Why Wait to Settle? An Experimental Test of the Asymmetric Information Hypothesis

Abstract

The U.S. legal system encourages civil litigants to quickly settle their disputes, but the suggestion is rarely entertained. Instead, lengthy and expensive delays often precede private settlements. The exact motivations of this puzzling delay are uncertain. This paper describes an economic experiment designed to test one possible hypothesis: that asymmetric information might be a contributing cause of observed settlement delay. Experimental results provide strong evidence that asymmetric information can delay settlements, increasing average delay by as much as 100% in the lab. This causal relationship is robust across different bargaining environments. But results do not obviously confirm all aspects of the game-theoretic explanation for this relationship. And they suggest that asymmetric information may be at most one of several contributing causes of settlement delay.