We consider two common modes of judicial resolution: judicial discretion, where the judge or jury has broad discretion in fashioning a remedy, and winner take all where the remedy is pre-determined by the governing substantive law. We analyze these systems in light of the fact that pre-trial bargainers have been shown to have excessive confidence in their own positions. We find theoretically that winner-take-all rules magnify the effects of over-confidence and diminish the likelihood of settling relative to judicial discretion. We confirm our model with a laboratory experiment showing significantly fewer pre-trial agreements under winner-take-all. These results imply that increasing judicial discretion in fashioning remedies could increase pre-trial agreements and promote efficiency. This has implications for many areas of law, including donative transfers, property law, patent infringements, and agreements on liquidated damages.
James Andreoni and Ray D. Madoff. "The Role of Judicial Discretion in Dispute Settlement." (2008).