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http://ssrn.com/abstract=1085985
 
 

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Neither Saints Nor Devils: A Behavioral Analysis of Attorneys' Contingent Fees


Eyal Zamir


Hebrew University of Jerusalem - Faculty of Law

Ilana Ritov


Hebrew University of Jerusalem - School of Education

January 22, 2008


Abstract:     
The market for legal services, and particularly lawyers' Contingent Fee (CF) arrangements, have been extensively studied from legal, economic and sociological standpoints, but curiously not from a behavioral perspective. Building on Kahneman and Tversky's Prospect Theory, this paper presents a series of experiments designed to reveal people's preferences regarding attorneys' fees and their perceived fairness.

Contrary to common economic wisdom, we demonstrate that loss aversion (rather than risk aversion or incentivizing the lawyer to win the case) plays a major role in clients' preferences for CF. Facing a choice between a mixed gamble and a pure positive one, plaintiffs prefer CF even if it yields an expected fee that is two or three times higher than a non-contingent one. At the same time, defendants, who face a choice between two pure negative gambles, are typically risk seeking and prefer fixed fees. Our findings indicate that information problems and lack of alternatives probably do not loom large on clients' choice of fee arrangement. It is also shown that, counter-intuitively, people often judge CF arrangements that yield a low effective hourly rate for the lawyer as more unfair than CF arrangements that yield a high effective hourly rate. We discuss the policy implications of our findings in some detail.

Number of Pages in PDF File: 58

Keywords: contingent fees, loss aversion, prospect theory, framing, fairness, litigation, behavioral law and economics, assortative matching, focal points, status quo bias, risk, decision making

JEL Classification: K4, K41, D8, D81, L1

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Date posted: January 28, 2008 ; Last revised: March 14, 2008

Suggested Citation

Zamir, Eyal and Ritov, Ilana, Neither Saints Nor Devils: A Behavioral Analysis of Attorneys' Contingent Fees (January 22, 2008). Available at SSRN: http://ssrn.com/abstract=1085985 or http://dx.doi.org/10.2139/ssrn.1085985

Contact Information

Eyal Zamir (Contact Author)
Hebrew University of Jerusalem - Faculty of Law ( email )
Mount Scopus, 91905
Israel
+972 2 582 3845 (Phone)
+972 2 582 9002 (Fax)

Ilana Ritov
Hebrew University of Jerusalem - School of Education ( email )
Mt. Scopus
Jerusalem, 91905
Israel
+972 2 652 9929 (Phone)
HOME PAGE: http://pluto.huji.ac.il/~msiritov/ilana_ritov.htm
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