[author]Wang Fuhua

[content]

Game analysis of collective litigation

*Written by Wang Fuhua

Professor, KoGuan school of Law, Shanghai Jiao Tong University

Abstract: The game analysis of collective litigation can provide the basis of microeconomics and social psychology for the improvement of the collective litigation system. The game in collective litigation is mainly carried out between class members, the class plaintiff and the defendant, the class and the court, as well as the class and the attorney, in each of them the players have specific litigation strategies and benefits. Generally speaking, the two sides of the game can achieve game equilibrium in procedural choice and substantial disposition decision, and find a compromised strategy to satisfy the interests of all players. In various kinds of game in collective litigation, restraining the “ free-rider” strategy, adopting the “ opt-out” rule, and incentivizing the high-value victims are conducive to maintaining and consolidating the group and realizing the value of collective litigation. In the game between the class plaintiff and the defendant, the choice of tactics of instituting and responding to an action reflects the necessity of coordinating the litigation expectations of parties and promoting litigation cooperation. The settlement game between class plaintiff and the defendant reveals the influence of the litigation cost and the accuracy of procedural operation on the settlement, and the need for the court to coordinate and supervise the settlement of the action. The game of case management in collective litigation shows that the court should be reasonably incentivized to accept class action, and the game of contingent fee needs to be reasonably regulated to prevent the abuse of collective litigation.

1.The structure and types of game analysis of collective litigation

In 1960, the American scholar Thomas C. Schelling put forward the idea of game theory as a framework for social science research, which opened the era of game theory as a tool for social science research. In the 1980s, American scholars Beberchuk and Kornhauser respectively published research results on the use of game theory to examine the civil procedure system, and game theory officially entered the field of civil procedure law as a research tool. During the same period, some U.S. courts began to advocate the application of game theory to class action trial practice, as "concepts of legal economics must be involved or relied upon when assessing the costs and benefits of class actions." In the past few decades, the application of game theory in theory and practice has provided another possibility for people to understand the laws of the group litigation system, reflect on the practice of litigation and improve legislation.

1.1 The structure of the group litigation game

Legal game analysis reveals the path of behavior interaction between people under certain rules. This kind of analysis can effectively reveal the motives and interrelationships of each litigant. Under the framework of game theory, a game consists of three elements: (1) a set of participants; (2) a set of policies for each participant; and (3) the participant's return for each possible strategy. If the litigation behavior is substituted into the above-mentioned game structure, it can be found that the procedural choice behavior of the litigation subject is usually a decision and a choice, which fully satisfies the requirements of the game elements and constitutes a typical game action. Moreover, compared with the usual litigation game, the group litigation process contains more game forms, more complex game strategies and more game nodes.

1.1.1 Game subjects in collective litigation

Participants in the game are decision-makers who choose actions to maximize their expected utility (returns). The main body of the group litigation game has the following characteristics: First, there are various types, including many victims (group plaintiffs), litigation representatives, lawyers, opposing parties, courts (judges) and other litigation subjects. The combination of participants in a specific game action is specific and may include a game between members of a group, a game between the plaintiff and the defendant, a game between the group and the representative, a game between the parties and the court, a game between the parties and the lawyer, and so on. As for the subjects in which the game action is carried out, it depends on the matters to be decided by both parties to the game, which can be the game of whether to sue or not, the game of whether to join the group, the game of electing representatives, the game of whether to accept the group dispute, and the game of whether to settle. In class litigation, various procedural choices, substantive dispositions, and even case management behaviors are all presented as game activities.

Second, the subject of the group litigation game has the ability to make rational decisions. Class litigation is a complex form of litigation, and the procedural operation and litigation outcome involve the interests of multiple parties, in which collective action decision-making is not available in ordinary litigation. On the one hand, there are a variety of game decisions in class litigation, and each subject in the game will pursue the most favorable procedural choice and substantive disposition result, and choose the most beneficial strategy, such as proposing a litigation settlement plan that is beneficial to its own party. If you can't find the best strategy, at least the worst strategy should be eliminated to achieve a rational choice. But on the other hand, whether the optimal strategy of the game agent can be achieved depends on the strategy of the other party. In this regard, the large-scale group litigation and the representative mechanism have increased the difficulty of the game subject to predict and judge the opponent's procedural choice and substantive disposition, and under complex conditions, the game subject must also adjust its litigation expectations according to the other party's strategy, substantive and procedural rules, probability of winning the lawsuit and procedural benefits (which can be obtained through court interpretation or legal services), make decisions and achieve game equilibrium.

