Judicial Sunk Cost Bias Shay Lavie - Outline
Judicial Sunk Cost Bias
I. Introduction
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This paper hinges upon the assumption that judges are vulnerable to a sunk-cost
bias, i.e., they decline to overrule legal decisions that were heavily invested with
prior judicial resources.
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The sunk cost bias is an irrational bias that is likely to entail sub-optimal
decisions. Hadn't they been vulnerable to the bias, the argument goes, judges
would have decided differently.
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The application of the sunk cost insight to the judicial arena is, in itself, quite
novel.1 Its novelty notwithstanding, this simple application has a bearing to any
area of law in which a sequential decision-making is required (such as the
following phenomena: overruling precedents, new trials and habeas corpus writs,
judges sticking to prior determinations upon a remand, alleging “trump”
arguments, such as recusal, as close as possible to the outset of the trial)
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This paper attempts to concoct an empirical examination of the judicial sunk cost
bias.
II. Theoretical and legal framework
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The sunk cost bias, formally known as the “escalation of commitment” problem,
is also recognized in the organizational context, where two sequential decisions
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One commentator appears to draw a similar assumption while claiming that the stare decisis tradition
reflects a sunk-cost bias (Rafael Gely, Of Sinking and Escalating: A (Somewhat) New Look at Stare
Decisis, 60 U. Pitt. L. Rev. 89 (1998)). Nonetheless, he neither proceeds to other areas of law nor tries to
prove the underlying assumption empirically. The sunk cost bias is by no means unknown to the legal
literature, though in other, non-judicial, contexts (see, for instance, Samuel Issacharoff and George
Loewenstein, Second Thoughts About Summary Judgment, 100 YALE L. J. 73, 113-114 (1990) (raising
the argument that the sunk cost bias impedes litigants who invest considerable money in litigation from
settling)).
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Judicial Sunk Cost Bias Shay Lavie - Outline
are not necessarily taken by the same organ. There are various psychological and
sociological explanations to the sunk cost bias.
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One important application of this bias concerns the odds of reversal: the more a
trial judge invests in a case, according to this reasoning, the appellate court would
be less likely to reverse the decision. Meritorious appeals are, therefore, unduly
denied. Interlocutory appeals, then, have a remedial effect on the sunk cost bias.
Sunk cost considerations should tilt towards choosing a liberal rule of
interlocutory appeal (“piecemeal litigation,” typical to New York and Israeli
courts, rather than the “final judgment rule,” characteristic to federal courts).
Interestingly, and according to the sunk cost logic, current federal rules of civil
procedure endorse the so-called “death-knell” theory to permit a more liberal
interlocutory appeal on class action certification decisions.
III. The difficulties in observing the sunk cost bias
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There are at least three different ways to strengthen the assumption of judicial
sunk cost bias. (a). Observing appellate decisions that hint that judges do take
into account the “significant (and probably non-duplicable) judicial resources”
that were expended at the trial court.2 (b). Experimental study that would attempt
to gauge the judicial sunk cost bias by creating laboratory conditions.
(c).
Empirical method: finding a correlation between reversal rate and sunk judicial
resources at the trial court. This paper takes the latter approach.
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A correlation between reversal rate and judicial resources, however, may reflect at
least two alternative phenomena. (a). Larger judicial resources at the trial level
2
Motorola Credit Corporation v. Uzan, 388 F.3d 39, 55-56 (2nd Cir., 2004).
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Judicial Sunk Cost Bias Shay Lavie - Outline
indicate that the court had a better factual acquaintance with the case. Unwilling
to meticulously examine the record, appellate judges would take larger judicial
input as a proxy for a decent factual inquiry. (b). Similarly, a judge who invests
more resources in a certain case is deemed to generate a better legal decision.
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In order to overcome these pitfalls as much as possible, I suggest focusing on
jurisdictional issues. Typically, questions of jurisdiction are pure legal ones, and
do not require a factual inquiry. Indeed, those issues should be decided at the
outset of the litigation, before any evidence was proffered. The trial court, thus,
does not have any relative advantage vis-à-vis the appellate instance. In addition,
lack of jurisdiction is too crucial an issue to rely upon ambiguous legal
determinations of the trial court. “Without jurisdiction the court cannot proceed .
. . when it ceases to exist, the only function remaining to the court is. . .dismissing
the cause.”3 Appellate judges are specifically directed to ignore the signals sent
by the trial court and review these questions de novo, as opposed to the ordinary,
laxer, standard of review. Theoretically at least, a want of jurisdiction is never a
harmless error. Considerations like the amount of work invested in this very issue
or in subsequent litigation should not matter to the appellate instance even if the
substantive result is totally correct. Indeed, a challenge to jurisdiction can be
raised at any time, even at the appellate instance.4 In addition, appellate courts
are obliged to raise jurisdictional difficulties sua sponte. Policy considerations
aside, these strict rules of jurisdiction are well-entrenched in the American legal
history and the common law tradition. Finding a correlation between the reversal
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4
Ex parte McCardle, 7 Wall. 506, 514, 19 L.Ed. 264 (1868)
Capron v. Van Noorden, 2 Cranch 126, 127, 2, L.Ed. 229 (1804)
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Judicial Sunk Cost Bias Shay Lavie - Outline
rate of jurisdictional issues and the amount of judicial resources that were
invested at the trial court can hint, therefore, at judicial sunk cost bias. This is the
underlying hypothesis of my research.
