan Law Review, 93, 107–192.
Tversky, A. & Kahneman, D. (1974). Judgment under uncertainty: Heuristics and biases. Science, 185(4157), 1124–1131.
This blog is the second in the Calculated Risk series, exploring the psychological and numerical concepts that shape how litigation risk is assessed, communicated and understood. Blog 1, The Confidence Gap, looks at overconfidence in quantifying risk.