Thirdly, there is a complex interactive relationship between the subjects of the group litigation game. In class litigation, whether it is collective action within the group, confrontation between the original defendant or game activities between other subjects, it all reflects a high degree of interaction. Since no one's choice is given, the outcome of each person's decision will be influenced by the decision of others, resulting in structural conflicts of interest in the relationship between the representative and other group members (the represented), the group lawyer and the parties, and the current rights holder and the future rights holder. At the same time, this shows that in the strategic game of procedural selection and substantive disposition, all parties must combine litigation confrontation and litigation cooperation well, and not only consider their own choices, but also need to consider the choices of others. In other words, the game analysis of the group litigation system reveals the reasons for the non-cooperation of the litigation subjects on the surface, but fundamentally explores ways to promote litigation cooperation.

1.1.2. Gambling strategies in collective litigation

The subject of a class action has the opportunity to choose a procedure and a substantive disposition, and each person should choose the best countermeasure for the other party's possible actions when choosing an action, which is the game strategy. The group litigation game strategy has the following characteristics: First, the group litigation game strategy corresponds to the litigation behavior, including two types of strategies: procedural selection and substantive disposition. For example, many victims choose to sue individually or join a group; whether the group has declared its withdrawal from the group after it has been formed; whether or not they agree to nominate a representative; whether the representative is proposed to be replaced after the nomination; agree or disagree with litigation mediation (settlement); Agree or oppose the appeal. Similarly, there are different game strategies in the game between the group plaintiff and the defendant, and between the group plaintiff and the court. In some games, the game subject will choose the "strict advantage strategy" or eliminate the "strict disadvantage strategy" at the same time to maximize the benefits. Other group litigation games will form a linear game strategy chain, in which the game subject makes the optimal choice in the continuous selection of procedures and substantive disposition nodes, and carries out repeated games.

Secondly, the "Nash equilibrium" of the game strategy can usually be found in the class action game. As with all gambling activities, the interdependence of various subjects in a class lawsuit determines that the game contains a conflict between individual rationality and collective rationality. Each subject not only makes choices and dispositions based on the maximization of its own interests, but also adjusts its choices according to the actions of the other party, until any party to the game unilaterally changes its own strategy under this strategy combination will not improve its own returns, so as to achieve a Nash equilibrium. Taking litigation settlement as an example, both the plaintiff and the defendant want to get greater litigation benefits, but the outcome of litigation settlement does not depend only on their own choice, but also on the choice of the other party. In the case that one party's settlement strategy remains unchanged, both parties may eventually agree to settle, or both parties may not agree, and these two "Nash equilibriums" are a stable combination of litigation settlement games. As for one party agreeing to the litigation settlement and the other party not, it is not a game equilibrium.

Thirdly, the path of group action game decision-making is relatively complex. Generally speaking, the strategy in a static game is relatively simple and intuitive. For example, in the decision of whether to join the group, the victim often adopts the "herd strategy", in which others sue themselves and others participate in the group, and others participate in the group themselves, which alone will form a game equilibrium. However, most class litigation games have more nodes, and it is more complicated to make optimal choices and find equilibrium paths. Taking the decision of stakeholders to join the group as an example, the game nodes at least include registering to join the group, withdrawing from the group, and requesting the court to apply the judgment in favor of the lawsuit.

