Rational Choice and its Limits for the Solution of Social and Legal Problems
This chapter addresses a number of methodological issues arising from the behavioural turn in law and economics and its claim to have established more realistic foundations for both positive and normative analysis. The first is whether models are necessarily better for being more realistic. Friedman’s proposal that the less realistic a model, the more useful it is as a basis for the identification of hypotheses, is rejected on the grounds that this is liable to direct research down fruitless or even erroneous paths. However, models such as the rationality axiom remain approximations of reality, not revealed truths. This leads on to a consideration of the second issue which is whether behavioural research should lead us to reject the rationality axiom. The claim that human beings are systematically wrong in their decision making is shown to be theoretically unsound and empirically unproven. Rather, theory and empirics alike suggest that rationality has a basis in social learning and institutional framing. The third issue concerns the normative conclusions to be drawn from behavioural law and economics. It is suggested that empirical research does not justify privileging ‘libertarian paternalism’ over alternative approaches to law and regulation. In the era of surveillance capitalism and the panoptic state, it is more than timely to reflect on the merits of collective learning and participatory decision making, democratic practices with adaptive qualities neglected by behavioural law and economics.