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Behavioral economics

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Full-Text Articles in Law

Corporate Law For Good People, Yuval Feldman, Adi Libson, Gideon Parchomovsky Jan 2021

Corporate Law For Good People, Yuval Feldman, Adi Libson, Gideon Parchomovsky

Northwestern University Law Review

This Article offers a novel analysis of the field of corporate governance by viewing it through the lens of behavioral ethics. It calls for both shifting the focus of corporate governance to a new set of loci of potential corporate wrongdoing and adding new tools to the corporate governance arsenal. Behavioral ethics scholarship emphasizes that the large share of wrongdoing is generated by “good people” whose intention is to act ethically. Their wrongdoing stems from “bounded ethicality”—various cognitive and motivational limitations in their ethical decision-making processes—that leads to biased decisions that seem legitimate. Bounded ethicality has important implications ...


Race, Dignity, And Commerce, Lu-In Wang Jan 2021

Race, Dignity, And Commerce, Lu-In Wang

Articles

This Essay was written at the invitation of the Journal of Law and Commerce to contribute a piece on racism and commerce—an invitation that was welcome and well timed. It arrived as renewed attention was focused on racialized policing following the killing of George Floyd and in the midst of the worsening pandemic that highlighted unrelenting racial, social, and economic inequities in our society.

The connections between racism and commerce are potentially numerous, but the relationship between discriminatory policing and commerce might not be apparent. This Essay links them through the concept of dignity. Legal scholar John Felipe Acevedo ...


Price Gouging In A Pandemic, Christopher Buccafusco, Daniel Jacob Hemel, Eric L. Talley Jan 2021

Price Gouging In A Pandemic, Christopher Buccafusco, Daniel Jacob Hemel, Eric L. Talley

Faculty Scholarship

The ongoing Covid-19 pandemic has led to acute supply shortages across the country as well as concerns over price increases amid surging demand. In the process, it has reawakened a debate about whether and how to regulate “price gouging.” Animating this controversy is a longstanding conflict between laissez-faire economics (which champions price fluctuations as a means to allocate scarce goods) and perceived norms of consumer fairness (which are thought to cut strongly against sharp price hikes amid shortages). This article provides a new, empirically grounded perspective on the price gouging debate that challenges several aspects of conventional wisdom. We report ...


Affording Obamacare, Isaac Buck Feb 2020

Affording Obamacare, Isaac Buck

UTK Law Faculty Publications

As it approaches its tenth birthday, the Patient Protection and Affordable Care Act (ACA) is devolving. Intended to solve problems that had vexed American health care for generations, the ACA built a comprehensive structure by providing more Americans with accessible health insurance, reordering the private insurance market, expanding and reconfiguring Medicaid, and installing rational incentives into America’s health care enterprise. Without question, it was the most important piece of health care legislation since the mid-1960s, and it brought about positive change for millions of Americans.

However, over its short lifespan, the ACA has faced persistent practical, popular, and policy-based ...


Time-Shifted Rationality And The Law Of Law's Leverage: Behavioral Economics Meets Behavioral Biology, Owen D. Jones Apr 2019

Time-Shifted Rationality And The Law Of Law's Leverage: Behavioral Economics Meets Behavioral Biology, Owen D. Jones

Owen Jones

A flood of recent scholarship explores legal implications of seemingly irrational behaviors by invoking cognitive psychology and notions of bounded rationality. In this article, I argue that advances in behavioral biology have largely overtaken existing notions of bounded rationality, revealing them to be misleadingly imprecise - and rooted in outdated assumptions that are not only demonstrably wrong, but also wrong in ways that have material implications for subsequent legal conclusions. This can be remedied. Specifically, I argue that behavioral biology offers three things of immediate use. First, behavioral biology can lay a foundation for both revising bounded rationality and fashioning a ...


Endowment Effects In Chimpanzees, Owen D. Jones, Sarah F. Brosnan, Susan P. Lambeth, Mary Catherine Mareno, Amanda S. Richardson, Steven Schapiro Apr 2019

Endowment Effects In Chimpanzees, Owen D. Jones, Sarah F. Brosnan, Susan P. Lambeth, Mary Catherine Mareno, Amanda S. Richardson, Steven Schapiro

Owen Jones

Human behavior is not always consistent with standard rational choice predictions. The much-investigated variety of apparent deviations from rational choice predictions provides a promising arena for the merger of economics and biology. Although little is known about the extent to which other species also exhibit these seemingly irrational patterns of human decision-making and choice behavior, similarities across species would suggest a common evolutionary root to the phenomena.