1.1.3. Gambling gains in collective litigation

In game theory, the payoff refers to the reward that each participant receives for a given combination of strategies. Specific to the group litigation game, the benefits have the following characteristics: First, the group litigation game is aimed at the benefits of the game behavior. In various forms of games, such as "group-opposing party", "many victims-many victims", "group-representative", "group-lawyer", etc., the combination of the game strategy of the subject of the litigation and the game strategy of the opponent determines the litigation income. The benefits may be positive, such as reducing the cost of litigation through the choice of procedure and obtaining the desired amount of compensation through litigation settlement, or they may be negative, if the class action increases the cost of litigation, the cost of organizing the group and the litigation representation is too high, and the probability of intra-group conflict is too high, the gain of the class action may outweigh the loss.

Second, the benefits of group actions determine the game decision. The purpose of the game strategy is to maximize the benefits of litigation. Like other litigation games, the procedural choice and substantive disposition of the subject of the litigation are not only consistent with the litigation objectives pursued, but also based on the assumption of pursuing the maximization of interests. When disposing of their own civil rights and litigation rights, and when making litigation decisions, other litigants mainly consider their own personal interests and pursue better litigation results and procedural interests. As with the usual litigation games, the game benefits of class actions can be divided into two categories: substantive gains, that is, the difference between the benefits brought about by the outcome of winning the lawsuit or substantive disposition and the litigation costs, and procedural benefits, that is, the procedural benefits brought about by the choice of procedure or the litigation costs avoided.

Third, the benefits of the class action game are related to incentives. Litigation behavior in class actions needs to be coordinated, and the key to achieving coordination between the parties is how to form a common expectation, for which incentives need to be adopted. Taking the election of a representative litigator as an example, the United States has established the "lead plaintiff" rule: the plaintiff who first files a class action lawsuit can act as a group representative and become the representative of the litigant, thereby increasing his influence on the litigation and future litigation revenue. This provides the rules of the game for many victims to compete to become representatives (lead plaintiffs). On the contrary, the situation in China is that the parties lack the necessary institutional incentives to serve as representatives, the representative has little income, the workload and responsibility of the representative litigation is large, and many parties to group disputes are unwilling to pay for others, resulting in difficulties in collective action, which also reflects the need for legislation to adopt incentive measures to activate the group litigation system. Similar incentives are needed in the areas of case acceptance and representation.

In short, based on the correspondence with the above-mentioned three elements of game subject, game strategy and game benefit, group litigation has all the basic conditions of game elements and game analysis.

1.2 Types of collective litigation games

Games in class actions can be played simultaneously or sequentially, and it is often the case that the parties to the litigation use a mixture of the two game types.

1.2.1 Static game and dynamic game of group litigation

A considerable part of the class action game is static decision-making, that is, static game. Static game refers to the fact that both sides of the game act "simultaneously" when carrying out the punishment behavior. "Simultaneous" here is not only a concept of time, but also a concept of information, which specifically refers to whether one party knows what action the other party has taken when it acts. Many procedural choice behaviors in class actions are static games. Taking the game of competition as the representative of the group as an example, with sufficient incentives, the party with the information of the competitor can formulate the optimal strategy to become the litigation representative. This information includes the amount of victim support the adversary is known to the candidate on behalf of the candidate, how and what the adversary communicates with the many victims, the size and individual data of the victims, and the total amount of damage suffered by the group. If the opponent's strategy is very competitive, the candidate may choose to pay the cost of the representative at his own expense, collect evidence at his own expense, contact the person represented, etc., and propose a more competitive plan than the opponent, so as to make his strategy consistent with the litigation behavior.

A dynamic game refers to a game in which one party acts first, one party acts later, and the party that acts later knows the choice of the party that acts first. This kind of game, in which the two sides take turns to act, is also known as the sequential game. Corresponding to a class lawsuit, the game between the two parties on the jurisdiction of the case belongs to this kind of game, and the game nodes are: the plaintiff chooses the court when filing a lawsuit, the defendant raises a jurisdictional objection, and appeals the ruling on the jurisdictional objection. Taking pre-litigation jurisdiction as an example, both the operator and the consumer will choose the court that is favorable to them, rather than putting themselves in the other party's shoes. The standard contract provided by the operator usually stipulates the jurisdiction of the court in favor of the operator, because this can reduce the litigation cost of the operator. However, once many consumers choose such a court, they will have to pay higher litigation costs (such as transportation costs, etc.) after being involved in litigation, which is a strict disadvantage strategy that must be eliminated first when agreeing on a competent court. However, after the game, the above-mentioned parties' agreed jurisdiction strategy will form a balanced result - agreeing on an objective and neutral court jurisdiction. This is because, even if the court jurisdiction in favor of the operator is agreed upon at the time of conclusion of the contract, and thus the procedural interests of the consumer are harmed, it is only the first round of the game. Many consumers can raise jurisdictional objections, ask the court to exclude the jurisdiction clause in the agreement, or even continue to assert jurisdictional objections through appeals and retrials, and start a follow-up game.

