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Behavioral law and economics

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Full-Text Articles in Law

Nudge Efficiency, Avishalom Tor Jan 2023

Nudge Efficiency, Avishalom Tor

Book Chapters

Law and Economics in All His Facets: Festschrift in Honour of Klaus Mathis

Only a small portion of the substantial literature on behavioral interventions ("nudges") that developed over the last fifteen to twenty years has considered nudges from an economic perspective. Moreover, despite the importance of the topic for a law and economics assessment of this increasingly common form of regulation, even fewer contributions have examined whether and when behavioral instruments are likely to make an efficient means for increasing social welfare. This chapter therefore offers some basic observations about nudge efficiency: Part I opens with a reminder that behavioral …


Advice, Sean H. Williams Aug 2021

Advice, Sean H. Williams

Utah Law Review

This Article seeks to resurrect an ancient technology for enhancing the welfare of others: peer advice. For decisions as variable as whether to eat a marshmallow or which dialysis treatment to undergo, advice-giving is a powerful and as-yet-unrecognized debiasing tool. In fact, it is one of the most comprehensive and effective debiasing tools ever studied. People who succumb to motivated reasoning, hyperbolic discounting, and a host of other biases offer advice that is untainted by them. When advising others, we are more creative, process information and probability more rationally, and see the forest rather than the trees. Far from the …


Predicting Variation In Endowment Effect Magnitudes, Owen D. Jones, C. Jaeger, S. Brosnan, D. Levin Jan 2020

Predicting Variation In Endowment Effect Magnitudes, Owen D. Jones, C. Jaeger, S. Brosnan, D. Levin

Vanderbilt Law School Faculty Publications

Hundreds of studies demonstrate human cognitive biases that are both inconsistent with “rational” decisionmaking and puzzlingly patterned. One such bias, the “endowment effect” (also known as “reluctance to trade”), occurs when people instantly value an item they have just acquired at a much higher price than the maximum they would have paid to acquire it. This bias impedes a vast range of real-world transactions, making it important to understand. Prior studies have documented items that do or do not generate endowment effects, and have noted that the effects vary in magnitude. But none has predicted any of the substantial between-item …


Can You Hear Me Later And Believe Me Now? Behavioral Law And Economics Of Chronic Repeated Ambient Acoustic Pollution Causing Noise-Induced (Hidden) Hearing Loss, Peter H. Huang, Kelly J. Poore Jan 2020

Can You Hear Me Later And Believe Me Now? Behavioral Law And Economics Of Chronic Repeated Ambient Acoustic Pollution Causing Noise-Induced (Hidden) Hearing Loss, Peter H. Huang, Kelly J. Poore

Publications

This Article analyzes the public health issues of Noise-Induced Hearing Loss (“NIHL”) and Noise-Induced Hidden Hearing Loss (“NIHHL”) due to Chronic Repeated Ambient Acoustic Pollution (“CRAAP”). This Article examines the clinical and empirical medical data about NIHL and NIHHL and its normative implications. It applies behavioral law and economics and information economics to advance legal policies to reduce CRAAP. Finally, this Article advocates changing individual and social attitudes about deafness and hearing loss to raise political awareness and social consciousness about NIHL and NIHHL. One way to change our attitudes is by practicing compassion, empathy, and kindness, including Loving-Kindness Mindfulness …


Nudges That Should Fail?, Avishalom Tor Jan 2019

Nudges That Should Fail?, Avishalom Tor

Journal Articles

Professor Sunstein (2017) discusses possible causes for and policy implications of the failure of nudges, with a special attention to defaults. Though he focuses on nudges that fail when they should succeed, Sunstein recognizes that some failures reveal that a nudge should not have been attempted to begin with. Nudges that fail, however, does not consider fully the relationship between the outcomes of nudging and their likely welfare effects, most notably neglecting the troubling case of nudges that succeed when they should fail. Hence, after clarifying the boundaries of legitimate nudging and noting the fourfold relationship between the efficacy of …


Why Examples? Towards More Behaviorally-Intelligent Regulation, Yariv Brauner Jan 2018

Why Examples? Towards More Behaviorally-Intelligent Regulation, Yariv Brauner

UF Law Faculty Publications

Tax regulation authors habitually infuse regulations with explanatory examples. These examples are viewed favorably by both the government that encourages their drafting and the taxpayers who regularly rely on such examples to assist them in dealing with the notoriously complex tax rules. Despite the ubiquity of these examples, there is no published guidance for their drafting, their use, or their interpretation. The first original contribution of this article is the exposition and classification of the advantages and deficiencies in the current use of examples in tax regulations. This article is the first to question the rationale behind the ubiquitous use …


Behavioral Public Choice And The Law, Gary M. Lucas Jr., Slaviša Tasić Mar 2017

Behavioral Public Choice And The Law, Gary M. Lucas Jr., Slaviša Tasić

Gary M. Lucas Jr.

