Cognitive Biases and Heuristics in Tort Litigation: a Proposal to Limit Their Effects Without Changing the World

• Publication year: 2021

85 Nebraska L. Rev. 15. Cognitive Biases and Heuristics in Tort Litigation: A Proposal to Limit Their Effects Without Changing the World

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John E. Montgomery(fn*)

Cognitive Biases and Heuristics in Tort Litigation: A Proposal to Limit Their Effects Without Changing the World

TABLE OF CONTENTS

I. Introduction ........................................................ 16
II. Arguments that Biases and Heuristics Affect Jurors:
Theory and Fact .................................................... 19
A. Rational Choice as a Flawed Behavioral Model .................... 20
B. Empirical Evidence that Decisionmaking Involving
Risk is Affected by Biases and Heuristics ....................... 22
C. The Implications of Risk Misperception .......................... 27
III. Proposals to Counteract the Influence of Biases and
Heuristics ........................................................ 29
IV. Reasons for a Cautious Approach to the Problems
Caused by Biases and Heuristics in Torts Litigation ............... 35
A. The Scope and Magnitude of the Effects of Biases
and Heuristics .................................................. 35
B. Context Considered: The Difference Between
Laboratory Studies and Litigation ............................... 37
V. A Case-by-Case Approach to the Problems Caused by
Biases and Heuristics in Torts Litigation ........................... 40
A. Areas of Tort Litigation Most Likely Affected .................... 40
B. Approaches to the Control of Juror Misperceptions ................ 41
C. Jury Misperception of Risk in Torts Cases ........................ 43
D. Securities Fraud Cases ........................................... 46
E. Nonobviousness Cases in Patent Law ............................... 47
F. Valuation Cases in Mergers and Acquisitions ...................... 48
G. A Proposal for Dealing with Errors Caused by
Biases and Heuristics in Tort Litigation ......................... 49
VI. Conclusion ......................................................... 51

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"Probability is the very guide of life," in Bishop Butler's famous phrase. He does not mean, of course, that calculations about dice are the guide of life but that real decision making involves an essential element of reasoning with uncertainty. Humans have coped with uncertainty without the benefit of advice from mathematicians, both before and after Pascal and Fermat's discovery of the mathematics of probability in 1654.(fn1)

I. INTRODUCTION

Behavioral studies indicate that individuals do not always make objective decisions about risk.(fn2) Various cognitive biases and heuristics--mental shortcuts everyone uses consciously or subconsciously to make decisions under conditions of uncertainty--introduce error and subjectivity.(fn3) At one level, these studies merely confirm the obvious: individuals make decisions based on both reason and emotions. At another level, they may introduce serious complications into some types of legal analysis, which are based on the assumption that individuals are rational actors.(fn4)

The potential effects of erroneous decisions about risk are of particular concern in the area of tort law.(fn5) Laboratory studies establish that

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individuals role-playing as jurors in hypothetical negligence scenarios exhibit consistent bias in evaluating the level of risk in certain activities.(fn6) Their knowledge that an event has occurred or that a bad result has been reached biases them toward finding that the event or result was more foreseeable than if viewed objectively and without prior knowledge of the bad result.(fn7) Studies also establish that individuals overestimate small risks and underestimate large risks.(fn8) Individuals also have difficulty evaluating risks and benefits separately, making risk-benefit decisions difficult.(fn9) Do these apparent deviations from rational decisionmaking significantly affect actual juror decisions about risk in torts cases? Are jury verdicts consistently erroneous, warranting corrective measures? If the results of these laboratory studies can be extrapolated to actual litigation, verdicts in negligence cases may be overdeterring conduct which is reasonably safe. Jurors may also be labeling negligent conduct as recklessness, thereby warranting punitive damages. Fundamental fairness is also implicated. If normative tort rules are tainted by bias in their application, the credibility of the litigation process as a cornerstone of dispute resolution is called into question.