The present study investigated whether chimpanzees exhibit an endowment effect, a seemingly paradoxical behavior in which humans tend to value a good they have just come to possess more than they would have ...


Law, Biology, And Property: A New Theory Of The Endowment Effect, Owen D. Jones, Sarah F. Brosnan Apr 2019

Law, Biology, And Property: A New Theory Of The Endowment Effect, Owen D. Jones, Sarah F. Brosnan

Owen Jones

Recent work at the intersection of law and behavioral biology has suggested numerous contexts in which legal thinking could benefit by integrating knowledge from behavioral biology. In one of those contexts, behavioral biology may help to provide theoretical foundation for, and potentially increased predictive power concerning, various psychological traits relevant to law. This Article describes an experiment that explores that context.

The paradoxical psychological bias known as the endowment effect puzzles economists, skews market behavior, impedes efficient exchange of goods and rights, and thereby poses important problems for law. Although the effect is known to vary widely, there are at ...


Law And Behavioral Biology, Owen D. Jones, Timothy H. Goldsmith Apr 2019

Law And Behavioral Biology, Owen D. Jones, Timothy H. Goldsmith

Owen Jones

Society uses law to encourage people to behave differently than they would behave in the absence of law. This fundamental purpose makes law highly dependent on sound understandings of the multiple causes of human behavior. The better those understandings, the better law can achieve social goals with legal tools. In this Article, Professors Jones and Goldsmith argue that many long held understandings about where behavior comes from are rapidly obsolescing as a consequence of developments in the various fields constituting behavioral biology. By helping to refine law's understandings of behavior's causes, they argue, behavioral biology can help to ...


Dignity Transacted, Lu-In Wang, Zachary W. Brewster Jan 2019

Dignity Transacted, Lu-In Wang, Zachary W. Brewster

Articles

In interactive customer service encounters, the dignity of the parties becomes the currency of a commercial transaction. Service firms that profit from customer satisfaction place great emphasis on emotional labor, the work that service providers do to make customers feel cared for and esteemed. But performing emotional labor can deny dignity to workers, by highlighting their subservience and requiring them to suppress their own emotions in an effort to elevate the status and experiences of their customers. Paradoxically, the burden of performing emotional labor may also impose transactional costs on some customers by facilitating discrimination in service delivery. Drawing on ...


Behavioral Public Choice And The Law, Gary M. Lucas Jr., Slavisa Tasic Oct 2018

Behavioral Public Choice And The Law, Gary M. Lucas Jr., Slavisa Tasic

Gary M. Lucas Jr.

No abstract provided.


Beyond Individualism In Law And Economics, Robert B. Ahdieh Jun 2018

Beyond Individualism In Law And Economics, Robert B. Ahdieh

Robert B. Ahdieh

The study of law and economics was built upon two pillars. The first is the familiar assumption of individual rationality. The second, less familiar, is the principle of methodological individualism. Over the last twenty years, law and economics has largely internalized behavioral critiques of the rationality assumption. By contrast, the field has failed to appreciate the implications of growing challenges to its methodological individualism. Where social norms shape individual choices, network externalities are strong, coordination is the operative goal, or information is a substantial determinant of value, a methodology strongly oriented to the analysis of individuals overlooks at least as ...


Law And Economics Versus Economic Analysis Of Law, Keith Hylton Mar 2018

Law And Economics Versus Economic Analysis Of Law, Keith Hylton

Faculty Scholarship

I agree with Calabresi’s general distinction between Economic Analysis of Law and Law and Economics. However, these broad categories may obscure important differences between types of law and economics scholarship. I would distinguish positive economic analysis from normative economic analysis, and positivist legal analysis from nonpositivist analysis. The four categories generated by these distinctions provide a more fine-grained map of the styles of reasoning in law and economics, and has implications for the future of law and economics.