The dynamic game of group litigation has the following characteristics: First, the actions of the litigation subjects in the dynamic game of group litigation have a sequence. Taking the game between the plaintiff and the defendant as an example, firstly, the group victim can choose to file a group lawsuit or not, and the defendant will take its own actions according to the decision of the plaintiff group, such as raising a causation defense or a party ineligible defense, settling with the plaintiff group or accepting mediation, etc. Both parties have a complete plan for procedural selection and substantive disposition, and adjust their choices according to the litigation actions of the first actor, and the two parties take turns to act, forming a tree-shaped game structure.

Second, the dynamic game of class litigation is usually a repetitive game. The group action has the characteristics of stages, and the related games are also continuous and repeated, and the games of each node constitute a stage game, and the results of the game in the previous stage do not change the structure of the game in the later stage. The game between the plaintiff and the defendant alone includes the parties' defence of qualifications, the defense of jurisdictional objections, conciliation or mediation in the first-instance trial procedure, and the game in the first-instance trial, second-instance trial, retrial and enforcement procedure in the whole process of litigation. These games are carried out sequentially and are embedded in larger games to form dynamic game models such as "centipede games". The intra-group game, the plaintiff and the defendant, and even the group and the court often do not stop at the first game, but in the initial game stage, the two parties choose to partially cooperate and carry out the game to multiple litigation stages to obtain higher returns.

Thirdly, the dynamic game of group litigation will be affected by the probability distribution of exogenous events. In addition to the participants' game strategies, the game process and outcome are also affected by some random factors that are not controlled by the parties, among which the influence from judicial policy is the most important. For example, in 2001, the Supreme People's Court promulgated the Notice on the Temporary Inadmissibility of Securities-related Civil Compensation Cases (Fa Ming Chuan [2001] No. 406), stipulating that securities civil compensation cases would not be accepted for the time being. In 2002, the People's Court promulgated the Notice on Issues Concerning the Acceptance of Civil Infringement Dispute Cases Arising from False Statements in the Securities Market (Fa Ming Chuan [2001] No. 43), which stipulates that "the people's courts should not accept civil compensation cases for false statements in the form of class actions". In 2005, the People's Court issued the Notice on Issues Concerning the Acceptance of Joint Litigation Cases by the People's Courts (Fa [2005] No. 270), which stipulates that "if the court accepting the case deems it inappropriate to accept it as a joint litigation, it may accept it separately".

1.2.2 Complete information game vs. incomplete information game in collective litigation

When carrying out litigation acts, the subject of a group lawsuit must make a judgment based on the information it knows, and information such as the parties' litigation rights and obligations, the litigation claims in the pleadings, the factual reasons, and the evidentiary materials and legal basis will all be exchanged among the parties and become the basis for their respective decision-making. The scope of information communication and disclosure of facts between the subjects of a class action is relatively wide, including legal procedural rules, facts of transaction or infringement, degree of personal injury, causal relationship, and the creditworthiness, business and property status of the opposing party. According to the parties' grasp of game information, group litigation games can be divided into complete information games and incomplete information games.

