If the expected loss from litigation exceeds the expected gain, the defendant has an economic incentive to settle.

Question

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This statement reflects the basic economic principle that individuals or entities will act rationally to minimize their losses and maximize their gains. If the expected loss from litigation (in terms of legal fees, potential damages, reputation loss, etc.) is greater than the expected gain (such as being acquitted, keeping trade secrets, etc.), the defendant would benefit from settling the dispute out of court, since settling may reduce their overall cost and risk exposure.

If the Expected Loss from Litigation Exceeds the Expected Gain