The biggest risk in a dispute may be how your own decisions evolve. A structured process can help you pause, reassess, and stay in control.
Few situations put human behavior under more pressure than a high-stakes legal dispute. The emotions are intense, the information is incomplete, and the consequences can extend far beyond the case itself. That makes these situations a behavioral challenge as much as a legal one.
On a recent episode of the Behavioral Economics Today podcast, I spoke with Arthur Psaltis, Managing Director of VMG Capital in Sydney, about a seven-year legal dispute that cost more than $10 million in legal fees before the case was ultimately dismissed. The story is difficult, but it also provides a powerful look at how behavioral biases can influence decisions when the stakes are high.
The key takeaway from our conversation is this:
You cannot control the outcome of a dispute, but you can control the decision-making process.
Arthur described a case in which his client believed a government agency had seriously wronged them. They sought legal advice, pursued preliminary discovery, and eventually moved into full litigation. Each decision seemed reasonable on its own. But the belief that started the process shaped every decision that followed.
“It's never ironclad. It's never a certainty. That is fantasy.”
Arthur Psaltis, VMG Capital
As Arthur explained, the first mistake was believing they were “100% right.” Once that belief took hold, the objective became proving that position and seeking retribution. That created momentum toward the next decision and then the next.
I call this Decision Cascade Syndrome™. An early decision changes the context for every decision that follows. Once time, money, emotion, and expectations have accumulated, it becomes increasingly difficult to step back and ask whether continuing still makes sense.
High-stakes decisions need structure before momentum takes over.
In this episode of the Behavioral Economics Today Podcast, we unpacked what happened and explored how understanding behavior can help you stay in control when navigating high-stakes disputes.
The case illustrates several behavioral biases that can quietly shape decision-making.
Overconfidence can turn a strong case into an “ironclad” case in our minds. But legal outcomes are never certain. The eventual judgment demonstrated just how large the gap can be between our confidence and reality.
Sunk Cost Bias can make walking away feel impossible. As the legal fees climbed and years passed, there was increasingly more at stake. The temptation becomes, “We have come this far, so we have to keep going.”
Loss Aversion can have a similar effect. The possibility of losing what has already been invested can become more emotionally powerful than objectively evaluating the potential costs and benefits of continuing.
There was also an element of Authority Bias. By placing strong trust in their legal team, the client may have become more confident that pursuing the case was the right course, making it harder to step back and reassess.
Another factor to consider is that the people making the decisions may not be seeing the situation through the same lens. Lawyers are focused on the legal case, while business owners have to weigh cash flow, operations, employees, shareholders, family, and the future of the company. As Kahneman, Sibony, and Sunstein explore in Noise, human judgment can vary significantly even when people are assessing the same information. All of those perspectives matter, but they can lead people to see the same situation very differently.
You can’t assume anything when it comes to behavior.
And that applies not only to the other side of a dispute, but to ourselves as well. We need to keep challenging our own assumptions and asking, “What happens if we are wrong?” That question can create the space to step back, reassess the situation, and make a more deliberate decision before momentum takes over.
One of the most revealing moments in my conversation with Arthur was his reflection on the question that was never properly asked: What happens if the government does not settle?
The team expected a settlement. Instead, it became one of a small percentage of cases that did not follow that expected path. By the time that reality became clear, years and millions of dollars had already been committed.
This is where decision mapping and decision gates become so important. Before entering a high-stakes process, leaders need to consider more than the outcome they hope to achieve. They need to map the plausible paths, including the uncomfortable ones.
What happens...
If costs are much higher than expected?
If the other side has greater resources?
If key evidence does not hold up?
If the judge sees the case differently?
To the business and the people involved if you lose?
These questions are not about being pessimistic. They are about reducing the influence of bias by making the possibilities visible before emotion takes over.
The case also highlights what happens when clients lose control of the broader decision-making process. If they don’t stay involved, important perspectives may be overlooked.
Legal counsel has an important role, but legal advice is only one part of a high-stakes business decision. Someone also needs to keep asking about the commercial and economic consequences.
How much is this costing?
How long can the business sustain it?
What are we giving up by continuing?
What happens to the people involved?
Arthur offered a powerful lifeboat analogy to describe what happened. By the final stages of the case, the company had run out of money, and Arthur had already provided years of knowledge, evidence, and affidavits. Yet as the case moved toward trial, he found himself with virtually no input into how it was ultimately presented. He felt that, having served that purpose, he was effectively thrown out of the lifeboat.
That was a significant loss of perspective. Arthur had been the person in the room during years of negotiations with the government. He had knowledge built from a decade of firsthand experience that could not simply be replaced by documents or legal analysis. Without that perspective, the legal narrative can become the entire narrative.
I believe leaders need to stay in the decision room and have a process that forces objective reassessment at critical points, particularly before decisions that significantly increase the commitment. They should be empowered to stay in control of the decision-making. That does not mean ignoring professional advice. It means:
Make sure professional advice informs the decision rather than becoming the decision.
A high-stakes dispute is a perfect example of why understanding behavior matters. We cannot eliminate overconfidence, loss aversion, sunk cost bias, emotion, or uncertainty. But we can recognize when they may be influencing us.
We can build decision gates that require us to pause. We can deliberately challenge our assumptions and consider what the other side might see that we do not. And, most importantly, we can create enough distance from the emotion of the moment to make decisions based on where we are now, rather than where we started.
Looking back on the case, Arthur said that if someone had mapped out just how bad the situation could become, he might have decided it was not worth pursuing. That is the power of behavioral awareness. It does not tell you whether to fight or settle. It helps you make that decision with your eyes open.
In a high-stakes dispute, staying in control does not mean controlling the outcome. It means staying in control of how you decide what to do next.
Arthur and I are taking these lessons into the high-stakes dispute service we’re building. We’re combining behavioral insight, decision mapping, and structured decision gates to give leaders a clearer view of the risks, options, and paths forward.
The goal isn’t to tell leaders what decision to make. It’s to help them stay in control of the process and avoid letting momentum make the decision for them.
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