Abstract
This paper develops a game-theoretic model to analyze the strategic interaction between a physician and a patient under legal uncertainty and asymmetric information. The physician chooses between clinically optimal and defensive treatment, while the patient, observing the health outcome and diagnostic burden, decides whether to invest in information and initiate litigation. The model introduces a diagnostic signal and belief formation via Bayes’ rule, and characterizes three pure strategy Perfect Bayesian Equilibria. These equilibria reflect distinct institutional configurations: optimal care with no litigation, defensive care without litigation, and defensive care with litigation. The model explains observed patterns of defensive medicine across Western healthcare systems and provides a welfare analysis comparing the social and individual efficiency of each equilibrium. Policy implications are discussed with reference to legal design, transparency, and information access. The results offer a normative framework for evaluating medical liability systems and their impact on clinical behavior and patient welfare.