Behavioral Economics Commons^™

Can We Build Behavioral Game Theory?, Gale M. Lucas, Mathew D. Mccubbins, Mark Turner

Faculty Scholarship

The way economists and other social scientists model how people make interdependent decisions is through the theory of games. Psychologists and behavioral economists, however, have established many deviations from the predictions of game theory. In response to these findings, a broad movement has arisen to salvage the core of game theory. Extant models of interdependent decision-making try to improve their explanatory domain by adding some corrective terms or limits. We will make the argument that this approach is misguided. For this approach to work, the deviations would have to be consistent. Drawing in part on our experimental results, we will …

Carrots, Sticks, And Salience, Brian Galle

Georgetown Law Faculty Publications and Other Works

This Article considers the second-best design of Pigouvian taxes and subsidies in the presence of agents who are imperfectly aware of the instrument. Until very recently, the price instrument literature has assumed perfect rationality, and even the handful of prior attempts to account for “hidden” prices focus mainly on the income tax. I extend these efforts in several directions. First, I show that the best available instrument for correcting negative externalities is often one whose price is partially adjusted upwards -- or, in the case of subsidies, downwards -- to counter-act the neglect of irrational actors. In addition, I argue …

Distinguishing Probability Weighting From Risk Misperceptions In Field Data, Levon Barseghyan, Francesca Molinari, Ted O'Donoghue, Joshua C. Teitelbaum

Georgetown Law Faculty Publications and Other Works

The paper outlines a strategy for distinguishing rank-dependent probability weighting from systematic risk misperceptions in field data. Our strategy relies on singling out a field environment with two key properties: (i) the objects of choice are money lotteries with more than two outcomes and (ii) the ranking of outcomes differs across lotteries. We first present an abstract model of risky choice that elucidates the identification problem and our strategy. The model has numerous applications, including insurance choices and gambling. We then consider the application of insurance deductible choices and illustrate our strategy using simulated data.

Incarceration And The Economic Fortunes Of Urban Neighborhoods, Jeffrey A. Fagan, Valerie West

Faculty Scholarship

This chapter turns to the response of the criminal justice system to neighborhood violence, in particular examining to what extent persistently high levels of incarceration can depress economic well-being and human capital in disadvantaged and racially segregated communities. A panel analysis of New York City neighborhoods between 1985 and 1996, a period in which the city's violent-crime rates both rose and fell sharply, provides evidence that high incarceration rates reduce income growth, educational attainment, and work experience in disadvantaged and racially segregated neighborhoods. To rectify this, targeted micro investment and housing development in such areas can break the connection between …

What's A Name Worth?: Experimental Tests Of The Value Of Attribution In Intellectual Property, Christopher Jon Sprigman, Christopher Buccafusco, Zachary C. Burns

Faculty Scholarship

Despite considerable research suggesting that creators value attribution – i.e., being named as the creator of a work – U.S. intellectual property (IP) law does not provide a right to attribution to the vast majority of creators. On the other side of the Atlantic, however, many European countries give creators, at least in their copyright laws, much stronger rights to attribution. At first blush it may seem that the U.S. has gotten it wrong, and the Europeans have made a better policy choice in providing to creators a right that they value. But for reasons we will explain in this …

Against Endowment Theory: Experimental Economics And Legal Scholarship, Greg Klass, Kathryn Zeiler

Faculty Scholarship

Endowment theory holds the mere ownership of a thing causes people to assign greater value to it than they otherwise would. The theory entered legal scholarship in the early 1990s and quickly eclipsed other accounts of how ownership affects valuation. Today, appeals to a generic “endowment effect” can be found throughout the legal literature. More recent experimental results, however, suggest that the empirical evidence for endowment theory is weak at best. When the procedures used in laboratory experiments are altered to rule out alternative explanations, the “endowment effect” disappears. This and other recent evidence suggest that mere ownership does not …

The Nature Of Risk Preferences: Evidence From Insurance Choices, Levon Barseghyan, Francesca Molinari, Joshua C. Teitelbaum, Ted O'Donoghue

Georgetown Law Faculty Publications and Other Works

The authors use data on insurance deductible choices to estimate a structural model of risky choice that incorporates "standard" risk aversion (diminishing marginal utility for wealth) and probability distortions. They find that probability distortions--characterized by substantial overweighting of small probabilities and only mild insensitivity to probability changes--play an important role in explaining the aversion to risk manifested in deductible choices. This finding is robust to allowing for observed and unobserved heterogeneity in preferences. They demonstrate that neither Kőszegi-Rabin loss aversion alone nor Gul disappointment aversion alone can explain our estimated probability distortions, signifying a key role for probability weighting.