Relying on such empirical data, many commentators argue this bias is happening consistently.(fn10) They propose a variety of corrective

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measures, from wholesale replacement of jurors in punitive-damage cases with experts who will likely be less susceptible to bias,(fn11) to adoption of enterprise liability for product defect cases,(fn12) to elevated burden of proof requirements and bifurcated trials in tort cases generally.(fn13) The arguments these scholars advance necessarily call into question the viability of the behavioral theory of rational choice.(fn14) Rational-choice theory assumes that individuals act rationally and objectively to maximize their utility. If jurors do not act rationally, then rational-choice theory is an imperfect behavioral foundation for legal rules, especially negligence. The proposals also generally assume that the laboratory studies documenting biased decisionmaking are sufficiently applicable to actual jury trials to support changing normative rules and litigation procedures in all cases. They devote little attention to the validity of that assumption. Nor do they devote sufficient consideration to the usefulness of existing precedent and practices to correct for biases.(fn15)

The purpose of this Article is to challenge the necessity for such broad changes in the tort litigation system. I argue the following: (1) cognitive bias and heuristics may indeed introduce errors in result in some cases (2) both the breadth of any errors and their magnitude may be relatively small and confined to a group of cases identifiable in advance and (3) existing case law and procedures offer potential to protect against the level of bias that may actually be affecting juror deliberations.

Part II of this Article reviews the empirical data and behavioral theories supporting the argument that juror decisions are affected by bias. Part III summarizes proposals for dramatically altering normative tort rules and procedures to address the problems of juror bias. Part IV discusses why these proposals are overly broad and unneces

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sary. Finally, Part V discusses the ability of existing case law to control bias and proposes solutions to accomplish that objective.

II. ARGUMENTS THAT BIASES AND HEURISTICS AFFECT JURORS: THEORY AND FACT

Normative legal rules serve many purposes. Among their most important functions, at least in tort law, should be to deter undesirable conduct and promote desirable behavior.(fn16) From an economic perspective, Coase observes that legal rules do not compel behavior but establish the costs and consequences of actions and inactions.(fn17) It is but a short step from Coase's observation to its legal implementation in tort law through Judge Learned Hand's formulation of a calculus of risk.(fn18) Hand's classic approach to negligence involves risk-benefit balancing: Is the burden of avoiding a harmful result less or greater than the benefit from avoiding the result?(fn19) Viewed through an economic lens, Hand's deceptively straightforward negligence formula offers a method to advance economically desirable goals.(fn20) Excessively dangerous conduct is deterred because the cost to pursue it is too great in light of the benefits of avoidance. Negligence rules create an incentive for more desirable, less dangerous conduct. Individuals will pursue optimal levels of safety by balancing the risks, costs, and utility of available alternative conduct.(fn21) In the aggregate, collective individual actions will lead to socially optimal allocation of resources to the problem of accidents. Resources devoted to accident costs and accidentprevention costs will be optimized, promoting wealth maximization.(fn22)

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Risk-creating actors can order their conduct in reliance on the fair and transparent application of these rules in every case, as administered through the tort system.

A. Rational Choice as a Flawed Behavioral Model

The optimal outcome described above rests on the assumption that individuals, including jurors, make decisions rationally. The theoretical foundation for this view is rational-choice theory, derived from the game theory work of John Von Neumann and Oskar Morgenstern.(fn23) Rational-choice theory presumes that individuals always try to maximize their expected utility, primarily through acting rationally when making decisions involving risks and benefits.(fn24) Rational-choice theory assumes that "objective criteria exist . . . to differentiate rational from irrational" behavior, that individual behavior is based on rational considerations, and that individuals acting on optimal information can and do rationally assess the risks involved in their choices and seek to maximize utility by choosing from stable preferences.(fn25)

Critics argue that rational-choice theory inadequately or incompletely explains human behavior.(fn26) Perhaps at best it explains some behavior most of the time. In contrast to the predictions of rationalchoice theory, individuals do not always act to maximize their expected utility for a variety of reasons. They sometimes make suboptimal choices because of the impossibility of evaluating risks and risk

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cost trade offs.(fn27) Too much necessary information is either unknowable or too complex to assess with complete objectiveness. People often act with subconscious motivation instead of complete...