IV. The methodology
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I looked for a general correlation, within the Federal system, between the reversal
rate of jurisdictional issues and judicial input invested by the trial court. Three
different factors were used to reflect judicial input in the trial court: 1. The length
(pages) of the decision/s rendered at the district court; 2. The period (months) in
which the case appeared at the trial court's docket; 3. The procedural stage in
which the case was terminated (i.e., motion to dismiss, summary judgment, jury
trial etc.). In addition to signifying judicial input, these three parameters should
not imply that the jurisdictional question was rightly resolved.
1. Conceptual difficulties of the methodology.
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There are two preliminary difficulties: firstly, the Federal legal system uses a
different organ to decide the subsequent decision, and employs elite American
lawyers as decision-makers. Thus, it may suffer a negligible sunk-cost effect.
The second set of problems, which was discussed, concerns the efficacy of the
reversal rate of jurisdictional issues to serve as a benchmark to the judicial sunk
cost bias.
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Thirdly, there may be an endogenous “adjustment effect,” namely, the system's
ability to adapt itself to the bias and eliminate its apparent outcomes. At least two
possible alterations, then, may remove the sunk cost bias effect from the findings.
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Judicial Sunk Cost Bias Shay Lavie - Outline
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Anticipating the sunk cost bias effect on
(a). Litigants' behavior changes.
appellate courts, litigants may adapt by: 1. Not appealing on jurisdictional
questions when those were followed by a significant judicial input. 2. Find
creative ways to an immediate appeal where interlocutory appeal is not formally
allowed. However, it is by no means self evident to assume that litigants are
rational enough to sense judges’ irrationality.
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(b). Judges' behavior changes. In a similar vein, trial judges might change their
behavior in response to the influence of the sunk cost bias on appellate judges.
Driven to maximize their leisure and lower their odds to be reversed, trial judges
may lower the quality of their jurisdictional determination if extensive litigation is
likely to follow. Again, this argument is by no means self-evident: one needs to
assume that trial judges are aware of appellate judges' irrationality.
V. The database
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I used online resources (Westlaw) to collect all the relevant cases. The final
database consists of 75 Second Circuit 2003-2007 cases in which a substantial
question of jurisdiction was upheld by the district court. When I picked cases to
the database, I relied upon the circuit's court definitions for “jurisdiction.” Thus,
my sample includes all types of jurisdictional issues.
VI. Results and discussion
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I found that two parameters, the length of the first decision and the time it was
pending, have no sunk cost effect. More interesting is the third parameter – the
procedural posture in which the district court concluded the case. The sample can
be divided to two groups: the first consists of 66 cases in which a jurisdictional
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Judicial Sunk Cost Bias Shay Lavie - Outline
question was upheld and the case was eventually decided in an early procedural
stage, without a jury or bench trial (i.e., by a motion to dismiss/summary
judgment). The odds for reversing the jurisdictional decision in this group are
21.2% (14 out of 66 cases), a plausible number. The second group consists of 7
cases in which a jurisdictional question was raised, upheld, and then the case
proceeded to a full trial. In this group (after a full trial) the reversal rate is 0% (0
out of 7):
Decision rendered by the Decision rendered by the
lower
court
before lower court upon completion
completion of a bench or a of a full trial
jury trial
Jurisdictional issue reversed 14 (21.2%)
0 (0%)
by appellate court
Jurisdictional issue affirmed 52 (78.8%)
7 (100%)
by appellate court
Total
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66 (100%)
7 (100%)
The results are consistent with my logic. Nonetheless, the second group – cases
that were appealed after the district court upheld its jurisdiction and then
continued to a full trial – consists of remarkably low number of cases. It might
suggest that litigants are aware of the sunk cost bias and somehow avoid its
consequences.
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Judicial Sunk Cost Bias Shay Lavie - Outline
VII. Conclusions and further research
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The empirical findings. A further research is needed. It can draw on the same
methodology, significantly enlarging the database.
Plus, it should focus on
subject-matter jurisdiction – a clearer type of non-factual and non-waivable
jurisdiction. I am working on this further research in these days.
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Prescriptive implications. Firstly, some modifications can be implemented in
order to enable judges to better cope with the judicial sunk cost bias.
instance, judges may be required to provide reasoning.
For
A second set of
resolutions aims at avoiding, ex-ante, any hazard of sunk cost bias. This logic
entails a broader right to interlocutory appeals. Thirdly, the troubles that are
attributed to the sunk cost bias can be neutralized by altering the substantive law.
A more liberal standard of habeas corpus and new trials, for example, may
counter affect the judicial sunk cost bias.
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