Behavioral public choice is the study of irrationality among political actors. In this context, irrationality means systematic bias, a deviation from rational expectations, or other departure from economists’ conception of rationality. Behavioral public choice scholars extend the insights of behavioral economics to the political realm and show that irrational behavior is an important source of government failure. This Article makes an original contribution to the legal literature by systematically reviewing the findings of behavioral public choice and explaining their implications for the law and legal institutions. We discuss the various biases and heuristics that lead political actors to support and …


The Law Of The Platform, Orly Lobel Mar 2016

The Law Of The Platform, Orly Lobel

Faculty Scholarship

New digital platform companies are turning everything into an available resource: services, products, spaces, connections, and knowledge, all of which would otherwise be collecting dust. Unsurprisingly then, the platform economy defies conventional regulatory theory. Millions of people are becoming part-time entrepreneurs, disrupting established business models and entrenched market interests, challenging regulated industries, and turning ideas about consumption, work, risk, and ownership on their head. Paradoxically, as the digital platform economy becomes more established, we are also at an all-time high in regulatory permitting, licensing, and protection. The battle over law in the platform is therefore both conceptual and highly practical. …


Mandatory Process, Matthew J.B. Lawrence Oct 2015

Mandatory Process, Matthew J.B. Lawrence

Faculty Scholarly Works

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 waive their procedural rights …


Behavioral Public Choice And The Law, Gary M. Lucas Jr., Slaviša Tasić Oct 2015

Behavioral Public Choice And The Law, Gary M. Lucas Jr., Slaviša Tasić

Faculty Scholarship

Behavioral public choice is the study of irrationality among political actors. In this context, irrationality means systematic bias, a deviation from rational expectations, or other departure from economists’ conception of rationality. Behavioral public choice scholars extend the insights of behavioral economics to the political realm and show that irrational behavior is an important source of government failure. This Article makes an original contribution to the legal literature by systematically reviewing the findings of behavioral public choice and explaining their implications for the law and legal institutions. We discuss the various biases and heuristics that lead political actors to support and …


Mandatory Process, Matthew Lawrence Dec 2014

Mandatory Process, Matthew Lawrence

Matthew B. Lawrence

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 …


Cognitive Errors, Individual Differences, And Paternalism, Jeffrey J. Rachlinski Dec 2014

Cognitive Errors, Individual Differences, And Paternalism, Jeffrey J. Rachlinski

Jeffrey J. Rachlinski

Legal scholars commonly argue that the widespread presence of cognitive errors in judgment justifies legal intervention to save people from predictable mistakes. Such arguments often fail to account for individual variation in the commission of such errors even though individual variation is probably common. If predictable groups of people avoid making the errors that others commit, then law should account for such differences because those who avoid errors will not benefit from paternalistic interventions and indeed may be harmed by them. The research on individual variation suggests three parameters that might distinguish people who can avoid error: cognitive ability, experience …


Understanding Behavioral Antitrust, Avishalom Tor Jan 2014

Understanding Behavioral Antitrust, Avishalom Tor

Journal Articles

Behavioral antitrust – the application to antitrust analysis of empirical evidence of robust behavioral deviations from strict rationality – is increasingly popular and hotly debated by legal scholars and the enforcement agencies alike. This Article shows, however, that both proponents and opponents of behavioral antitrust frequently and fundamentally misconstrue its methodology, treating concrete empirical phenomena as if they were broad hypothetical assumptions. Because of this fundamental methodological error, scholars often make three classes of mistakes in behavioral antitrust analyses: First, they fail to appreciate the variability and heterogeneity of behavioral phenomena; second, they disregard the concrete ways in which markets, …


Puntos De Contacto Entre La Economía Del Comportamiento Y El Derecho De La Propiedad Intelectual: Resultados De Algunas Investigaciones Iniciales, Maximiliano Marzetti Dec 2013

