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Expert: - 7/22/2010


Question
A lawsuit has a 50% chance to be won by the plaintiff for some amount (and therefore -0- 50% of the time also) with the award likely to be between $150K-$300K 75% of the time and a chance to be above $500K only 10% of the time and the the current demand by plaintiff is $300K. The defendant agrees the suit can be won 50% of the time. The defendant thinks the case is worth no more than $200K. The cost for each party to try the case is $25K. Would there be a formula be to determine the best number for each side to settle the case and can it be illustrated in a graph showing various results with various odds?

Answer
I thought I answered this, but here's the answer again.

This can sort of be done with math, but its a little shaky.
The chances of it being right are about the same as the chances of winning that suit -
kindof iffy.  This said, I will try to do it.

For $150K-$300K, I will use the average, which is $225K.
This says it is 75% of the time, which is 3/4 of the time, so the value would be $225K(3/4) =
675K/4 = 168.75K.

Since it goes over 500K only 10% of the time, that would be 500K(10%) = 50K.

Now since it says 75% and 10% are these amounts, that is only 85% of the times that the case wins.  I will assume the other 15% is below $150K, so I'll take an average of 75K.
Since there is 15% that is here, take 15%(75K) = 11.25K.

The total is (168.75 + 50 + 11.25)K, and this should be cut in half,
since there is only a 50% chance of winning.  Call this A.

I will assume there are two parties involved, so the cost would be 2(25K) = 50K.
This should be added on to A to get the total cost M, so M = A + 50K.

The total worth R is $200K.

This would give a rough estimate on the amount of money involved.

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