1.2.2.1 Complete information game. A situation where a group litigation entity fully grasps the characteristics and types of information of the other party when carrying out litigation acts is a complete information game. On the one hand, the right to choose procedures stipulated in the Civil Procedure Law belongs to public knowledge, which is usually open, transparent, and popular, and has the characteristics of complete information; on the other hand, in a group lawsuit, the parties have a better grasp of the whole picture of the facts of the dispute through continuous communication and the submission of facts and evidence, and have a clear judgment on what kind of procedural system to apply to resolve group disputes, which is also conducive to the realization of a complete information game. But in fact, the complete information of the class action game is not easy to achieve. Although the parties in a class lawsuit have the willingness to disclose information to each other, and the court will also compel the defendant such as a business operator or a hospital to submit evidence in a group environmental lawsuit, a drug injury lawsuit, a consumer lawsuit, or a medical lawsuit, in most cases, the group litigants cannot grasp all the information, and the defendant who has the evidence will not take the initiative to disclose the evidence, but on the contrary, he will try his best to conceal or destroy the evidence, which makes it difficult for most group action games to be carried out under the condition of complete information.

1.2.2.2 Incomplete information game. If the subject of a class lawsuit does not fully grasp the characteristics and types of information of the opponent, it is an incomplete information game. Incomplete information games in class lawsuits are common. For example, when a victim of a class action "opt-in" to a group, he or she usually makes a decision to join the group even if the other victim does not join the group, because he understands that the other victims really mean to join the lawsuit. Another example is that when many victims decide to file a class lawsuit, they often do not know the litigation strategy, property status and willingness of the opponent (perpetrator), and the perpetrator usually does not know the size of the number of many victims, the real intention of litigation, and so on. The above-mentioned incomplete information game is obviously related to the parties' motives for concealing evidence and not disclosing information. Motivated by self-interest, even those who are able to disclose their own information will remain silent or pretend to be unable to do so. Relevant research has shown that when some parties are indeed unable to disclose information, the game will favor the parties who are able to disclose the information but remain silent. Similar situations are more common in victim-internal games, "court-group" games, and "group-lawyer" games.

In short, the class litigation game can be divided into four combinations: static game under complete information, static game under incomplete information, dynamic game under complete information and dynamic game under incomplete information. In the following sections, we will analyze several combinations: the static game of class litigation is suitable for the situation where both parties make decisions at the same time, and can effectively analyze the strategic choice issues such as the victim's "free ride" and the lawyer's remuneration for winning the lawsuit. The dynamic game of class litigation is suitable for the situation where the game subjects take turns to act at different stages of litigation, and can be used for the analysis of case acceptance game and litigation settlement game.

2.The game in collective litigation

Whether a large number of victims in a group dispute can form a group in litigation and be recognized by the court as qualified parties is a prerequisite for the initiation and advancement of the group litigation procedure, and will ultimately determine the scope of res judicata of the group action judgment. To a large extent, a class action lawsuit is a process in which the plaintiff group is constantly shaped and clarified, and whether to join, how to join, and how to withdraw all constitute game actions.

2.1 The "free-riding" strategy of intra-group games

The many victims in a class action belong to a single decision-making unit, and they are an interactive and interdependent group that requires more coordination and cooperation. According to the law of collective action, the larger the victim group, the more asymmetrical the costs and benefits of individual litigation, the less likely it is that they will cooperate in litigation, and the more difficult it will be to form a group. From the perspective of institutional function, if all victims choose the route of group action to resolve disputes, such collective action can not only reduce the cost of litigation, but also deter defendants and achieve "wholesale justice". However, collective action often presents difficulties, and the disposition of substantive rights and procedural choices often arise in the "prisoner's dilemma" or even the "multi-prisoner dilemma" – each party in the group has an incentive to be lazy or retain contributions, expecting to enjoy the benefits of others' contributions. Especially in the initiation of class actions, the parties are more inclined to adopt the "free ride" strategy, that is, to determine their own litigation strategy by observing the efforts and returns of other members of the group. In the context of this "dispersion of responsibility" or "responsibility entrustment", victims want to act as bystanders, do not organize or participate in the litigation group, and determine their own strategies after observing the efforts and returns of other parties. Obviously, the "free-rider" strategy is a completely information-static game.