Puntos De Contacto Entre La Economía Del Comportamiento Y El Derecho De La Propiedad Intelectual: Resultados De Algunas Investigaciones Iniciales, Maximiliano Marzetti

Maximiliano Marzetti

En el presente artículo se describe una nueva escuela económica, la economía conductual y se analiza someramente su potencial aplicación al ámbito del derecho de la propiedad intelectual. A modo ejemplificativo, se reseñan investigaciones de economía conductual que han estudiado la efectividad de los incentivos externos sobre las actividades creativas e innovadoras, el efecto rebote de las acciones civiles contra usuarios que descargan ilegalmente de Internet contenidos protegidos por el derecho de autor y el efecto creatividad que puede distorsionar el funcionamiento de mercado de propiedad intelectual para obras creativas. Finalmente, se destaca el rol de la evidencia empírica para …


Understanding Behavioral Antitrust, Avishalom Tor Nov 2013

Understanding Behavioral Antitrust, Avishalom Tor

Avishalom Tor

Behavioral antitrust – the application to antitrust analysis of empirical evidence of robust behavioral deviations from strict rationality – is increasingly popular and hotly debated by legal scholars and the enforcement agencies alike. This Article shows, however, that both proponents and opponents of behavioral antitrust frequently and fundamentally misconstrue its methodology, treating concrete empirical phenomena as if they were broad hypothetical assumptions. Because of this fundamental methodological error, scholars often make three classes of mistakes in behavioral antitrust analyses: First, they fail to appreciate the variability and heterogeneity of behavioral phenomena; second, they disregard the concrete ways in which markets, …


Incentives To Create Under A "Lifetime-Plus-Years" Copyright Duration: Lessons From A Behavioral Economic Analysis For Eldred V. Ashcroft, Avishalom Tor, Dotan Oliar Nov 2013

Incentives To Create Under A "Lifetime-Plus-Years" Copyright Duration: Lessons From A Behavioral Economic Analysis For Eldred V. Ashcroft, Avishalom Tor, Dotan Oliar

Avishalom Tor

In this Article, we highlight for the first time some of the significant but hitherto unrecognized behavioral effects of copyright law on individuals' incentives to create and then examine the implications of our findings for the constitutional analysis of Eldred v. Ashcroft. We show that behavioral biases - namely, individuals' optimistic bias regarding their future longevity and their subadditive judgments in circumstances resembling the extant rule of copyright duration - explain the otherwise puzzling lifetime-plus-years basis for copyright protection given to individual authors, and reveal how this regime provides superior incentives to create. Thus, insofar as the provision of increased …


Freedom Of Contract In An Augmented Reality: The Case Of Consumer Contracts, Scott R. Peppet Jan 2012

Freedom Of Contract In An Augmented Reality: The Case Of Consumer Contracts, Scott R. Peppet

Publications

This Article argues that freedom of contract will take on different meaning in a world in which new technology makes information about places, goods, people, firms, and contract terms available to contracting parties anywhere, at any time. In particular, our increasingly "augmented reality" calls into question leading justifications for distrusting consumer contracts and strengthens traditional understandings of freedom of contract. This is largely a descriptive and predictive argument: This Article aims to introduce contract law to these technologies and consider their most likely effects. It certainly has normative implications, however. Given that the vast majority of consumer contracting occurs in …


Contract Law Now--Reality Meets Legal Fictions, Danielle K. Hart Feb 2011

Contract Law Now--Reality Meets Legal Fictions, Danielle K. Hart

Danielle K Hart

Modern contract law is designed to achieve a fundamental objective, namely, to ensure that voluntary agreements between private parties are legally binding. The appropriateness of this objective and the assumptions underlying it are rarely questioned. Legal scholars, practitioners, and policymakers alike presuppose that the binding-nature of contracts is a desirable and a positive feature of our legal system. But are the assumptions underlying the modern contract system sound? Do people behave in the way that contract law supposes? And are the concepts of voluntary, informed consent and freedom from state interference really the hallmarks of the modern contract system? This …


The Behavioral Economics Of Mergers And Acquisitions, Donald C. Langevoort Jan 2011

The Behavioral Economics Of Mergers And Acquisitions, Donald C. Langevoort

Georgetown Law Faculty Publications and Other Works

The world of mergers and acquisitions seems like a setting in which rationality necessarily dominates. There are high stakes, focused and sustained attention, and expert advisers who are repeat players. In the economics and management literature, however, there has been a great deal of research on what might be called “behavioral M&A”—using insights from psychology to explain observed patterns of behavior in the acquisitions marketplace. To date, the law has largely been uninterested in the psychological dynamics of corporate acquisitions. This essay looks at recent research on such issues as the role of overconfidence, hubris, anchoring, etc. in explaining buy-side …


