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Neither Saints Nor Devils: A Behavioral Analysis Of Attorneys' Contingent Fees, Eyal Zamir, Ilana Ritov

Eyal Zamir

The market for legal services, and particularly lawyers’ Contingent Fee (CF) arrangements, have been extensively studied from legal, economic and sociological standpoints, but curiously not from a behavioral perspective. Building on Kahneman and Tversky’s Prospect Theory, this paper presents a series of experiments designed to reveal people’s preferences regarding attorneys’ fees and their perceived fairness.

Contrary to common economic wisdom, we demonstrate that loss aversion (rather than risk aversion or incentivizing the lawyer to win the case) plays a major role in clients’ preferences for CF. Facing a choice between a mixed “gamble” and a pure positive one, plaintiffs prefer …