Video Transcript

I’m Robert Rothkopf – I’m the Managing Partner of Balance Legal Capital.

At Balance we predict litigation outcomes and invest capital if we expect a case to win.

As anyone who has been involved in litigation will know, that’s rarely an easy prediction to make.

We’ve spent time at Balance thinking about how to improve our litigation forecasting accuracy – taking lessons from the world of behavioural economics to reduce cognitive bias in our investment decisions.

We call it Litigation Superforecasting inspired by a book called Superforecasting by Philip Tetlock. In the next couple of minutes, I’m going to share three techniques that we use at Balance to improve our forecasting accuracy.

Technique 1: Put A Number On It

The first habit we’ve adopted is to ditch phrases like “strong prospects” and “good chance” – phrases that you often see in legal advice – and instead we “put a number on it”.

Our research has shown that these phrases mean different things to different people – one lawyer might use the phrase “good chance” to mean a 45% likelihood, while another person reading that advice might interpret the phrase as 60%.

When we communicate our confidence levels in a case, amongst the team and other people, we use percentage numbers to reduce miscommunication.

Technique 2: Harness The Anchoring Effect And Integrate Multiple Views

The second technique is to “harness the anchoring effect”. This is the cognitive bias that we are all susceptible to whereby our estimates and our feelings about something are skewed heavily by the first piece of data we receive or the loudest voice in the room.

In litigation forecasting, this means resisting as far as you can becoming seduced by large claim values, the drama of the story, and try to block out other people’s views on a case before you’ve heard the facts and evidence and come to your own view independently.

It also means taking a step back and considering the “base rate”. For example:

  • How many cases of this type actually succeed for a claimant in this position?
  • How much money do tribunals award in damages compared to the amount claimed?

The behavioural economist Daniel Kahneman has shown that if you anchor yourself in the “base rate” first and then dive into the specifics, your estimates and predictions are more accurate.

Moreover – the more independent views you can integrate, the better. No one person has all the relevant information to make a good forecast. At Balance, we capture and combine the individual views of our team of experienced litigators – and where possible augment that with outside input from our network of experts. This method amplifies our forecasting accuracy.

Technique 3: Break Up The Question

The over-arching question we are trying to answer is: “will our client’s case win and make a worthwhile recovery?”

That’s a difficult unknowable question. So, technique no 3 is to break up the unknowable question into smaller knowable parts. For example:

  1. Does the defendant have the means to pay the amount being claimed?
  2. Are their assets in a pro-enforcement jurisdiction?
  3. Did the breach really cause the loss?
  4. Do we have the right legal team in place?
  5. What would the defence say?
  6. Who is your judge or tribunal? How have they decided similar cases?

The further you break your analysis down into knowable components before jumping to your answer, the better your litigation forecast will be.

  • Robert Rothkopf
    Robert Rothkopf Managing Partner

ROBERT ROTHKOPF
Managing Partner of Balance Legal Capital, a litigation funder in London.

Prior to starting Balance, Robert was a litigator at Herbert Smith Freehills. Robert and his team apply behavioural economic principles to litigation finance investment decisions.