Underwater And Not Walking Away: Shame, Fear And The Social Management Of The Housing Crisis, Brent T. White Feb 2010

Underwater And Not Walking Away: Shame, Fear And The Social Management Of The Housing Crisis, Brent T. White

Brent T. White

Despite reports that homeowners are increasingly “walking away” from their mortgages, most homeowners continue to make their payments even when they are significantly underwater. This article suggests that most homeowners choose not to strategically default as a result of two emotional forces: 1) the desire to avoid the shame and guilt of foreclosure; and 2) exaggerated anxiety over foreclosure’s perceived consequences. Moreover, these emotional constraints are actively cultivated by the government and other social control agents in order to encourage homeowners to follow social and moral norms related to the honoring of financial obligations - and to ignore market and …


Docketology, District Courts, And Doctrine, David A. Hoffman, Alan J. Izenman, Jeffrey R. Lidicker Apr 2008

Docketology, District Courts, And Doctrine, David A. Hoffman, Alan J. Izenman, Jeffrey R. Lidicker

David A Hoffman

Empirical legal scholars have traditionally modeled judicial opinion writing by assuming that judges act rationally, seeking to maximize their influence by writing opinions in politically important cases. Support for this hypothesis has reviewed published opinions, finding that civil rights and other “hot” topics are more to be discussed than other issues. This orthodoxy comforts consumers of legal opinions, because it suggests that opinions are largely representative of judicial work. The orthodoxy is substantively and methodologically flawed. This paper starts by assuming that judges are generally risk averse with respect to reversal, and that they provide opinions when they believe that …


A "Fair Contracts" Approval Mechanism: Reconciling Consumer Contracts And Conventional Contract Law, Shmuel I. Becher Feb 2008

A "Fair Contracts" Approval Mechanism: Reconciling Consumer Contracts And Conventional Contract Law, Shmuel I. Becher

Shmuel I Becher

Consumer contracts diverge from the traditional paradigm of contract law in various conspicuous ways. They are pre-drafted by one party; they cannot be altered or negotiated; they are executed between unfamiliar contracting parties unequal in their market power and sophistication; they are offered frequently by agents who act on behalf of the seller; and promisees (i.e., consumers) do not read or understand them. Consumer contracts are thus useful in modern markets of mass production, but they cast doubt on some fundamental notions of contract law. To reframe the long-lasting debate over consumer contracts this Article develops a superior legal regime …


Neither Saints Nor Devils: A Behavioral Analysis Of Attorneys' Contingent Fees, Eyal Zamir, Ilana Ritov Feb 2008

Neither Saints Nor Devils: A Behavioral Analysis Of Attorneys' Contingent Fees, Eyal Zamir, Ilana Ritov

Eyal Zamir

The market for legal services, and particularly lawyers’ Contingent Fee (CF) arrangements, have been extensively studied from legal, economic and sociological standpoints, but curiously not from a behavioral perspective. Building on Kahneman and Tversky’s Prospect Theory, this paper presents a series of experiments designed to reveal people’s preferences regarding attorneys’ fees and their perceived fairness.

Contrary to common economic wisdom, we demonstrate that loss aversion (rather than risk aversion or incentivizing the lawyer to win the case) plays a major role in clients’ preferences for CF. Facing a choice between a mixed “gamble” and a pure positive one, plaintiffs prefer …


"Carhart", Constitutional Rights, And The Psychology Of Regret, Chris Guthrie Jan 2008

"Carhart", Constitutional Rights, And The Psychology Of Regret, Chris Guthrie

Vanderbilt Law School Faculty Publications

In "Gonzales v. Carhart", the Supreme Court upheld the Partial-Birth Abortion Ban Act. In so doing, the Court used the prospect of regret to justify limiting choice. Relying on empirical evidence documenting the four ways in which regret actually operates, this Article argues that the Court's analysis reflects a fundamental misunderstanding of the psychology of regret. By exposing the Court's misunderstanding of this emotion, this article seeks to minimize the most significant risk posed by the Carhart decision: that states will use the prospect of regret to justify additional constraints not only on the abortion right but also on other …


