From John DeGroote’s Settlement Perspectives
A sample Decision Tree, available in .pdf format here.
I remember my first mediation decision tree. It was late in the day, just before impasse, and our mediator was desperate to show my client and me that we had misvalued the case. As he sketched it for us the approach made sense, but that was no time to pick up a new technique. His effort ended no different than most attempts to learn about decision trees on the fly — with a confused client, a frustrated mediator and a lawyer about to change the subject.
Fifteen years later I know the value of a decision tree and, just as important, how to really use one — in connection with settlement discussions and as a part of an Early Case Assessment before settlement talks begin. Admittedly they take a little effort and some practice, but whether you’re a lawyer or a mediator or their client, you’ll see one soon. Knowing what a decision tree is and how to diagram yours will be worth the investment.
Often used in the business world, decision trees are “tree-shaped models of [a] decision to be made and the uncertainties it encompasses,” according to Dwight Golann in Mediating Legal Disputes. A decision tree “shows the various possible outcomes in a lawsuit and helps the parties evaluate the costs, risks and benefits of each outcome,” as Daniel Klein discusses more fully in his article Decision Trees & The Arboretum.
Stated simply, the decision tree is a tool used to value the multiple financial outcomes possible in any litigation — whether summary judgment is granted, the plaintiff “wins” a small amount, or something else happens.
Just as important, decision trees arrive at these values by translating the subjective judgment of trial counsel into monetary terms — as Patrick Lamb and Ron Friedmann and David Post have pointed out before, your trial lawyer’s interpretation of “a good chance of winning” might be very, very different from yours. A decision tree can eliminate this latent disconnect.
- Listing the various possible events which might occur in the course of litigation (or beyond);
- Considering the costs or gains associated with each possibility;
- Discounting each possibility by its probability-estimated likelihood that it will occur; and
- Evaluating the overall picture by multiplying each possibility by its probability.
You don’t need to wait until your next mediation to learn about decision tree analysis, because putting these four steps into action isn’t hard:
The ability of decision trees to objectively highlight the real monetary value of the case, rather than the number each party may have focused on previously, is one of the key attributes of the tool, and I’ll write more about how to leverage that value here.
Dan Klein’s article Decision Trees & The Arboretum, mentioned above, is one of the best practical discussions of decision trees out there, and his website also has a free tool to compute simple decision trees called The Arboretum, where you can “create, save, and modify your own confidential decision trees”; he even has an express option where you can create a single tree without a login here. The decision tree at the top of this post was created using Dan’s online tool, and I’ll be pointing to it again soon.
By the way, that mediator who introduced me to my first decision tree had a point — a point that would have been better understood on mediation day if I had really known how to leverage decision trees in settlement discussions before I got there.
Try a decision tree in your next case. You’ll be glad you did.
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