Il Paralegal Assocation.11042010

Adding Value in the Selection Process of an Economic Expert Witness

The Illinois Paralegal Association 2010 Fall Education ConferenceNovember 4, 2010

Rick Nathan, ASA, CFAThe Sorbi Group, LLC

People are generally unaware of how they make decisions and sometimes why they make certain decisions

People are minimally concerned about the quality of their decisions but show great concern about the quality of decisions made by others

There are two (2) types of decisions – Evaluations (Preference) and Predictions (Belief)

Decisions are anticipation based off of intuitive judgments/choices Intuitive processes are not adequate in dealing with advisory matters

Paralegals need to manipulate their specialist knowledge, with that of the trial team, using a reproducible process leading to better decisions in selecting a financial expert witness.

November 4, 2010 © 2010, The Sorbi Group, LLC 2

The Backdrop

People learn primarily on the basis of what they observe People have a tendency to seek information to confirm their ideas rather than to

look for possible disconfirming evidence When interviewing experts, much of the information is redundant – much is also

consistent – however, consistency of information that is not independent adds little to no predictive ability.

Example:o A candidate expert says that she has testified for plaintiffs 50% of the timeo A search of public record cases showed that the candidate expert testified for the plaintiff 50% of

the timeo We observe from decisions that the candidate expert is not plaintiff/defendant biasedo However, we don’t know about the 80% of the cases that the expert testified for the plaintiff that

are not in the public record

2 Actions Enabling Better Choice Bolster memory by recording both predictions and the basis of predictions – leads to heightened

self awareness of one’s judgment Accept the fact that one does not necessarily learn from experience, and often cannot.


The Nature of Human Judgment

What are the consequences of alternative actions – what is at stake?o The “Evaluative” Dimension

What are the uncertainties in the environment relevant to the decision?o The “Predictive” Dimension


Decision Analysis

7) Choice

5) Sensitivity Analysis 6) Information Gathering

4) Evaluating Alternatives

2) Assessing Consequences 3) Assessing Uncertanties

1) Structuring the Problem

Who is (are) the decision makers? What are the alternatives? On what dimensions should the alternatives be

evaluated? What are the key uncertainties? At what level of detail does the problem need to

be structured?o To what level of detail can the problem be structured?


Structuring the problem

7) Choice





Who are the Decision Makers? Department

o Litigation, Tax, IP, all or some mix

Professionalo First Chair, other

Cliento Inside counsel, C-Suite, other

Other Named Parties



7) Choice






evaluated? What are the key uncertainties? At what level of detail does the problem need to be

structured?

What are the Alternatives? Alternatives are not necessarily given but must

be sought and/or created o Identification of Candidates

• Internal firm database• External research

Imagination in the creation of alternatives greatly increases the scope for choice

• From where might experts be sourced?• Invoking an “executive search process.”



7) Choice







structured?

What are the dimensions / candidate specificationo Years of Experienceo Academicso Certificationso Professional Associationso Past Testimony

• Venues• Subject Matter• Party Alignment (i.e., Defendant vs. Plaintiff;

Court or other)

o Past Publications / Presentationso Industry Expertise



7) Choice







structured?

What are the Key Uncertainties? Geographic Restrictions Fee Barriers Conflict Checks Personality Clashes Accessibility “Bench Strength”



7) Choice







structured?

Structuring Detail• Nominal

– Absolute reference

• Ordinal– Temporal positions

• Interval– Equidistant extremes

• Ratio– Relative scale



7) Choice







structured?


Assessing Consequences

Two (2) major issues as this stageo How adequate are the measures of the

dimensions of which the alternatives are to be evaluated?• How well do the dimensions chosen

represent the alternatives? Does the candidate expert selection

criteria cover all relevant domains? Has an important dimension, e.g., “character” been omitted?

• Where and how can measures on the dimensions be obtained. How do you judge a person’s motivation or

intelligence? In most cases, you need outside assistance – from who?

o How should the different dimensions be weighted?

Reflects Evaluative Judgments or Preferences

7) Choice





Testimony 30%

Subject Matter

Non-Testimony0%

30%

Experience (Yrs)

Direct Industry

0%Importance

20%

Academic10%

Certifications10%

Noteworthy

Direct Function


Assessing Uncertainties

After uncertainties are identified – Need to be quantified in terms of probabilitieso What information is relevant to the uncertainties?o What people can provide or where can information

be obtained to make the necessary probabilistic judgments

What is the chance that sourcing an expert from the “Big-4” results in a rate per hour greater than $400?

What is the chance that a certain professor in academia will not be readily available?

