Predictable and Unpredictable Error in Tort Awards: The Effect of Plaintiff Self Selection and Signalling

If a potential tort plaintiff can predict that the court will overestimate damages he is more likely to bring suit, but if the court is aware of this, it will adjust its awards accordingly. In general, court error implies that the court should moderate extreme awards whether they are high or low, because of regression towards the mean. Predictable error, however, tends to push the optimal adjustment downwards and unpredictable error pushes it upwards, because of plaintiff selection and signalling, respectively. The expectation of either kind of error leads plaintiffs to bring meritless suits. Indiana University School of Business, Rm. 456, 10th Street and Fee Lane, Bloomington, Indiana, 47405-1701. Office: (812) 8559219. Fax: 812-855-3354. Internet: [email protected]. I would like to thank A. Mitchell Polinsky and seminar participants at George Mason Law School, the Antitrust Division of the Justice Department, and the American Law and Economics Association 1992 Meetings for helpful comments. This work was begun while the author was an Olin Faculty Fellow at Yale Law School.