Washington Lawyer - September/October 2020 - 35

FEATURE
In a different context, when a client comes up with a business idea
(even a tentative one), the client's preconceived expectations might
create a sort of tunnel vision that prevents her from evaluating the
lawyer's advice impartially. Due to confirmation bias, the client might
pay more attention to advice that is consistent with her initial ideas,
interpret contradictory advice as overcautious or downplay it, and
later remember more information that is in line with the initial idea
when deciding whether to follow the advice of counsel. In addition,
in many corporate environments, when the lawyers are consulted
as an afterthought, there is a stronger tendency to disregard advice
when it does not give counsel's blessing to what the company has
already decided to do.

THE SUNK COST FALLACY
Beyond selectively attending to information, people often have trouble
pulling away from a particular course of action when there has already
been significant investment in it. As a common example, imagine having
bought an expensive ticket to a concert, only to find the performance
very boring. Would you leave the concert at the halfway point, or stay
for the entire event to "make it worth it"? Many would choose the latter.
This tendency to make decisions based on previous investment that
cannot be recouped is called the "sunk cost fallacy."6 From an economic
perspective, making decisions based on initially invested costs is irrational because these costs - be they in the form of time, money, effort,
or all three - are non-recoverable, or sunk. However, researchers have
repeatedly demonstrated that the sunk cost fallacy is also manifested in
personal and organizational decision-making processes.7
In law, the sunk cost fallacy may come into play when clients have
already invested time, money, and effort into a proposed course of
action. Because of these initial investments, the clients may be more
compelled to justify their effort by going with their own plan rather than
taking legal advice from a team of well-trained lawyers.
For instance, imagine a client whose marketing team has spent a great
deal of time and money developing a proposed trademark. The client's
trademark attorney then conducts a trademark clearance search, and it
reveals an identical or confusingly similar trademark that is already in use
by a third party. However, instead of switching to a different mark, the
client decides to go ahead with using the proposed mark despite the risk
of a lawsuit for trademark infringement. In these examples, individuals
persist in a course of action with diminishing or nonexistent returns due
to the perceived need to justify past investments.

DELAY AND PROBABILITY DISCOUNTING
Another reason why a client might ignore counsel's advice is that the
potential adverse consequences of sticking with the original plan are
often delayed and probabilistic (i.e., they may or may not occur). The
cease-and-desist letter may not come for some time, and in fact it may
never come. In behavioral psychology, a general principle states that the
effectiveness of an adverse consequence to shape behavior is degraded
when the consequence is delayed or made probabilistic.8
For instance, placing a misbehaving child in timeout hours or days after
the misbehavior will likely not be as effective in reducing misbehavior as
placing the child in timeout immediately. Additionally, imposing the
timeout inconsistently (sometimes given, sometimes not) following

Numerous behavioral studies
have DEMONSTRATED that animals
(including humans) tend to PREFER
delayed aversive CONSEQUENCES
to immediate ones, even if the
delayed consequence is MUCH
WORSE than the immediate one.
misbehavior will likely not be as effective as timeout given consistently.
In both of these examples, the effectiveness of the consequence is
degraded, either by delaying delivery or making delivery uncertain
(probabilistic). When these degradation effects occur in the context
of choice, they are referred to as delay discounting and probability
discounting, respectively.9
Consider the following choice faced by someone who finds medical
injections mildly unpleasant or inconvenient. With the arrival of flu
season, the individual can either (1) endure the mild, brief discomfort and
inconvenience of getting a flu shot, or (2) risk a miserable, multiple-day
bout of the flu weeks or months in the future. Despite the flu being
substantially worse than the mild discomfort and inconvenience of
getting a shot, the delayed and probabilistic nature of contracting the flu
sufficiently degrades the impact of this consequence, in turn increasing
the likelihood of forgoing a flu shot.
Numerous behavioral studies have demonstrated that animals (including
humans) tend to prefer delayed aversive consequences to immediate
ones, even if the delayed consequence is much worse than the immediate
one.10 A similar effect is observed when the two alternatives differ in
terms of probability, with the probabilistic aversive consequence preferred over the guaranteed aversive consequence, even when the former
consequence is much worse.11 In other words, people generally prefer
to avoid a little bit of guaranteed pain now, even if it means they may
experience a potentially larger amount of pain later.
Let's say a corporate client proposes claiming certain workers as
independent contractors rather than as employees because the client
wants to avoid having to (1) pay its share of the workers' Social Security
contributions, (2) potentially provide health care benefits to the workers,
and (3) handle the administrative burden of withholding the workers'
income tax (among other financial consequences of categorizing
workers as employees rather than independent contractors). However,
tax counsel recommends against claiming the workers as independent
contractors because, in her opinion, the workers are more accurately
categorized as employees. Furthermore, counsel emphasizes that if the
company is audited several years later, the discrepancy could be

SEPTEMBER/OCTOBER 2020

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WASHINGTON LAWYER 35
Washington Lawyer - September/October 2020

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