Reflects Predictive Judgments or Beliefs

7) Choice





What are the Key Uncertainties? Geographic Restrictions Fee Barriers Conflict Checks Personality Clashes Accessibility “Bench Strength”


Evaluating Alternatives

What criterion, that is, decision rule do you wish to use? Weighting assessed consequences (dimensions) by the

assessed uncertainties (probabilities)

7) Choice





Expert 1

50%

Expert 2

Fee Barriers

0% SelectedExpert

20%

Expert 3

Expert 4

Conflicts

Accessibility

….x%…

.

….

….


Sensitivity Analysis

How wrong are the estimated consequences and uncertainties?o What degree of variation in the inputs of assessed consequences

and uncertainties would change the decision indicated when evaluating the alternatives?• Vary both the estimated values of alternatives (e.g., using

different weighting schemes) and the probability of events –what is the extent to which the decision is sensitive to such changes?

o Important for 2 major reasons:• Most inputs to the decision are subjective

If the choice between 2 candidate experts is relatively insensitive to ranges of inputs as opposed to precise values, this provides some answer to the question concerning how wrong estimated consequences and uncertainties can be, and yet not affect the decision.

• When people disagree concerning subjective inputs to a decision, disagreement does not necessarily imply different actions. Through sensitivity analysis, one can test the extent to which actions (e.g., Hire Expert “A”) are compatible with ranges of opinions and values (i.e., weights accorded to dimensions of consequences).

7) Choice






Information Gathering

An important output of the preceding step can be the revelation that the decision is sensitive to lack of knowledge concerning certain variables – that is, there is a need for more information.

What are the costs and benefits or securing additional information?o Includes “soft costs” such as delay, that is, the

cost of deferral• Perfect information is not attainable

Information gathering follows sensitivity analysis since it would be a waste to collect additional information on something that had little effect on the decision.

7) Choice






Choice

Has there been sufficient analysis of the problem?o Relative to the costs, benefits, and constraints of the

situation. Which alternative has the greatest expected utility?

o Choose the alternative with the greatest expected utility.

7) Choice






The Final Choice

Although the approach has been shown in a step-by-step process, in practice, there is considerable recycling between steps.o The process of analysis often indicates new alternatives or

dimensions of evaluation. Although the aim of the analysis is an explicit quantitative problem

formulation, the use of sensitivity analysis enables one to see how quantitative the formulation needs to be.o Important because most inputs are subjective

If different decision makers independently utilize the approach, this can highlight the real extent of agreements and their relative importance.

By decomposing the selection process in this manner, it is possible to synthesize the opinions of individuals with different domain knowledge to the extent their knowledge relates to different aspects of the selection process.


Parsing the Financial Expert Domain

Vitae

Persona

Cost-Benefit


Parsing the Financial Expert Domain – Cost/ Benefit

Rateso Experto Teamo Report vs. Testimony

Expenses Reasonably Available

o Willing to devote necessary timeo Responsive to phone/email

Vitae

Persona

Cost-Benefit


Parsing the Financial Expert Domain - Persona

Vitae

Persona

Cost-Benefit

Articulateo From Wall Street to Main Streeto Educator/Mentor

Adaptiveo Can think on feet and react to difficult situations

Ethicalo Objective

• Advocate for opinion, not for represented partyo No skeletons in the closet

Likeableo Personableo Humbleo Voice/Demeanor


Parsing the Financial Expert Domain

Stats

Industry

Asset/Matter

Functional Discipline

Business Model

Vitae

Persona

Cost-Benefit

Educationo Accountingo Economicso Finance

Designationso ASA, CFA, CPA, CVA, Ph.D.

Certified/Daubert Industry Experience

o Direct? Financial Advisory Exper.

o Testimony Exper. Publications/Press

o Contrary opinions or writings


Parsing the Financial Expert Domain - Example

Health Care IT

Asset/Matter

“Worth”

BPO/SaaS

Asset / Mattero IP Infringement

Industryo Healthcare Information

Technology (“HIS”)

Business Modelo BPO/SaaS

Functional Disciplineo Worth - Valuation/Pricing

• Reasonable Royalty

o Damages• Lost Profits

Stats


Accounting, Economics, and Finance

Economicso Analysis of production,

distribution, and consumption of goods/services

Financeo Analysis of the circulation of

money, the granting of credit, the making of investments, and the provision of banking facilities

Accountingo Recording, verifying, and

reporting financial transactions

Accounting(Output)

FinanceEconomics

Wortho Value, Price

• Infinite

Damageso Loss, Harm

• Finite

“…[i]t’s not what we don’t know that gives us trouble. It’s what we know that ain’t so”1


Thank You

1 Will Rogers

Il Paralegal Assocation.11042010

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