Junk Forecasts in the Courtroom?: Assessing the 'S-Curve' Approach to Calculating Damages

Abstract:     
In their role as "gatekeepers," the courts are often faced with the issue of assessing the reliability of complex expert testimony in a variety of disciplines. In the area of finance and economics, two recent federal decisions concluded that the "S-curve" approach, which has been described as a method "gaining popularity" among experts, was unreliable. We demonstrate the susceptibility of the "S-curve" approach to manipulation by empirically testing several "S-curve" derived models on a sample of over 2,900 firms. We also explain why the literature on this method does not provide proper foundations for calculating damages in litigation. We conclude that recent assessments of the "S-curve" demonstrate a proper application of the "gatekeeping" role of the courts.

Number of Pages in PDF File: 25

Keywords: S curve, S-curve, lost profits, damages

JEL Classification: K00, K20, K41

working papers series