Blinking On The Bench: How Judges Decide Cases, Chris Guthrie, Jeffrey J. Rachlinski, Andrew J. Wistrich Nov 2007

Blinking On The Bench: How Judges Decide Cases, Chris Guthrie, Jeffrey J. Rachlinski, Andrew J. Wistrich

Cornell Law Faculty Publications

How do judges judge? Do they apply law to facts in a mechanical and deliberative way, as the formalists suggest they do, or do they rely on hunches and gut feelings, as the realists maintain? Debate has raged for decades, but researchers have offered little hard evidence in support of either model. Relying on empirical studies of judicial reasoning and decision making, we propose an entirely new model of judging that provides a more accurate explanation of judicial behavior. Our model accounts for the tendency of the human brain to make automatic, snap judgments, which are surprisingly accurate, but which …


Renting The Good Life, Jim Hawkins Aug 2007

Renting The Good Life, Jim Hawkins

Jim Hawkins

Academic literature and court decisions are replete with calls to ban or severely inhibit the rent-to-own industry. The argument is simple enough: Rent-to-own firms charge exorbitant prices to the most needy and vulnerable segments of society. The case for burdensome regulations, however, is much more difficult to make out than past scholarship has admitted. For the most part, academics have proceeded directly to propose specific regulations for the industry without first carefully analyzing the rent-to-own business or the reasons for imposing drastic regulations. This Article examines the theoretical justifications for regulating the rent-to-own industry against the backdrop of interviews I …


Self-Handicapping And Managers' Duty Of Care, David A. Hoffman Jul 2007

Self-Handicapping And Managers' Duty Of Care, David A. Hoffman

David A Hoffman

This symposium essay focuses on the relationship between managers’ duty of care and self-handicapping, or constructing obstacles to performance with the goal of influencing subsequent explanations about outcomes. Conventional explanations for failures of caretaking by managers have focused on motives (greed) and incentives (agency costs). This account of manager behavior has led some modern jurists, concerned about recent corporate scandals, to advocate for stronger deterrent measures to realign manager and shareholder incentives. Self-handicapping theory, by contrast, teaches that bad manager behavior may occur even when incentives are well-aligned. Highly successful individuals in particular come to fear the pressure of replicating …


Blinking On The Bench: How Judges Decide Cases, Chris Guthrie, Andrew J. Wistrich Jan 2007

Blinking On The Bench: How Judges Decide Cases, Chris Guthrie, Andrew J. Wistrich

Vanderbilt Law School Faculty Publications

How do judges judge? Do they apply law to facts in a mechanical and deliberative way, as the formalists suggest they do, or do they rely on hunches and gut feelings, as the realists maintain? Debate has raged for decades, but researchers have offered little hard evidence in support of either model. Relying on empirical studies of judicial reasoning and decision making, we propose an entirely new model of judging that provides a more accurate explanation of judicial behavior. Our model accounts for the tendency of the human brain to make automatic, snap judgments, which are surprisingly accurate, but which …


Self-Handicapping And Managers’ Duty Of Care, David A. Hoffman Jan 2007

Self-Handicapping And Managers’ Duty Of Care, David A. Hoffman

All Faculty Scholarship

This symposium essay focuses on the relationship between managers' duty of care and self-handicapping, or constructing obstacles to performance with the goal of influencing subsequent explanations about outcomes. Conventional explanations for failures of caretaking by managers have focused on motives (greed) and incentives (agency costs). This account of manager behavior has led some modern jurists, concerned about recent corporate scandals, to advocate for stronger deterrent measures to realign manager and shareholder incentives. * Self-handicapping theory, by contrast, teaches that bad manager behavior may occur even when incentives are well-aligned. Highly successful individuals in particular come to fear the pressure of …


The Best Puffery Article Ever, David A. Hoffman Oct 2006

The Best Puffery Article Ever, David A. Hoffman

David A Hoffman

This Article provides the first extensive legal treatment of an important defense in the law of fraud and contracts: puffery. Legal authorities commonly say they make decisions about whether defendants should be able to utter exaggerated, optimistic, lies based on assumptions about buyer behavior, concluding that consumers do not rely on such speech. However, as the Article shows, such analyses are proxies for a deeper analytical question: does the speech encourage or discourage a type of consumption activity that the court deems welfare maximizing? The Article presents a novel constitutional analysis of puffery doctrine that focuses on the meaning of …