Law Commons^™

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 of care. And yet …

In Search Of Effective Ethics & Compliance Programs, Maurice Stucke

Scholarly Works

The U.S. Sentencing Commission's Organizational Guidelines for over twenty years have offered firms a significant financial incentive to develop an ethical organizational culture. Nonetheless, corporate crime persists. Too many ethics programs remain ineffective.

As this Article explores, the Guidelines' current approach is not working. The evidence, including sentencing data over the past twenty years, reveals that few firms have effective ethics and compliance programs. Nor is there much hope that the Guidelines' incentive will induce companies, after the economic crisis, to become more ethical.

The problem is not attributable to three assumptions underlying the Guidelines. The empirical research, while still …

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

All Faculty Scholarship

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

All Faculty Scholarship

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 of buyers …

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 …

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 …

Behavioral International Law, Tomer Broude

Tomer Broude

Economic analysis and rational choice have in the last decade made significant inroads into the study of international law and institutions, relying upon standard assumptions of perfect rationality of states and decision-makers. This approach is inadequate, both empirically and in its tendency towards outdated formulations of political theory. This article presents an alternative behavioral approach that provides new hypotheses addressing problems in international law while introducing empirically grounded concepts of real, observed rationality. First, I address methodological objections to behavioral analysis of international law: the focus of behavioral research on the individual; the empirical foundations of behavioral economics; and behavioral …

Facilitating Incomplete Contracts, Wendy Epstein

College of Law Faculty

Contract law abhors incompleteness. Although no contract can be entirely complete, the idea of a purposefully incomplete or underspecified contract is antithetical to lawyers’ ideals of certainty for the parties and for the law. Indeed, contract law is designed to incentivize parties to specifically articulate their intentions. Yet there is a growing body of interdisciplinary work in economics and cognitive psychology demonstrating that highly specified contracts tend to stifle intrinsic motivation and innovation, whereas less-specified contracts — particularly in public-private contracting, IP, and contracting for innovation — can induce higher effort levels and a more cooperative principal-agent relationship than the …

“Nudging” Better Lawyer Behavior: Using Default Rules And Incentives To Change Behavior In Law Firms, Nancy B. Rapoport

St. Mary's Journal on Legal Malpractice & Ethics

In the changing landscape of law practice—where law firm profits are threatened by such changes as increased pressure from clients to economize and the concomitant opportunities for clients to shop around for the most efficient lawyers—are there ways to change how things are done in law firms so that firms can provide more efficient and ethical service? This article suggests that an understanding of cognitive biases and basic behavioral economics will help law firms tweak their incentives and default rules to promote the improved delivery of legal services.

Public-Private Contracting And The Reciprocity Norm, Wendy Netter Epstein

American University Law Review

No abstract provided.

The Market, The Firm, And Behavioral Antitrust, Avishalom Tor

Book Chapters

This Handbook chapter examines the main distinct concerns facing the application of empirical behavioral evidence to antitrust law and economics—also known as “behavioral antitrust.” More than many (though not all) other legal fields, antitrust law is primarily concerned with the conduct of firms in markets rather than in individual behavior per se. Yet much of the empirical evidence that behavioral antitrust draws on concerns individual behavior outside the firm, often in nonmarket settings. Hence besides adducing additional, direct empirical evidence on behavioral phenomena within firms and markets, there is a need to determine when and how the behavioral evidence on …

Penalty Default Licenses: A Case For Uncertainty, Kristelia A. García

Publications

Research on the statutory license for certain types of copyright-protected content has revealed an unlikely symbiosis between uncertainty and efficiency. Contrary to received wisdom, which tells us that in order to increase efficiency, we must increase stability, this Article suggests that uncertainty can actually be used to increase efficiency in the marketplace. In the music industry, the battle over terrestrial performance rights--that is, the right of a copyright holder to collect royalties for plays of a sound recording on terrestrial radio--has raged for decades. In June 2012, in a deal that circumvented the statutory license for sound recordings for the …

"Nudging" Better Lawyer Behavior: Using Default Rules And Incentives To Change Behavior In Law Firms, Nancy B. Rapoport

Scholarly Works

This article examines how incentives in law firms can affect lawyer behavior and suggests some possible changes to incentive structures and default rules that might improve the ethical behavior of lawyers.

