Prosecution and Conviction under Hindsight-Biased Information Updating in Adversary Legal Systems

The traditional literature on plea bargaining relies on prosecutors who are perfect Bayesian decision-makers, and on courts that can eventually verify the true guilt of the defendant. In this paper, we introduce a limitedly rational prosecutor who is biased in hindsight when evaluating new information. We find that the influence of this behavioral bias on the established equilibria in the literature largely depends on what kind of information causes the bias. Biased evaluation of incriminating evidence may induce higher self-selection at the cost of more wrongful convictions. A biased interpretation of observed deal rejections may eliminate the semiseparating equilibrium.