The Psychology Of Patent Protection, Stephanie Plamondon Bair Feb 2018

The Psychology Of Patent Protection, Stephanie Plamondon Bair

Stephanie Bair

This Article offers the first comprehensive assessment of the major justifications for our patent system using a behavioral psychology framework. Applying insights from the behavioral literature that I argue more accurately account for the realities of human action than previous analytical tools, I critically evaluate each of the major justifications for patents — incentive theory, disclosure theory, prospect theory, commercialization theory, patent racing theory, and non-utilitarian theories. I ask whether our current patent system is an effective regime for meeting the stated goals of these accounts. When the answer to this question is no, I again turn to the behavioral literature ...


Economic Individualism And Preference Formation, Andrzej Rapaczynski Jan 2018

Economic Individualism And Preference Formation, Andrzej Rapaczynski

Faculty Scholarship

This note examines some issues involved in an attempt to go beyond the assumption, long-made by most economists, that people’s preferences are simply to be treated as “given” and that the principle of consumer sovereignty entails a refusal to consider some (or some people’s) revealed preferences as more authoritative than others. The most important break with that assumption has been the development of behavioral economics, which shows that people may not always know what they really want, and that economists have to develop a more critical approach, distinguishing people’s true preferences from those that are merely apparent ...


Nudges For Health Policy: Effectiveness And Limitations, Victoria A. Shaffer Jun 2017

Nudges For Health Policy: Effectiveness And Limitations, Victoria A. Shaffer

Missouri Law Review

One tool that our government can use to combat our healthcare challenges is the use of health policy in the form of programs, regulations, and agencies that are aimed at improving the overall health and welfare of Americans. Of the various approaches to shaping health policy, this paper will focus on the use of “nudges,” a behavioral strategy for shaping human behavior from the framework, Libertarian Paternalism. In this Article, a nudge is defined as any aspect of choice architecture or any method of structuring the choice environment that influences behavior in a predictable way, with the restriction that this ...


Behavioral Economics Goes To Court: The Fundamental Flaws In The Behavioral Law & Economics Arguments Against No-Surcharge Laws, Todd J. Zywicki, Geoffrey A. Manne, Kristian Stout Jun 2017

Behavioral Economics Goes To Court: The Fundamental Flaws In The Behavioral Law & Economics Arguments Against No-Surcharge Laws, Todd J. Zywicki, Geoffrey A. Manne, Kristian Stout

Missouri Law Review

During the past decade, academics – predominantly scholars of behavioral law and economics – have increasingly turned to the claimed insights of behavioral economics in order to craft novel policy proposals in many fields, most significantly consumer credit regulation. Over the same period, these ideas have also gained traction with policymakers, resulting in a variety of legislative efforts, such as the creation of the Consumer Financial Protection Bureau. Most recently, the efforts of behavioral law and economics scholars have been directed toward challenging a number of state laws that regulate retailers’ use of surcharge fees for consumer credit card payments. In part ...


The Corporation As Courthouse, Rory Van Loo Jan 2016

The Corporation As Courthouse, Rory Van Loo

Faculty Scholarship

Despite the considerable attention paid to mandatory arbitration, few consumer disputes ever reach arbitration. By contrast, institutions such as Apple’s customer service department handle hundreds of millions of disputes annually. This Article argues that understanding businesses’ internal dispute processes is crucial to diagnosing consumers’ procedural needs. Moreover, businesses’ internal processes interact with a larger system of private actors. These actors include ratings websites that mete out reputational sanctions. The system also includes other corporations linked to the transaction, such as when American Express adjudicates a contested sale between a shopper and Home Depot. This vast private order offers promise ...


Facilitating Competition By Remedial Regulation, Kristelia A. García Jan 2016

Facilitating Competition By Remedial Regulation, Kristelia A. García

Articles

In music licensing, powerful music publishers have begun—for the first time ever— to withdraw their digital copyrights from the collectives that license those rights, in order to negotiate considerably higher rates in private deals. At the beginning of the year, two of these publishers commanded a private royalty rate nearly twice that of the going collective rate. This result could be seen as a coup for the free market: Constrained by consent decrees and conflicting interests, collectives are simply not able to establish and enforce a true market rate in the new, digital age. This could also be seen ...


