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.
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.
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:
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.
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:
The further you break your analysis down into knowable components before jumping to your answer, the better your litigation forecast will be.
We are pleased to announce that Robert Rothkopf has been appointed as a Director of the International Legal Finance Association (ILFA).
ILFA plays a pivotal role in shaping the future of legal finance globally and promoting best practices across jurisdictions. Robert will bring Balance’s experience and voice to ILFA’s mission, ensuring that the benefits of litigation finance are properly understood.
This board role adds to Balance’s leading contribution and involvement with the ILFA in the UK with Oliver Hayes in London, and in Australia with Simon Burnett in Sydney.
Topics covered ASIC and the private credit markets including the recent collapse of First Guardian, Shield and Australian Fiduciaries; what to expect from changes to Australia’s climate disclosure regime; and a discussion unpacking the Australian class action market, including insights on how funders raise and deploy capital and emerging trends in class actions.
The session brought together leading voices in the industry Sarah Johnson from The D.E. Shaw Group, Robert Marven KC, Susan Dunn from Harbour, and Nicholas Marler from Litica, expertly moderated by Elena Rey from Brown Rudnick LLP.
Two wonderful celebrations of Balance’s 10-year anniversary, one in Sydney at the Museum of Contemporary Art and another in London at the Tate Modern.
As part of our 10-year anniversary celebrations, we were lucky enough to spend some time together in Bath.
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Balance is a member of the Association of Litigation Funders of England & Wales. Our membership of the ALF requires us to satisfy on an ongoing basis stringent financial and capital adequacy tests and to comply with the ALF Code of Conduct.
Balance is a founding member of the Association of Litigation Funders of Australia, and a member of ILFA, the International Legal Finance Association.
Balance Legal Capital LLP is authorised and regulated by the UK’s Financial Conduct Authority.
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