Preliminary Draft 1 The Priest-Klein Hypotheses: Proofs, Generality, and Extensions Yoon-Ho Alex Lee and Daniel Klerman * Draft: July 14, 2014 ABSTRACT Priest and Klein’s 1984 article, “The Selection of Disputes for Litigation,” famously hypothesized a “tendency toward 50 percent plaintiff victories” among litigated cases. Despite the passage of thirty years and the article’s enduring influence, their hypothesis has never been formally proven, and doubts remain about its validity and the assumptions needed to sustain it. This article makes four contributions. First, it distinguishes six hypotheses plausibly attributable to Priest and Klein. Second, it rigorously proves five of these hypotheses, shows that two of them are valid with greater generality than Priest and Klein assumed, and shows that one of them is false. Third, it shows that some of the hypotheses remain valid even when an incentive- compatible bargaining mechanism is employed. And finally, it shows that some of the hypotheses remain valid when parties use Bayes’ rule and information about the distribution of all disputes to refine their estimates of the plaintiff’s probability of prevailing. * Yoon-Ho Alex Lee is Assistant Professor of Law, USC Gould School of Law. alee@law.usc.edu. Daniel Klerman is Charles L. and Ramona I. Hilliard Professor of Law and History, USC Gould School of Law. Charles L. and Ramona I Hilliard Professor of Law and History, USC Gould School of Law. www.klerman.com. dklerman@law.usc.edu. The authors thank Ken Alexander, Andrew Daughety, Dan Erman, Jonah Gelbach, Bart Kosko, Jennifer Reinganum, as well as the participants at the Twenty-Fourth Annual Meeting of the American Law and Economics Association for their helpful comments and suggestions.