The Joireman Collection, Evangelical Advocacy: A Response To Global Poverty

Bibliographies

The Joireman collection is a list of bibliographic resources gathered by political scientists to examine the relationship between religion and politics as seen from within several Christian traditions: Evangelical, Pentecostals, Anglican, Reformed, Lutheran, and Roman Catholic. The list comes from the book Church, State, and Citizen: Christian Approaches to Political Engagement edited and contributed by Sandra F. Joireman.

Behavioral Approaches To Corporate Law, Donald C. Langevoort

Georgetown Law Faculty Publications and Other Works

This chapter reviews the challenges associated with developing a plausible theory of why psychological "heuristics and biases" might persist in high-stakes business settings. Specific attention is given to issues of loyalty on corporate boards, behavioral finance, and corporate cultures.

Law, Environment, And The “Nondismal” Social Sciences, William Boyd, Douglas Kysar, Jeffrey J. Rachlinski

Cornell Law Faculty Publications

Over the past 30 years, the influence of economics over the study of environmental law and policy has expanded considerably, becoming in the process the predominant framework for analyzing regulations that address pollution, natural resource use, and other environmental issues. This review seeks to complement the expansion of economic reasoning and methodology within the field of environmental law and policy by identifying insights to be gleaned from various “nondismal” social sciences. In particular, three areas of inquiry are highlighted as illustrative of interdisciplinary work that might help to complement law and economics and, in some cases, compensate for it: the …

The Hidden Limits Of The Charitable Deduction: An Introduction To Hypersalience, Lilian V. Faulhaber

Georgetown Law Faculty Publications and Other Works

Behavioral economics introduced the concept of salience to law and economics. In the area of tax policy, salience refers to the prominence of taxes in the minds of taxpayers. This article complicates the literature on salience and taxation by introducing the concept of “hypersalience,” which is in many ways the mirror image of hidden taxation. While a revenue-raising tax provision must be hidden for taxpayers to underestimate their tax bill, a revenue-reducing tax provision – such as a deduction, exclusion, or credit – must be more than fully salient for taxpayers to underestimate their tax bill. In other words, the …

Are Risk Preferences Stable Across Contexts? Evidence From Insurance Data, Levon Barseghyan, Jeffrey Prince, Joshua C. Teitelbaum

Georgetown Law Faculty Publications and Other Works

Using a unique data set, the authors test whether households' deductible choices in auto and home insurance reflect stable risk preferences. Their test relies on a structural model that assumes households are objective expected utility maximizers and claims are generated by household-coverage specific Poisson processes. They find that the hypothesis of stable risk preferences is rejected by the data. Their analysis suggests that many households exhibit greater risk aversion in their home deductible choices than their auto deductible choices. They find that their results are robust to several alternative modeling assumptions.

Harsanyi 2.0, Matthew D. Adler

Faculty Scholarship

How should we make interpersonal comparisons of well-being levels and differences? One branch of welfare economics eschews such comparisons, which are seen as impossible or unknowable; normative evaluation is based upon criteria such as Pareto or Kaldor-Hicks efficiency that require no interpersonal comparability. A different branch of welfare economics, for example optimal tax theory, uses “social welfare functions” (SWFs) to compare social states and governmental policies. Interpersonally comparable utility numbers provide the input for SWFs. But this scholarly tradition has never adequately explained the basis for these numbers.