From Promise To Form: How Contracting Online Changes Consumers, David A. Hoffman Jan 2016

From Promise To Form: How Contracting Online Changes Consumers, David A. Hoffman

Faculty Scholarship at Penn Law

I hypothesize that different experiences with online contracting have led some consumers to see contracts—both online and offline—in distinctive ways. Experimenting on a large, nationally representative sample, this paper provides evidence of age-based and experience-based differences in views of consumer contract formation and breach. I show that younger subjects who have entered into more online contracts are likelier than older ones to think that contracts can be formed online, that digital contracts are legitimate while oral contracts are not, and that contract law is unforgiving of breach.

I argue that such individual differences in views of contract formation ...


The Psychology Of Patent Protection, Stephanie Plamondon Bair Dec 2015

The Psychology Of Patent Protection, Stephanie Plamondon Bair

Faculty Scholarship

This Article offers the first comprehensive assessment of the major justifications for our patent system using a behavioral psychology framework. Applying insights from the behavioral literature that I argue more accurately account for the realities of human action than previous analytical tools, I critically evaluate each of the major justifications for patents — incentive theory, disclosure theory, prospect theory, commercialization theory, patent racing theory, and non-utilitarian theories. I ask whether our current patent system is an effective regime for meeting the stated goals of these accounts. When the answer to this question is no, I again turn to the behavioral literature ...


Mandatory Process, Matthew J.B. Lawrence Oct 2015

Mandatory Process, Matthew J.B. Lawrence

Indiana Law Journal

This Article suggests that people tend to undervalue their procedural rights—their proverbial “day in court”—until they are actually involved in a dispute. The Article argues that the inherent, outcome-independent value of participating in a dispute resolution process comes largely from its power to soothe a person’s grievance— their perception of unfairness and accompanying negative emotional reaction—win or lose. But a tendency to assume unchanging emotional states, known in behavioral economics as projection bias, can prevent people from anticipating that they might become aggrieved and from appreciating the grievance-soothing power of process. When this happens, people will ...


Behavioral Public Choice And The Law, Gary M. Lucas Jr., Slavisa Tasic Sep 2015

Behavioral Public Choice And The Law, Gary M. Lucas Jr., Slavisa Tasic

West Virginia Law Review

No abstract provided.


The Moral Hazard Of Contract Drafting, Eric A. Zacks Jul 2015

The Moral Hazard Of Contract Drafting, Eric A. Zacks

Florida State University Law Review

This Article identifies and examines the principal-agent problem as it arises in the context of contract preparation. The economic agency relationship, as it may be understood to exist for contract drafting, provides a superior framework for understanding and reforming the inability of the non-drafting party (the principal) to control the drafting party (the agent). As an economic agent, the drafting party faces a moral hazard when preparing the contract because of the differing interests of the parties as well as the information and control asymmetries that exists. For example, the use of standard form contracts in consumer transactions is an ...


Introducing The 'New Handshake' To Expand Remedies And Revive Responsibility In Ecommerce, Amy J. Schmitz Jul 2015

Introducing The 'New Handshake' To Expand Remedies And Revive Responsibility In Ecommerce, Amy J. Schmitz

Faculty Publications

There was a time when individuals would meet in person to make purchases and do deals. They would discuss the terms, assess the trustworthiness and character of their contracting partners, and conclude the deal with a handshake. The handshake helped ensure the enforcement of the deal without need for the rule of law or legal power. That handshake was one’s bond — it was a personal trust mark. With the emergence of eCommerce, however, that handshake has nearly disappeared along with the sense of responsibility it inspired. Accordingly, this article discusses how this has impacted consumers’ access to remedies regarding ...


Information Overload, Multi-Tasking, And The Socially Networked Jury: Why Prosecutors Should Approach The Media Gingerly, Andrew E. Taslitz Jun 2015

Information Overload, Multi-Tasking, And The Socially Networked Jury: Why Prosecutors Should Approach The Media Gingerly, Andrew E. Taslitz

School of Law Faculty Publications

The rise of computer technology, the internet, rapid news dissemination, multi-tasking, and social networking have wrought changes in human psychology that alter how we process news media. More specifically, news coverage of high-profile trials necessarily focuses on emotionally-overwrought, attention-grabbing information disseminated to a public having little ability to process that information critically. The public’s capacity for empathy is likewise reduced, making it harder for trial processes to overcome the unfair prejudice created by the high-profile trial. Market forces magnify these changes. Free speech concerns limit the ability of the law to alter media coverage directly, and the tools available ...


