The costly nature of litigation is not enough to deter many from pursuing their case to the destination of trial. Often times, even though reason would leave a neutral observer to conclude that settlement within a wide range of possibilities would be in both parties' best interests, settlement cannot be reached even at the insistence of counsel. Truly then, emotions are hindering the parties from coming to agreement, even though it be more costly to not agree.

Cognitive biases as well as the desire to punish those who have wronged us ignite unproductive emotional behavior among adversaries, often preventing settlement.  One such cognitive bias is known as reactive devaluation.  That is, if our opponent desires something, our inclination is to deny him of that which he desires. Often, our opponent values something we have more than we do, and it would create a greater net value to trade things in which we value low for things our opponent values higher, however, reactive devaluation is an emotional barrier to achieving such synergies.

Another cognitive bias that interferes with parties' ability to reach settlement is the confirmation bias, which prevents a person from reasonably evaluating his case. The counterproductive nature of the confirmation bias is that once we have formed an opinion on something, it is very difficult to change that opinion because everything we subsequently observe will only emphasize what we believe.

Where pursuing a case to trial will undoubtedly cost more than the amount which a litigant seeks in recovery, to continue to litigate does not make good financial sense.  Litigants who defy economic principles in such context do so in pursuit of emotional gratification.

Studies of the way people allocate resources have shed insight into why some people refuse to resolve their dispute with an available financially beneficial agreement. One such study is called the ultimatum game. As Harvard Professor of psychology, organismic and evolutionary biology, and biological anthropology, Marc D. Hauser, points out, the ultimatum game is set up with a person playing the role of a proposer and another playing the role of the responder. The proposer starts off with $10 and has the option of giving the responder some portion of the $10 or none at all. Next, the responder either accepts or rejects the proposer's offer. If the responder accepts the offer, he keeps the offered amount and the proposer keeps what is left. If the responder rejects the money, both players walk away with nothing. Both players know the rules of the game as well as the starting pot of money.[1]

Generally economists assume that people are rational money-maximizers. If proposers fit this description, they should make the smallest possible offer, say $1 and the responders should accept any amount offered. However, when players experimented with this game, proposers offered in the range of $5 and responders rejected offers under $2. In this experiment, the players were not rational money-maximizers. Why? As Dr. Hauser points out, although we may have evolved as Homo economicus, rational money-maximizers, we were also born with a deep sense of fairness. In the ultimatum game, responders, charged with emotions, refuse the choice to keep $2 opting instead to take nothing in order to impose the same negative consequence on the proposer.

The results of the ultimatum game lend great insight into why people do not settle and continue to litigate when it is more financially and emotionally expensive to do so. Their sense of fairness being offended, they are motivated to punish their perceived victimizer.

Dr. Hauser discussed another experiment which corroborates this observation that people tend to punish others who are not acting fairly even when it is costly to do so. This experiment by Ernest Fehr involved three subjects: an allocator, recipient, and third party-observer. The allocator starts with 100 monetary tokens, the recipient with none, and the observer with 50 tokens. At the end of the game, subjects turn in their tokens for money. The game is played once and all players remain anonymous. The allocator can pass any proportion of his tokens to the recipient and the recipient must accept what is offered. The experimenter then informs the observer of the allocator's offer. The observer may then use some of his tokens to punish the allocator. For each token invested in punishing, the allocator's pot decreases by three tokens.[2]

Results showed that observers invested in punishing in all offers less than 50 tokens, the amount invested in punishing increased as the allocator's offer decreased, and recipients fully believed that the observer would invest in punishing the unfair allocators. Since this game is only played once, the observer has little to gain in punishing except emotional satisfaction. In fact, by punishing the allocator, the observer actually loses money. Therefore the results of this game showed that the observers were willing to pay for the emotional gratification they experienced as a result of punishing unfair allocators.

Curiously, many allocators provided nothing or substantially less money than 50 tokens to the recipient, even knowing that the observer could punish. Allocators erroneously believed that observers would not want to invest money in punishing third parties. Since people are willing to invest money to punish third parties merely for the emotional high of commanding retribution as demonstrated in this game, it should be easy to understand that humans would invest money to punish their own perceived victimizers.

The pattern of behavior exhibited by players of the games referenced above is synonymous to plaintiffs paying their attorneys scores of thousands of dollars and investing many hours in responding to discovery requests only to seek compensation for monetary damages that are worth far less. It thus becomes clear why people forego financially beneficial opportunities to settle out of court and instead opt for the long haul of litigation. With this in mind, often a sincere apology by the defendants and cooperative behavior can help deter the emotional plaintiff's pursuit of punishment and facilitate settlement.

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