John Harsanyi, in his work on so-called “extended preferences,” advanced a fruitful …

A New Experiment On Rational Behavior, Myles R. Macdonald

CMC Senior Theses

Behavioral economics is widely recognized as a rising field in economics, one whose discoveries and implications are not yet completed or understood. At the same time, economic theory plays an enormous role in our governmental and legal system. In particular, the Coase Theorem and its implications have affected nearly every area in the field of law and economics. This paper proposes a experimental test of Coasean bargaining in situations using two competitive players whose payoffs depend on minimizing their costs of mitigating the externality. A rational player’s action can be predicted ahead of time, and the rationality of the game’s …

Alleviating Social Disadvantages Of Rapid Economic Growth: A Case For Conditional Cash Transfer (Cct) Application In Old Siam, Anastasia Kostioukova

CMC Senior Theses

The ongoing conflict between Thailand’s red shirt and yellow shirt parties is not purely political. This tension is rooted in a renewed awareness of regional economic and social inequality, a byproduct of rapid economic growth in the past. This thesis seeks to understand the overall consequences of unequal economic development in Thailand, as the rationale for asserting that a conditional cash transfer (CCT) program is an appropriate policy tool for the ongoing reconciliation efforts.

The Creativity Effect, Christopher Buccafusco, Christopher Jon Sprigman

Faculty Scholarship

This Article reports the first experiment to demonstrate the existence of a valua­tion anomaly associated with the creation of new works. To date, a wealth of social science research has shown that the least amount of money that owners of goods are willing to accept to part with their possessions is often far greater than the amount that purchasers would be willing to pay to obtain them. This phenomenon, known as the endowment effect, may create substantial inefficiencies in many markets. Our experi­ment demonstrates the existence of a related "creativity effect." We show that creators of works value their creations …

A Contractual Approach To Shareholder Oppression Law, Benjamin Means

Faculty Publications

According to standard law and economics, minority shareholders in closely held corporations must bargain against opportunism by controlling shareholders before investing. Put simply, you made your bed, now you must lie in it. Yet most courts offer a remedy for shareholder oppression, often premised on the notion that controlling shareholders owe fiduciary duties to the minority or must honor the minority's reasonable expectations. Thus, law and economics, the dominant mode of corporate law scholarship, appears irreconcilably opposed to minority shareholder protection, a defining feature of the existing law of close corporations.

This Article contends that a more nuanced theory of …

Price And Pretense In The Baby Market, Kimberly D. Krawiec

Faculty Scholarship

Throughout the world, baby selling is formally prohibited. And throughout the world babies are bought and sold each day. As demonstrated in this Essay, the legal baby trade is a global market in which prospective parents pay, scores of intermediaries profit, and the demand for children is clearly differentiated by age, race, special needs, and other consumer preferences, with prices ranging from zero to over one hundred thousand dollars. Yet legal regimes and policymakers around the world pretend that the baby market does not exist, most notably through prohibitions against “baby selling” – typically defined as a prohibition against the …

Valuing Intellectual Property: An Experiment, Christopher Buccafusco, Christopher Sprigman

Faculty Scholarship

In this article we report on the results of an experiment we performed to determine whether transactions in intellectual property (IP) are subject to the valuation anomalies commonly referred to as “endowment effects”. Traditional conceptions of the value of IP rely on assumptions about human rationality derived from classical economics. The law assumes that when people make decisions about buying, selling, and licensing IP they do so with fixed, context-independent preferences. Over the past several decades, this rational actor model of classical economics has come under attack by behavioral data showing that people do not always make strictly rational decisions. …

Do Ugly Criminals Receive Harsher Sentences? An Analysis Of Lookism In The Criminal Justice System, Kelly Beck

Business and Economics Honors Papers

For many years, researchers have attempted to find a link between beauty and labor market outcomes. Although many important findings have been noted in these studies, the beauty analysis utilized was a subjective measurement. This subjective method, while important, may have external factors creating bias in the rating itself. In this study, the impact of beauty is applied to criminals and their sentences. Using a computer based symmetry measurement tool, an objective beauty measurement will be utilized. This study will seek to uncover whether or not criminals who are less attractive, measured through facial symmetry, receive harsher prison sentences than …

China And Brazil: Potential Allies Or Just Brics In The Wall?, Anthony Petros Spanakos

Department of Political Science and Law Faculty Scholarship and Creative Works

Brazil is an increasingly important actor in global governance and for China specifically. Sino-Brazilian relations have deepened considerably but they remain concentrated in areas of trade and investment. There is also considerable overlap in interests between the two countries in other areas, such as diplomatic and political relations. At the same time, China must manage carefully important differences that exist over the enlargement of the UN and the potential challenge to the Brazilian industry.

Contingent Valuation Studies And Health Policy, Matthew D. Adler

Faculty Scholarship

No abstract provided.

