Hedonic Adaptation and the Settlement of Civil Lawsuits

This paper examines the burgeoning psychological literature on happiness and hedonic adaptation (a person's capacity to preserve or recapture her level of happiness by adjusting to changed circumstances), bringing this literature to bear on a previously overlooked aspect of the civil litigation process: the probability of pre-trial settlement. The glacial pace of civil litigation is commonly thought of as a regrettable source of costs to the relevant parties. Even relatively straightforward personal injury lawsuits can last for as long as two years, delaying the arrival of necessary redress to the tort victim and forcing the litigants to expend ever greater quantities of resources. Yet these procedural delays are likely to have salutary effects on the litigation system as well. When an individual first suffers a serious injury, she will likely predict that the injury will greatly diminish her future happiness. However, during the time that it takes her case to reach trial the aggrieved plaintiff is likely to adapt hedonically to her injury - even if that injury is permanent - and within two years will report levels of happiness very close to her pre-injury state. Consequently, the amount of money that the plaintiff believes will fairly compensate her for her injury - will make her whole, in the typical parlance of tort damages - will decrease appreciably. The sum that the plaintiff is willing to accept in settlement will decline accordingly, and the chances of settlement increase - perhaps dramatically. The high costs of prolonged civil litigation are thus likely to be offset substantially by the resources saved as adaptive litigants succeed in settling before trial.