From the perspective of public law, since the state has established a group litigation system, it must devote itself to its application, giving full play to its advantages in improving the efficiency of litigation and achieving "wholesale justice", rather than allowing social slackness such as "free riding". The measures to limit the "free-rider" strategy are varied: first, to reduce the gambling benefits of the strategy. If the victim does not participate in the group and has nothing to lose and does not have to pay the "future costs", he is likely not to join the group and waits for a "free ride" or sues separately on his own. If the "future cost" of the victim not participating in the group is high, the cooperative strategy will yield benefits. Therefore, if we want to change the "free-rider" situation, it is necessary to raise the cost of non-cooperation of the parties in legislation. Second, incentives and penalties reduce the willingness to "free ride". In terms of incentives, the corresponding mechanism for compensation for expenses should be clarified, and the court should support the litigation representative's claim for compensation for reasonable litigation costs. In terms of sanctions, consideration could be given to expanding the validity of judgments, so that victims who deliberately do not participate in litigation cannot sit back and enjoy the outcome of group actions, so as to encourage them to participate in collective action and achieve a one-time settlement of group disputes.

2.2 "Opt-in" and "opt-out" game rules

Once a group action case is accepted by the court, it will directly affect the litigation status of many victims: on the one hand, each victim has to decide whether to participate in the lawsuit; On the other hand, as groups are formed, the ability of individual victims to control large lawsuits will be weakened. Moreover, after the formation of the group, each victim is faced with the choice of control and counter-control strategies - either to remain in the group and continue the group lawsuit, or to leave the group and seek redress on their own. Therefore, group members should choose between two strategies, "joining" and "opting out" to maximize their litigation benefits. This is a static game under completely informational conditions.

"Opt-in" means that a victim intending to enter a particular class action must have a clear and affirmative access to the class action proceeding within the prescribed manner within the time prescribed by law. Only when the victim makes such an expression of intent in a timely manner will he or she finally be bound by the class action judgment. China's Civil Procedure Law adopts this model, which has the advantage of being in line with the principle of litigation disposition and is simple and easy to implement, first issuing a notice of right registration, and then reviewing the qualifications of the registered entity, so as to facilitate the right holder to exercise the right to sue. "Opt-out" refers to the assumption that a particular individual is a member of a large group of victims, and that he or she remains a member of the group unless he or she expressly withdraws from the proceedings and excludes himself from the effect of the group and the judgment. The "opt-out" is a mechanism that facilitates the protection of the right of action of the many victims as a whole, and it is never worse off as a member of a group than a member of a non-group, and will eventually be compensated to a greater or lesser extent, so it is a more advantageous position for victims.

The "opt-in" rule gives many victims the option of a strategy that allows them to sue individually and without being bound by a class action judgment if they wish – unless they voluntarily agree to participate in the action, the class action decision has no effect on them. However, this rule can also lead to "negative returns" in the game: first, victims often lack motivation to litigate, and in the absence of incentives, they will use "free riding" as the optimal strategy and do not actively participate in litigation. This is in line with the logic of the game of life – waiting for someone else to make a choice of strategy until the strategy proves to be successful or unsuccessful. Second, the "opt-in" rule will weaken the attractiveness of the group litigation system and is not conducive to the one-time resolution of group disputes. In contrast, the incentive for parties to sue and settle under the "opt-out" rule is enhanced, because if they do not claim compensation through a class action, they will lose their right to sue for the same infringement. Third, the "opt-in" rule is also not in favor of the defendant, because if the victim does not join the group, he will not be bound by the judgment, and he can file a lawsuit alone. In this case, the defendant has to respond to the lawsuit one by one, and the fatigue of responding to the lawsuit will lead to an increase in the marginal cost of dispute resolution and increase the litigation burden of the defendant. But equally, the drawbacks of the "opt-out" rule are obvious, and it has been criticized by law and economics for its inefficiency, irrationality, and low returns. Moreover, if all parties in the group opted out, the outcome would be worse than if they all opted in. It can be seen that the two rules of "opt-in" and "opt-out" have their own advantages and disadvantages, and the adoption of different rules will inevitably have different impacts on the function of the group action system. As to whether the two are beneficial to the group parties, it is necessary to distinguish the specific circumstances: for victims who claim a higher amount of compensation, "opt-in" should be an advantageous strategy, since they can obtain better procedural safeguards by filing alone. However, if the amount of compensation is low, the litigation costs that each member needs to pay may exceed the amount of compensation, and "opting out" has a positive effect on the protection of the rights of these people.

