Pretrial Bargaining with Self-Serving Bias and Asymmetric Information

We introduce self-serving bias into the Bebchuk (1984) model in which trials result from asymmetric information and characterize the equilibrium. An increase in the self-serving bias of a defendant who receives an offer can, under some circumstances, reduce the incidence of trial. More typically, however, we find that an increase in the self-serving bias of either player increases the incidence of trial. An increase in the self-serving bias of a player who receives the offer has ambiguous effects on that player's welfare. Self-serving bias serves as a commitment mechanism not to accept offers which are too unfavorable, but players with such a bias typically end up in trial more often. For the player making the offer, we find that an increase in selfserving bias unambiguously lowers welfare. *We would like to thank Linda Babcock and an anonymous referee for providing helpful comments on the paper. All errors are our own.