A defendant believes there is an 80 percent chance that the plaintiff will win $1,000,000 and a 20 percent chance that the plaintiff will lose and be awarded nothing (zero). The plaintiff believes that there is a 90 percent chance that they will win $1,000,000 and a 10 percent chance that they will be awarded nothing (zero). The plaintiff's litigation cost is $500,000 and the defendant's litigation cost is $400,000. The plaintiff would be willing to accept any amount greater than to settle.

Question

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The plaintiff's expected value of the lawsuit is calculated by taking into account their perceived probability of winning and the amount they would win, minus their litigation costs. This is (0.9 * $1,000,000) - $500,000 = $900,000 - $500,000 = $400,000. Therefore, the plaintiff would be willing to accept any amount greater than $400,000 to settle.

A Defendant Believes There Is an 80 Percent Chance That