By Thomas M. O’Toole, Ph.D.
Last year, Johnson & Johnson was hit with an $8 billion verdict by a Philadelphia jury, an amount that exceeded the gross domestic product of more than sixty countries (included Monaco, Belize, and Greenland) in that same year, according to data from the International Monetary Fund. In fact, Johnson & Johnson has become the posterchild for what many in the legal industry refer to as “nuclear verdicts,” but J&J is not alone. Jury verdict awards in the hundreds of millions and billions are becoming more and more common in American trials. The impact of this upward trend in verdicts is often referred to as “social inflation” and has become a popular topic that has understandably caused panic within the insurance industry.
Social inflation and nuclear verdicts indisputably demonstrate that a standard economic analysis for assessing risk in litigation is no longer sufficient for accurately predicting potential risk. Under a standard economic analysis, the value of an injury such as quadriplegia for a plaintiff should be no different in 2019 than it was in 2007 for a similar plaintiff beyond the adjustment for standard inflation (and certainly no different from a similar injury in a similar 2019 case), but that is not what we are seeing with jury verdicts. Instead, they are wildly erratic and inconsistent. In short, the data on jury verdicts demonstrates irrationality at work. Fortunately, the study of jury economics (a subdivision of behavioral economics) helps explain this phenomenon, highlighting what renowned psychologist Dan Arriely calls the “predictably irrational” behavior of today’s juries. Continue reading