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of anticipated investment income on assets held against reserves, as well as anticipated margins in excess of loss experience. Third, premium pricing is subject to state regulation.

Over time, however, the premium must reflect estimated future losses and must make up for past losses that proved to be greater than earlier estimates. If there seems to be developing a litigation growth sector, the prudent insurer will seek to stay ahead of the curve, even at the risk of pricing itself out of that particular market. Our conclusion is that increased uncertainty increases insurance transaction costs. See Epstein, supra note 300, at 1134 ("The absence of privily also makes matters more difficult for the accountant's insurer, which must be able to estimate the accountant's future losses to set its own premium. Privity has at least one unsuspected virtue. It aids in the quantification of relevant business risks.").

(n327) See Sherry R. Sontag, Soured Deals Snag More Professionals, NAT'L L.J., Feb. 4,1991, at 1 (quoting Paul V. Geoghan, assistant general counsel of the D.C. AICPA, who notes that premiums have tripled in three or four years and "some accountants are going bare").

(n328) "Last year saw also the collapse of another major firm, Laventhal & Horwath, which sought bankruptcy protection from creditors after costly malpractice lawsuits." Berton, supra note 311. The "going bare" strategy is not foolproof, however. See WALL ST. J., Oct. 7, 1991 at B7 ("New suits may be filed against partners of defunct accounting firm [Laventhol and Horwath).").

(n329) See supra note 302 and accompanying text.

(n330) See Tversky & Kahneman, supra note 321, at S259-60. The authors argue that a significant property of the value function is loss aversion. Whereas most persons are generally risk averse, when faced with losses, they exhibit risk seeking behavior. As the loss potential increases, the utility of risk seeking behavior increases for more persons. Thus, a tort defendant looking at a choice of taking a 50% chance of losing $1 million by going to trial or settling for $500,000 would be more likely to litigate than one facing a choice of taking a 50% chance of losing $100,000 at trial or settling for $50,000.

Parties looking at potential gains, however, will exhibit risk averse behavior and will be more likely to opt for the bird-in-the-hand. But Tversky and Kahneman's analysis posits that the value curve in the loss quadrant is much steeper than in the gain quadrant. Thus, it would appear to follow that a defendant's loss aversion/ risk seeking behavior will outweigh a plaintiff's efforts to avert risk by offering to settle - assuming, of course, that the plaintiff views a potential judgment in his favor as a gain. We would argue instead that victim-plaintiffs are more likely to view themselves as temporary losers seeking to recover the status quo ante. Their psychological reference points are not their wealth levels at time of trial, but rather the levels they had prior to the defendants' wrongful acts. They too will exhibit risk seeking behavior to avoid making their losses permanent, just as a casino gambler tends to double up when he is behind.

The joint and several rule does not affect the plaintiff's position but it does raise the stakes for the individual deep pocket defendants who can meet a judgment. Given Tversky and Kahneman's


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