Heuristics, Biases, and Consumer Litigation Funding at the Bargaining Table

36 Pages Posted: 28 Nov 2014 Last revised: 25 Oct 2018

See all articles by Jean Xiao

Jean Xiao

Vanderbilt University - Law and Economics

Date Written: January 1, 2014


The consumer-litigation-funding market has bloomed in the last decade and garnered significant attention from attorneys, judges, policymakers, and legal scholars. Commentators disagree on whether consumer litigation funding disincentivizes settlement. When discussing the effect of this funding on settlement, commentators have generally assumed a rational plaintiff. However, research from behavioral law and economics shows that not all plaintiffs are rational. No commentator has yet analyzed how consumer litigation funding can affect a plaintiff who is irrational (i.e., subject to cognitive biases). This Note provides this missing analysis and demonstrates that consumer litigation funding may cause irrational plaintiffs to reject wealth-maximizing settlement offers. To address this potential problem, this Note proposes a mandatory information-disclosure policy to help irrational plaintiffs avoid cognitive pitfalls.

Keywords: Litigation Funding, Litigation Finance, Consumer Finance, Behavioral Law and Economics, Settlement, Disclosure, Heuristics, Cognitive Biases

Suggested Citation

Xiao, Jean, Heuristics, Biases, and Consumer Litigation Funding at the Bargaining Table (January 1, 2014). Vanderbilt Law Review, Vol. 68, No. 1, 2015, Available at SSRN: https://ssrn.com/abstract=2530793 or http://dx.doi.org/10.2139/ssrn.2530793

Jean Xiao (Contact Author)

Vanderbilt University - Law and Economics ( email )

Nashville, TN
United States

HOME PAGE: http://law.vanderbilt.edu/phd/students/jeanxiao.php

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