Allowing Patients To Waive The Right To Sue For Medical Malpractice: A Response To Thaler And Sunstein, Tom Baker, Timothy D. Lytton Jun 2015

Allowing Patients To Waive The Right To Sue For Medical Malpractice: A Response To Thaler And Sunstein, Tom Baker, Timothy D. Lytton

Timothy D. Lytton

This essay critically evaluates Richard Thaler and Cass Sunstein’s proposal to allow patients to prospectively waive their rights to bring a malpractice claim, presented in their recent, much acclaimed book, Nudge: Improving Decisions about Health, Wealth and Happiness. We show that the behavioral insights that undergird Nudge do not support the waiver proposal. In addition, we demonstrate that Thaler and Sunstein have not provided a persuasive cost-benefit justification for the proposal. Finally, we argue that their liberty-based defense of waivers rests on misleading analogies and polemical rhetoric that ignore the liberty and other interests served by patients’ tort law ...


Broker-Dealers And Investment Advisers: A Behaviorial-Economics Analysis Of Competing Suggestions For Reform, Polina Demina Dec 2014

Broker-Dealers And Investment Advisers: A Behaviorial-Economics Analysis Of Competing Suggestions For Reform, Polina Demina

Michigan Law Review

For the average investor trying to save for retirement or a child’s college fund, the world of investing has become increasingly complex. These retail investors must turn more frequently to financial intermediaries, such as broker-dealers and investment advisers, to get sound investment advice. Such intermediaries perform different duties for their clients, however. The investment adviser owes his client a fiduciary duty of care and therefore must provide financial advice that is in the client’s best interests, while the broker-dealer must merely provide advice that is suitable to the client’s interests—a lower standard than the fiduciary duty ...


A Psychological Account Of Consent To Fine Print, Tess Wilkinson-Ryan May 2014

A Psychological Account Of Consent To Fine Print, Tess Wilkinson-Ryan

Faculty Scholarship at Penn Law

The moral and social norms that bear on contracts of adhesion suggest a deep ambivalence. Contracts are perceived as serious moral obligations, and yet they must be taken lightly or everyday commerce would be impossible. Most people see consent to boilerplate as less meaningful than consent to negotiated terms, but they nonetheless would hold consumers strictly liable for both. This Essay aims to unpack the beliefs, preferences, assumptions, and biases that constitute our assessments of assent to boilerplate. Research suggests that misgivings about procedural defects in consumer contracting weigh heavily on judgments of contract formation, but play almost no role ...


Demand For Breach, Tess Wilkinson-Ryan Apr 2014

Demand For Breach, Tess Wilkinson-Ryan

Faculty Scholarship at Penn Law

These studies elicit behavioral evidence for how people weigh monetary and non-monetary incentives in efficient breach. Study 1 is an experimental game designed to capture the salient features of the efficient breach decision. Subjects in a behavioral lab were offered different amounts of money to break the deal they had made with a partner. 18.6% of participants indicated willingness to break a deal for any amount of profit, 27.9% were unwilling to breach for the highest payout, and the remaining subjects identified a break-point in between. Study 2 is an online questionnaire asking subjects to take the perspectives ...


Building A Framework For Governance: Retrospective Review And Rulemaking Petitions, Reeve T. Bull Mar 2014

Building A Framework For Governance: Retrospective Review And Rulemaking Petitions, Reeve T. Bull

Reeve T Bull

Of the various regulatory reform efforts advocated by legal scholars and politicians in recent years, perhaps none holds greater promise than retrospective review of agency regulations, whereby agencies revisit existing rules to determine whether they remain appropriate in light of changed circumstances. The Obama Administration has embraced the principles of retrospective review, issuing three executive orders on the subject, and it has trumpeted billions of dollars in economic savings resulting from those efforts. Nevertheless, numerous scholars have criticized these initiatives, contending that agencies reviewing their own regulations are unlikely to repeal or fundamentally overhaul existing rules. This article addresses the ...