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Full-Text Articles in Law
In Praise Of Investor Irrationality, Gregory La Blanc, Jeffrey J. Rachlinski
In Praise Of Investor Irrationality, Gregory La Blanc, Jeffrey J. Rachlinski
Cornell Law Faculty Publications
How should a market filled with investors who chronically make bad investments, but is nevertheless efficient, be regulated? A growing body of evidence suggests that this is the state of most securities markets; investors rely on cognitive processes that produce systematically bad choices, and yet the market remains largely efficient. In fact, cognitive errors might be essential to their efficient operation. Even investors who make systematic errors also often possess real and unique information that can contribute to accurate pricing of securities. If such investors became mindful of their limited ability to distinguish between real information and erroneous information, they …
Fraud By Hindsight, G. Mitu Gulati, Jeffrey J. Rachlinski, Donald C. Langevoort
Fraud By Hindsight, G. Mitu Gulati, Jeffrey J. Rachlinski, Donald C. Langevoort
Cornell Law Faculty Publications
In securities-fraud cases, courts routinely admonish plaintiffs that they are not permitted to rely on allegations of "fraud by hindsight." In effect, courts disfavor plaintiffs' use of evidence of bad outcomes to support claims of securities fraud. Disfavoring hindsight evidence appears to tap into a well known, well-understood, and intuitively accessible problem of human judgment of "20/20 hindsight." Events come to seem predictable after unfolding, and hence, bad outcomes must have been predicted by people in a position to make forecasts. Psychologists call this phenomenon the hindsight bias. The popularity of this doctrine among judges deciding securities cases suggests that …