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

Abstract

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