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Preventing Case Over Valuation

Why Attorneys Tend to Overvalue Their Cases and What to Do!

Research indicates that most lawyers over value their cases, and what is even more fascinating, it does not matter how long the attorney has been in practice! There are a number of reasons over valuation occurs; sometimes the answer is just that the attorney did not spend enough time reviewing the case, or failed to consider getting a second opinion. Then there are significant psychological factors that influence case valuation: anchoring, confirmation bias, and just plain old over confidence. The good news is there are some very simple steps that one can take to prevent making a significant mistake. This article discusses the research and steps parties can take to avoid overvaluing a case.

 

Research indicates that most lawyers over value their cases, and what is even more fascinating, it does not matter how long the attorney has been in practice!  There are a number of reasons over valuation occurs; sometimes the answer is just that the attorney did not spend enough time reviewing the case, or failed to consider getting a second opinion.  Then there are significant psychological factors that influence case valuation: anchoring, confirmation bias, and just plain old over confidence.  The good news is there are some very simple steps that one can take to prevent making a significant mistake.

Fundamental Causes for Over Evaluation

What makes an attorney over confident when evaluating his or her case? ¬†Was it the amount of time spent evaluating, or was it how or if all the various factors were considered? ¬†To what extent did the client influence over valuation? ¬†Is there something about the nature or characteristics of “lawyering” that fosters a tendency to over value a case?

Initial Evaluation: What is the process that the attorney uses to evaluate a case? ¬†To what extent are the strengths and weaknesses of the case realistically considered? ¬†Be honest‚ÄĒthere is no such thing as a perfect case.¬† Remember that the goals an attorney focuses on are subjective and are influenced by many external forces.¬† Without an honest analysis of the case, it makes it easier for the psychological factors to take hold, and blind the attorney to the case’s shortcomings.¬† In some instances, all economic factors are not initially considered: discovery costs, duration of the process, client stress, cost of losing relationships, etc.[1] ¬†To what extent does the attorney question his or her assumptions about the case? ¬†Some research indicates that people are more confident the further away the event; for example a trial.¬† The initial assessment may well color an attorney’s value of the case.

Client Influence: According to one study, plaintiffs were more likely to over value their cases than defendants; however, the impact of the mistake was significantly more damaging for defendants; nearly 19 times![2] ¬†Is the lawyer’s decision regarding the value of the case influenced by the client’s estimate? ¬†Other researchers consider that “group think” may influence over valuation.¬† The attorney and client believe “they cannot fail”, “are inherently better than their rivals”, or “rationalize away disconfirming data”.[3]

Attributes of the Profession: Lawyers are in a profession that requires projecting an image of confidence.¬† This factor may help explain the reason some attorneys are more likely to believe their judgment is better than others.¬† The result is that these attorneys are more likely to discount “contravening information.”[4] ¬†Of course, this self-confident image is what attracts clients! ¬†This confidence can become an internalized belief, which, in turn, may substantially influence decision-making, leading to over valuation.¬† The amount of time one has been in practice does not appear to diminish the probability of over valuation.¬† Attorneys are also more likely to overestimate when the risk is higher.[5] ¬†Gender seems to have some impact on decision-making and over confidence.¬† According to several research findings, women were less likely to be over confident than men, and are slightly less likely to over value their cases.[6]

Psychological Factors Influencing Assessment

According to “thinker” Edward de Bono, errors in thinking are due to errors in perception.¬† “90 to 95 percent of our thoughts and the actions they stimulate are unconscious”.[7] ¬†Our brains have a mind of their own! ¬†They keep secrets from us.¬† We think we know what we are doing; however, our brain may be making decisions for us.¬† These are unconscious decisions, and we are never the wiser!

Anchoring: Often the first number associated with a case, becomes the anchor number.[8] ¬†That number may come from the client’s demand, average of jury verdicts, a previous case, almost anywhere.¬† The anchoring number is unconsciously registered and then all other information is compared to the anchor.¬† One example of how an anchor works and ultimately biases judgment is to ask people to write down a four-digit number beginning with a one.¬† Then people are asked to write down the year that some historic event happened.¬† If the people guessing the year had a four or lower as the second number, then they guessed an earlier date for the historic event.¬† If their second number was a six or higher, then they guessed a later date.[9] ¬†The number the person made up anchored them to a particular date.¬† Once an anchor is in place, it is difficult to counter.¬† Financial or value anchors are everywhere.¬† For example, the manufacturer’s suggested retail price (MSRP) prominently displayed on cars creates a value anchor for the future purchaser‚ÄĒbuyer beware!

Confirmation Bias: Once the anchor is established, a person unconsciously seeks information that supports the initial number or belief, and discounts information that does not support the anchor.¬† As an example of this selection or confirmation bias, an attorney checked jury verdicts and told the client his case was worth a certain amount of money.¬† The client attempted to provide information that demonstrated significant differences in his case and, therefore, his case was worth more.¬† The attorney discounted the client’s information because it did not support the attorney’s anchor. ¬†In this particular instance, the client selected another attorney.¬† The final settlement was nearly five times higher than what the first attorney insisted was the value.¬† The first attorney discounted the information supplied by the client, which contradicted the anchor that was created by reliance on only jury verdicts.

Over Confidence: Research has shown that “lawyers are over confident in their predictions.”[10] ¬†This over confidence leads to taking “shortcuts”.¬† This might mean not spending a sufficient amount of time assessing the case, or it may mean limiting the types of information an attorney considers that could lead to an alternative decision.¬† Over confidence can also lead to “skimming” information and “assuming” that “Yes, yes, I know all of this.¬† Blah, blah, blah.” ¬†Take heart, jumping to conclusions is not limited to attorneys.¬† Doctors do this regularly.¬† A patient comes in and tries to tell the doctor about a particular problem, and within seconds, the doctor is interrupting and making a diagnosis![11]

Overcoming Over Valuation

So how is over valuation prevented or at least the tendency reduced? ¬†For starters‚ÄĒgetting more information earlier, questioning assumptions and listening will help.

