Cost-Benefit Analysis of Discovery¶

Why It Matters¶

Discovery is expensive in time, money, and strategic transparency. The rule that discovery must be "proportional to the needs of the case" requires explicit cost-benefit analysis, but most lawyers do this intuitively and poorly. Systematic analysis prevents two errors: wasting resources on low-value discovery and failing to pursue high-value discovery because of fixation on cost.

The Key Move¶

For each potential discovery request, assign rough probabilities and values. Request seeks documents about design defect. Estimate: 70% such documents exist (large company, product in market 5 years). If they exist, 40% they're favorable (company likely documented both problems and solutions). If favorable, high importance (could be case-dispositive). Cost: $15,000 to review and analyze 5,000 documents. Expected value: 0.7 × 0.4 × (case value × importance weight) minus $15,000. If expected value is positive, pursue. If negative, skip or narrow request. Update estimates as you learn more.

Classic Application¶

Complex commercial litigation. Plaintiff seeks five years of emails from 20 defendant employees. Defendant objects as disproportionate - would cost $200,000 to collect and review. Court requires proportionality analysis. Plaintiff shows: case value $10M, emails highly likely to contain evidence of fraud (high probability and high importance), no alternative source for this evidence, $200,000 is 2% of case value and 10% of defendant's revenue (proportional to stakes and defendant's resources). Analysis supports discovery. Conversely, defendant seeks plaintiff's customer lists. Plaintiff shows: lists are trade secrets, marginally relevant to liability (low importance), would cost $50,000 to produce with redactions, defendant can prove its case without this information (alternatives exist). Analysis supports denial.

Surprising Application¶

Due diligence in acquisitions. Buyer is acquiring target company, must decide how much due diligence to conduct. Comprehensive diligence costs $500,000 and delays closing 90 days. Focused diligence costs $100,000 and delays 30 days. Expected value analysis: probability comprehensive diligence finds deal-killing issues beyond what focused diligence finds - perhaps 10%. Value of finding such issues - avoiding $20M bad acquisition. Expected value of incremental diligence: 0.1 × $20M = $2M, minus incremental cost of $400,000 and delay cost of $300,000, net $1.3M. Comprehensive diligence is worth it. If probability were 2%, expected value would be negative - do focused diligence.

Failure Modes¶

Anchoring on sunk costs - discovery you've already paid for is irrelevant to whether to pursue more. Overestimating probability favorable information exists - optimism bias makes people think discovery will help them more than it typically does. Ignoring strategic costs of revealing your theory through discovery requests - opponent learns what you're looking for. Treating all discovery as equal - some requests have cascading value (one document leads to others), some are dead ends. Failing to update as you go - early discovery should inform later discovery priorities, but many discovery plans are static.

Go Deeper¶

Federal Rules of Civil Procedure, Rule 26(b)(1) on proportionality; Ciani, William F. & Pasin, Herman J. "Cost-Effective Discovery." American Bar Association, 2009; Redish, Martin H., et al. "Discovery Abuse and Reforming Discovery." Rutgers Law Journal, Vol. 39, 2008.

Anchoring - Behavioral Economics: Reasoning About Systematic Deviations