Hedonic Adaptation and the Settlement of Civil Lawsuits

This Essay examines the burgeoning psychological literature on happiness and hedonic adaptation (a person’s capacity to preserve or recapture her level of happiness by adjusting to changed circumstances), bringing this literature to bear on the probability of pretrial settlement in civil litigation. The existing economic and behavioral models of settlement are incomplete because they do not incorporate the effect of adaptation on the sum for which a plaintiff is willing to accept an offer. When an individual first suffers a serious injury, she will likely predict that the injury will greatly diminish her future happiness. However, during the time that it takes her case to reach trial, the aggrieved plaintiff is likely to adapt hedonically to her injury—even if that injury is permanent—and within two years will report levels of happiness far closer to her pre-injury state than she had expected. Consequently, the amount of money that the plaintiff believes will fairly compensate her for her injury—will “make her whole” in the typical parlance of tort damages—will decrease. The sum that the plaintiff is willing to accept in settlement will decline accordingly, and the chances of settlement will increase.