Counterfactual Keys to Causation and Damages in Shareholder Class Actions
15 January 2009
By Dr. Arun Sen with SEC Economic Fellow Dr. Fred Dunbar
Introducing mathematical rigor into the legal process has been proposed to reduce error and uncertainty in litigation. One area of law that would seem to be a candidate for such formalism would be proving causation. Yet most legal scholars balk at the idea that the legal principles of causation are based on anything as precise as, say, scientific causation. In this paper, NERA Senior Consultant Dr. Arun Sen and SEC Economic Fellow Dr. Fred Dunbar show that counterfactual analysis, a relatively recent trend in the philosophy of causation that is being applied in the social sciences, has a role in understanding causation in at least one important area of the law -- shareholder class actions. The stricter standards imposed by the Supreme Court over the past twenty years, culminating in the Dura decision, can be understood in the context of counterfactual analysis establishing loss causation. This approach then has important implications for estimating damages in shareholder class actions.
