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Law, Psychology, and MoralityThe Role of Loss Aversion$
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Eyal Zamir

Print publication date: 2014

Print ISBN-13: 9780199972050

Published to Oxford Scholarship Online: November 2014

DOI: 10.1093/acprof:oso/9780199972050.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 01 August 2021

The Market for Legal Services

The Market for Legal Services

Contingent Fees

Chapter:
(p.67) 3 The Market for Legal Services
Source:
Law, Psychology, and Morality
Author(s):

Eyal Zamir

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199972050.003.0003

Against the backdrop of the debate over the desirability of contingent-fee arrangements as a method of financing civil litigation, this chapter analyzes how loss aversion, and people’s different attitude to risk in the domains of gains and losses, can explain the litigation market. According to prospect theory, people are not only loss averse; they are also typically risk averse with regard to gains, and risk seeking in relation to losses. Therefore, plaintiffs prefer contingent fees, as this arrangement turns a mixed gamble into a pure positive one. While non-contingent fees expose plaintiffs to the risk of losing their case and still having to pay the attorney’s fees, contingent fees ensure thatthey do not have to pay any fee if they lose. Defendants, on the other hand, commonly frame the outcomes of litigations as belonging to the domain of losses, and hence tend to opt for the riskier, non-contingent fee arrangement.

Keywords:   contingent fees, attorney’s fee, litigation, risk aversion, risk seeking

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