Conduct a 360¬ļ Review: This process means walking around the case and viewing it from all perspectives, the attorney’s as well as the client’s perspective, and then taking a long, hard look at the case from the perspective of the other side.¬† What are the strengths and weaknesses of the case? ¬†If it takes getting up and moving to a different desk to view the case from the perspective of the other side‚ÄĒtry it! ¬†Without an honest analysis of the case, it makes it easier for the psychological factors of anchoring and confirmation bias to take hold and blind the attorney to the case’s shortcomings.

Use a Second Pair of Eyes: Having another attorney review the case is extremely helpful.¬† As the old maxim says, “Two pairs of eyes are better than one.” ¬†This minor omission can be a significant factor that influences over valuation.¬† Research confirms that the number of years of practice do not guarantee that over valuation will not occur.¬† When discussing the case during the weekly meeting, encourage the other attorneys to take a look and poke holes in the initial assessment or serve as a devil’s advocate.¬† The fact that someone is in solo practice is not an excuse.¬† Seeking out attorney friends and getting their take on the initial assumptions and conclusions can prevent over valuing a case.¬† One way to get a “second pair of eyes” is to engage an expert and not indicate any value to them.¬† Ask them to establish a value and to identify information supporting their number.[12] ¬†The ideal of course is to not disclose if the request is for a plaintiff or a defendant.

Listen Non-Judgmentally: When gathering information, interviewing a client or other individuals, “focus on what you hear and not what you think.”[13] ¬†This is often a challenging task for attorneys because, as with many professions, lawyers are required to take in information and then make a decision.¬† There are a couple of techniques which may make it easier to really “hear” what someone is saying.¬† First, turn off the little “mental motor mouth” that is kibitzing with the brain.¬† Write down impulsive thoughts or questions to ask after the speaker has completed their thought.¬† Not interrupting a speaker will usually encourage them to provide more information.¬† Information that may not have come out if interrupted.¬† After listening, ask clarifying questions then, and only then, start to assess the information and compare it to the initial case value.[14] ¬†If there are differences, ask the person presenting the opposing perspective for further clarification, or determine what supports their alternative perspective.¬† It is interesting to note that when people listen, their perspective changes.¬† Maybe even the case value may change!

Conclusions

Over valuing a case happens more frequently than it needs to, and the consequences of over estimating the value or success of a case can be costly, if not devastating.  Remember that the first number may unduly influence the value of a case, so walking around a case and viewing it from all sides, enlisting someone else to take an unbiased look, and listening to alternative ideas may help prevent over valuation.  Finally, just being aware that there are significant psychological factors that are influencing decisions will help prevent the mind from causing a person to make mistakes.

[1] Kaster, L. A. and Samaras, H., Overcoming Barriers to Value Your Case, ABA, Women’s Advocate, 2013.

[2] Ibid.

[3] Janus, I., Victims of Groupthink, 2nd ed., Houghton Mifflin, 1982.

[4] Goodman-Delahunt, J. et al., Insightful or Wishful: Lawyer Ability to Predict Case Outcomes, Psychology, Public Policy, and Law, vol. 16, no. 2, 2010.

[5] Ibid.

[6] Pallier, G., Gender Differences in the Self-Assessment of Accuracy on Cognitive Tasks, Sex Roles, vol. 48, 2003. The over valuation aspect and gender was replicated in a 2010 study done by Goodman- Delahunty, et al., and reported in the Psychology, Public Policy and the Law.

[7] Sturrock, J., The Pressure is on to Re-train Our Brains, The Scotsman, August 2016.

[8] Sapadin, L., The Anchoring Effect: How it Impacts Your Everyday Life, The World of Psychology, July 2013.

[9] Gilovich, T., Griffin, D. W., and Kahneman, D., Heuristics and Biases, The Psychology of Intuitive Judgment, Cambridge University Press, 2002. In their example, they asked people when the Taj Mahal was built. The year was 1652. As the authors noted, there is no relationship between the number people created and the year the building was completed, but the number they wrote down created the anchor that influenced their guess.

[10] Ibid. Goodman-Delahunt.

[11] Kehoe, D., Effective Communication Skills, The Teaching Company, 2011.

[12] Yeend, N., Including an Expert in Mediation, Plaintiff Magazine, June 2013.

[13] Doran, C. and Winkler, M., How to Listen Like a Mediator, MWI, March 2017.

[14] Yeend, N., Avoiding Communication Disasters, Plaintiff Magazine, January 2013.


Nancy Neal Yeend founded The End Strategy (TES), a Portland, OR-based dispute management and mediation firm. Ms. Yeend is a seasoned and accomplished professional, as well as a prolific writer, with a focus on conflict management and resolution. She is adept at developing programs for business, governmental entities, and not-for-profit organizations involving workplace related conflict. In addition, she is a skilled trainer and experienced course designer, specializing in communication, negotiation, problem solving, and dispute management. She mediates business and contract related matters at all stages of litigation: pre-suit, trial, and appellate.

Ms. Yeend can be reached at (503) 481-2986 or by e-mail to Nancy@TESresults.com.

The National Association of Certified Valuators and Analysts (NACVA) supports the users of business and intangible asset valuation services and financial forensic services, including damages determinations of all kinds and fraud detection and prevention, by training and certifying financial professionals in these disciplines.

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¬©2017 NACVA and the Consultants' Training Institute ‚ÄĘ (800) 677-2009 ‚ÄĘ 5217 South State Street, Suite 400 Salt Lake City, UT USA 84107

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