The Knowledge Problem Of New Paternalism, Mario J. Rizzo, Douglas Glen Whitman

BYU Law Review

No abstract provided.

For Both Love And Money: Viviana Zelizer's "The Purchase Of Intimacy", Martha M. Ertman

Faculty Scholarship

Viviana Zelizer’s recent book, The Purchase of Intimacy (2005) presents an innovative theory of how social and legal actors negotiate rights and obligations when money changes hands in intimate relationships--a perspective that could change how we understand many things, from valuations of homemaking labor to the 9/11 Victim Compensation Fund. This essay describes Zelizer’s critique of the reductionist “Hostile Worlds” and “Nothing But” approaches to economic exchange in intimate relationships, then explains her more three-dimensional approach, “Connected Lives.” While Zelizer focuses on family law, the essay goes beyond that context, extending Zelizer’s approach to transfers of genetic material, and concluding …

Describing The Effect Of Adaptation On Settlement, John Bronsteen, Christopher Buccafusco, Jonathan Masur

Faculty Scholarship

No abstract provided.

Why Brazil Has Not Grown: A Comparative Analysis Of Brazilian, Indian, And Chinese Economic Management, Fernando Ferrari-Filho, Anthony Petros Spanakos

Department of Political Science and Law Faculty Scholarship and Creative Works

This paper does not aim to dispute that Brazil would benefit from reforms in any or all of these areas. Rather, the paper offers a skeptical perspective on reform menus and proposes an alternative explanation for the faster growth of Brazil’s peers India and China2. The paper begins by introducing (section 1) the idea of the BRICs countries, to establish the basis for comparisons of most similar cases. It then surveys the results of a generation of Washington Consensus era growth (section 2). Although there is a considerable amount of divergence over what causes growth, it seems that something approaching …

Loco Labels And Marketing Madness: Improving How Consumers Interpret Information In The American Food Economy, Margaret Sova Mccabe

Law Faculty Scholarship

America's current food labeling scheme, as illustrated by the example of salt, is flawed when examined from the consumer and public health perspective. While the Food, Drug, and Cosmetic Act has sound scientific standards, those standards as currently applied to labels do not efficiently signal health information to consumers. Without better information on labels, consumers will continue to make poor choices at the grocery store. However, there are promising new ways to label. Both the United Kingdom and the domestic supermarket chain Hannaford’s have implemented simple health labeling on food packaging or grocery shelves to improve the amount and location …

Hedonic Adaptation And The Settlement Of Civil Lawsuits, John Bronsteen, Christopher J, Buccafusco, Jonathan S. Masur

Faculty Scholarship

This Essay examines the burgeoning psychological literature on happiness and hedonic adaptation (a person's capacity to preserve or recapture her level of happiness by adjusting to changed circumstances), bringing this literature to bear on the probability of pretrial settlement in civil litigation. The existing economic and behavioral models of settlement are incomplete because they do not incorporate the effect of adaptation on the sum for which a plaintiff is willing to accept an offer. When an individual first suffers a serious injury, she will likely predict that the injury will greatly diminish her future happiness. However, during the time that …

Vote-Trading In International Institutions, Ofer Eldar

Faculty Scholarship

There is evidence that countries trade votes among each other in international institutions on a wide range of issues, including the use of force, trade issues and elections of judges. Vote-trading has been criticized as being a form of corruption, undue influence and coercion. Contrary to common wisdom, however, I argue in this paper that the case for introducing policy measures against vote-trading cannot be made out on the basis of available evidence. This paper sets out an analytical framework for analyzing vote-trading in international institutions, focusing on three major contexts in which vote-trading may generate benefits and costs: (1) …

Gone In Sixty Milliseconds: Trademark Law And Cognitive Science, Rebecca Tushnet

Georgetown Law Faculty Publications and Other Works

Trademark dilution is a cause of action for interfering with the uniqueness of a trademark. For example, consumers would probably not think that "Kodak soap" was produced by the makers of Kodak cameras, but its presence in the market would diminish the uniqueness of the original Kodak mark. Trademark owners think dilution is harmful but have had difficulty explaining why. Many courts have therefore been reluctant to enforce dilution laws, even while legislatures have enacted more of them over the past half century. Courts and commentators have now begun to use psychological theories, drawing on associationist models of cognition, to …