Loss Aversion, Omission Bias, and the Burden of Proof in Civil Litigation

Abstract

The basic rule in civil litigation is that the plaintiff carries the burden of proof and the general standard of proof is preponderance of the evidence. The plaintiff prevails if she establishes her case with a probability exceeding 0.5. Drawing on insights from behavioral economics and new experimental findings, this paper makes the following arguments:

1. Since litigants tend to take the status quo as the pertinent reference point, erroneous dismissal of a claim is likely to be perceived as denying the plaintiff deserved gains, and erroneous acceptance of a claim perceived as inflicting undeserved losses on the defendant. Loss aversion thus provides a powerful justification for placing the burden of proof on the plaintiff;

2. Notwithstanding the formal rule, behavioral insights and experimental findings lend support to the hypothesis that the actual standard of proof in civil litigation is higher than 51%. This phenomenon is likely due to factfinders' omission bias. Burden of proof is not a mere tiebreaker; it sets a reference point and creates a default effect;

3. Ceteris paribus, to minimize the total costs of erroneous judicial decisions, loss aversion calls for setting the standard of proof considerably higher than 51%. While conflicting considerations militate against this proposal, this factor should not be overlooked.

Keywords: loss aversion, omission bias, behavioral law and economics, prospect theory, evidence law, burden of proof, standard of proof, civil litigation

JEL Classification: K40, K41