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

Eric Bennett Rasmusen, Kelley School of Business, Indiana University

Abstract

If a tort plaintiff can predict that the court will overestimate damages he is more likely to bring a case, but if the court is aware of this, it may wish to adjust its awards accordingly. In general, court error implies that the court should adjust for regression to the mean, moderating extreme awards whether they be high or low. Predictable error, however, tends to make a downwards adjustment optimal and unpredictable error an upwards adjustment, because of plaintiff selection and signalling.