On the one hand, when the scope of interested parties is not clear, some of them are allowed to sue first, initiating group action procedures, so that rights holders who have been confirmed by the parties can obtain timely relief; After accepting a case, if the court finds that the party to the lawsuit has not yet been determined, it may issue a public announcement explaining the circumstances of the case and the litigation claims, and notify the rights holder to register with the court within a certain period of time, so as to provide the right holder who has not yet entered the litigation procedure with an opportunity to participate in the litigation. The problem, however, is that the "opt-in" rule imposes a heavy registration and examination burden on the courts, as well as a greater risk, so the courts lack motivation. As an attempt, China has begun to shift to the "opt-out" rule in the field of securities class litigation, which not only takes into account the protection of investors' substantive rights and procedural safeguards, but also alleviates the burden of court case management. Similarly, in antitrust class actions, the opt-out system is also believed to maximize the aggregation of victims of monopolistic behavior, form a scale advantage in litigation, and strongly incentivize litigation.

The Securities Law amended in 2019 and the Provisions of the Supreme People's Court on Several Issues Concerning Representative Litigation in Securities Disputes (Fa Shi [2020] No. 5, hereinafter referred to as the "Provisions on Securities Representative Litigation") have established a dual mechanism for participating in class litigation: (1) the "implied participation + express withdrawal" model, which is applicable to representative litigation in securities disputes initiated or participated by investor protection institutions, and (2) the "express participation + express withdrawal" model, which is applicable to ordinary representative securities litigation. In the field of securities class litigation, "opt-out" replaces "opt-in" with a better game strategy for the investor group: first, in the case of investors with a more specific range of investors represented by investor protection agencies, this rule is more conducive to the formation of investor litigation groups, which is in line with the law of public choice in the securities field, and the participation rate of class litigation can be greatly increased. Second, the "opt-out" mechanism is represented by the group, which can provide competent and loyal services to the many victims represented, remove the economic barriers to litigation, prevent the group attorneys from making excessive profits, and facilitate the establishment of links between the group and its members. In addition, the mechanism still allows the parties to decide the scope of the group independently, which embodies the concept of party autonomy and the principle of self-attribution, and helps to protect the litigation rights of the parties.

2.3 The game between high-stakes and low-stakes victims

The dynamic game within the group is mainly between the "high-value victims" and the "low-value victims", which is a completely information-dynamic game. A high-value victim is a victim whose expectation of litigation benefits is higher than the expectation of litigation costs, and whose claims are "strong claims" because the damage suffered by such victims is serious and the amount of compensation is high. Low-value victims refer to victims whose expectations of litigation benefits may be less than the expected litigation costs, and whose claims may outweigh the losses in their separate litigation rights, and their litigation claims are "weak litigation claims".

The game between high-value and low-value victims is usually a game of non-cooperation. This is because, first of all, the best option for each victim is to "free ride", not to participate in the collective action themselves, but to sit back and enjoy the results of the litigation of others, which is a typical manifestation of non-cooperation. Second, in the case of a class action lawsuit, it seems that the best strategy for victims should be to register to participate in the lawsuit in order to reduce their own litigation costs or litigation risks and maximize the benefits of litigation. The problem, however, is that without the deterrence of class actions, victims are less likely to receive reparations, so they have to base their choices on the basis that other victims also litigate, and cooperate with other victims to litigate together and face the defendant. In contrast, the most injured high-value victims are the most willing to sue, but the lower victims have the right to decide whether to join the group and profit from it, which can result in losses for the high-value victims (litigation for the benefit of other victims without additional returns). In other words, while the size of the group increases after the participation of low-value victims, high-value victims may fear that they will pay higher litigation costs and that the benefits will be less than expected. In contrast, the benefits of litigation for low-value victims will be greater than expected. In this case, solo litigation is undoubtedly the best strategy for high-value victims, and he does not hesitate to withdraw from the group, even if the cost of individual litigation is high.