Why do people always sue for ludicrous amounts of money?

Because it works.

The larger the amount you sue for, the more money you win.

Via Priceless: The Myth of Fair Value (and How to Take Advantage of It):

How far can you push anchoring in the courtroom? Does a smart attorney ask for a billion gazillion dollars?

The conventional wisdom says no. There is said to be a “boomerang effect.” Over-the-top demands backfire by making the plaintiff or attorney look greedy. Juries retaliate by awarding less than they would have with a sensible demand.

However:

The mock jurors were asked to give compensatory damages only. Anyone who wants to believe in the jury system must find the resuls astonishing.

Demand     Award

$100           $990

$20,000      $36,000

$5 million    $440,000

$1 billion     $490.000

…Asking for $1 billion — an utterly insane number — still got more money than asking for $5 million did. It just didn’t get much more.