When Confidence Clouds Judgment: What the Data Reveal About Mediation Settlement Decisions
Empirical studies spanning decades show that most plaintiffs — and a surprising share of defendants — make costly errors when rejecting settlement offers and taking their cases to trial. Understanding those patterns can make mediation far more effective.
The Persistent Problem of Overconfidence
Litigators are trained to believe in their cases. They refine arguments, test theories, and prepare for trial with conviction. But the confidence fueling trial preparation often clouds judgment when it comes to settlement decisions.
For decades, empirical data have shown that parties who bypass settlement and proceed to trial frequently regret it. In large-scale analyses of thousands of cases, plaintiffs wound up doing worse at trial in roughly 60 percent of those cases that could have been settled. Defendants, while more conservative, still misjudged outcomes about one-quarter of the time — and when they did, their mistakes were far more costly.
This is not about optimism; it’s about decision-making under uncertainty — and it has profound implications for how lawyers approach mediation and case evaluation.
What the Studies Show
Across multiple empirical studies, when plaintiffs rejected a last settlement offer and went to verdict, they achieved a better result only about four times out of ten. In the other six, they would have been financially better off settling.
Defendants made fewer mistakes overall — roughly one in four — but the average magnitude of their error was dramatically higher. In some datasets, the mean cost of a defendant’s mistake exceeded $1 million, compared with about $40,000 for plaintiffs.
Those numbers yield three consistent insights:
Most litigants are overconfident. They believe they can outperform the settlement offer when, statistically, they cannot.
Plaintiffs err more often, largely because they tend to see trial as an opportunity rather than a risk.
Defendants err more severely. They misjudge less frequently, but when they do, the exposure can be catastrophic.
Why Lawyers Misjudge
If these trends have been documented for decades, why haven’t settlement decisions improved? Behavioral economics offers several explanations.
1. The optimism bias. Litigators must believe in their cases to advocate effectively. That belief, however, leads to a systematic overestimation of trial success rates.
2. Anchoring and escalation of commitment. Once a number is placed on the table — whether a demand or an offer — it anchors perception. Each side rationalizes its own figure, and as discovery progresses, sunk costs and ego make it harder to retreat.
3. Risk asymmetry. Plaintiffs often have more to gain and less to lose by “rolling the dice.” Defendants, with deeper pockets, may lose less often but bear far greater losses when they do.
4. Misreading the selection effect. Lawyers frequently cite high verdicts as proof of their likely success, forgetting that strong cases tend to settle. The cases that reach trial are, by definition, the most unpredictable — yet they become the benchmark for expectations.
Implications for Mediation
Mediation offers a corrective lens. When handled effectively, it exposes the assumptions behind each side’s risk assessment and helps them measure confidence against data rather than intuition.
For Plaintiffs’ Counsel:
Recognize the tendency to overvalue potential upside.
Incorporate empirical error rates into client discussions.
Separate pride in the claim from prudence in decision-making. Settlement is not surrender; it’s strategy.
For Defense Counsel:
Avoid complacency in assuming “we’re less likely to be wrong.”
Quantify the cost of being wrong, not just the probability.
Use mediation to engage in structured risk analysis — legal, reputational, and business.
Lessons for Every Lawyer
The takeaway is clear: trial confidence does not equal trial accuracy. Even the best trial lawyers are poor forecasters of results. Recognizing that reality isn’t weakness — it’s professional strength.
Practical habits to strengthen decision-making include:
Conducting a “pre-mortem.” Ask, “If we go to trial and lose badly, what will we wish we had recognized today?”
Assigning probabilities. Replace “strong case” with numeric odds and revisit them as evidence evolves.
Bringing a neutral in early. Early Neutral Evaluation or pre-mediation can surface hidden risk.
Tracking outcomes internally. Comparing expectations with verdicts exposes overconfidence and improves counseling.
Why These Insights Endure
Despite generations of new litigators, the same patterns persist. Advocacy demands confidence; mediation demands realism. The most effective counsel know when to shift between them.
Data will never replace judgment, but it can discipline it. Lawyers who integrate empirical awareness into their strategies are better equipped to advise clients, negotiate intelligently, and avoid post-trial regret.
The Bottom Line
Litigation is inherently uncertain, but human psychology amplifies that uncertainty. Overconfidence drives many plaintiffs to overplay strong hands and many defendants to underestimate exposure.
Effective mediation creates space to test those instincts against evidence. It moves the conversation from “we think we’ll win” to “what if we’re wrong?” — and from pride to pragmatism.
At Nationwide ADR, we focus on that inflection point. By combining experience, behavioral insight, and balanced perspective, we help lawyers and clients recognize where confidence meets reality — and where settlement makes more sense than combat.
Trusted. Balanced. Resolution-Driven.