In the changing landscape of law practice — where law firm profits are threatened by such changes as increased pressure from clients to economize and the concomitant opportunities for clients to shop around for the most efficient lawyers — are there ways to change how things are done in law firms so that firms can provide more efficient and ethical service? This article suggests that an understanding of cognitive …

Are Individuals Fickle-Minded?, Mathew D. Mccubbins, Mark Turner

Faculty Scholarship

Game theory has been used to model large-scale social events — such as constitutional law, democratic stability, standard setting, gender roles, social movements, communication, markets, the selection of officials by means of elections, coalition formation, resource allocation, distribution of goods, and war — as the aggregate result of individual choices in interdependent decision-making. Game theory in this way assumes methodological individualism. The widespread observation that game theory predictions do not in general match observation has led to many attempts to repair game theory by creating behavioral game theory, which adds corrective terms to the game theoretic predictions in the hope …

At The Tipping Point: Race And Gender Discrimination In A Common Economic Transaction, Lu-In Wang

Articles

This Article examines the ubiquitous, multibillion dollar practice of tipping as a vehicle for race and gender discrimination by both customers and servers and as a case study of the role that organizations play in producing and promoting unequal treatment. The unique structure of tipped service encounters provides plenty of opportunities and incentives for the two parties to discriminate against one another. Neither customers nor servers are likely to find legal redress for the kinds of discrimination that are most likely to occur in tipped service transactions, however, because many of the same features of the transaction that promote discrimination …

Females On The Fringe: Considering Gender In Payday Lending Policy, Amy J. Schmitz

Faculty Publications

Payday lending may provide a much-needed safety net for some consumers in need of quick cash for emergencies. However, data suggest that most payday loan borrowers become repeat users caught in a cycle of high-cost debt. Furthermore, empirical evidence indicates consistent overrepresentation of women, including many single mothers, among payday loan borrowers. This takes a toll not only on these women and their families, but also on society as a whole. Indeed, context matters in payday lending debates. It is thus time to think creatively and consider contextualized programs that aim to increase women’s and all consumers’ safe borrowing options, …

Value Creation By Business Lawyers In The 21st Century, Ronald J. Gilson

Faculty Scholarship

It’s a delight to be here. When I started working on Value Creation by Business Lawyers – or when I was in law school – we could have held today’s meeting in a telephone booth. There was nothing even remotely in the curriculum. Victor Brudney and Marvin Chirlestien’s Corporate Finance book was still in mimeograph form – note the dated technology reference. David Herwitz’s Business Planning book had been around for a while, but it was strictly legal. And that exhausted it. What I take the greatest pleasure from is the fact that a number of years later, enough to …

Rethinking Summary Judgment Empirics: The Life Of The Parties, Jonah B. Gelbach

All Faculty Scholarship

No abstract provided.

How Can Competition Agencies Use Behavioral Economics?, Maurice Stucke

Scholarly Works

No abstract provided.

The Burden Of Deciding For Yourself: The Disutility Caused By Out-Of-Pocket Healthcare Spending, Christopher Robertson, David Yokum

Faculty Scholarship

As part of a larger "consumer-directed healthcare movement," cost-sharing mechanisms, such as copays and deductibles, cause patients to pay out of pocket for a portion of the costs of the healthcare they consume. Cost sharing is intended to reduce costs by changing consumption behavior, and it has been shown to be an effective though incomplete solution to the problem of unsustainable cost growth. It is controversial nonetheless. This Essay distinguishes three different normative problems with cost sharing (including underinsurance, deterrence of high-value care, and a tax on sickness), which can all be fixed through more precision in the design of …

Facilitating Incomplete Contracts, Wendy Netter Epstein

Wendy Netter Epstein