Bounded Rationality, Behavioral Economics, and the Law

2017 ◽  
Author(s):  
Christine Jolls
Keyword(s):  
Decision Making ◽  
Behavioral Economics ◽  
Bounded Rationality ◽  
Legal System ◽  
Behavioural Economics ◽  
Applied Economics ◽  
Legal Rule ◽  
Legal Analysis ◽  
Economic Analysis Of Law ◽  
System Knowledge

Behavioural economics has become a leading force in applied economics, including in economic analysis of law. At the heart of behavioural economics is the concept of bounded rationality. Bounded rationality suggests that humans face important limitations in knowledge and decision-making capability. Such limitations have clear importance to both the understanding and the improvement of the legal system. Knowledge limitations present a particularly compelling area for legal analysis. Two case studies of debiasing through law in response to knowledge limitations reveal the potential mechanisms by which law may ease such limitations among boundedly rational actors. In such cases of debiasing through law, empirical evidence plays a pivotal role, as this evidence both identifies the existence of knowledge limitations in the first instance and provides a means by which to assess whether a given legal rule allays such limitations.

Behavioral Economics and Court Decision-Making

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Doron Teichman ◽  
Eyal Zamir
Keyword(s):  
Decision Making ◽  
Economic Analysis ◽  
Behavioral Economics ◽  
Court Decision ◽  
Social Optimum ◽  
Court Decisions ◽  
Heuristics And Biases ◽  
Court System ◽  
Economic Analysis Of Law ◽  
The Social

Abstract The economic analysis of law assumes that court decisions are key to incentivizing people and maximizing social welfare. This article reviews the behavioral literature on court decision making, and highlights numerous heuristics and biases that impact judges and jurors and cause them to make decisions that diverge from the social optimum. In light of this review, the article analyzes some of the institutional features of the court system that may help minimize the costs of biased decisions in the courts.

scholarly journals How Behavioral Economics and Nudges Could Help Diminish Irrationality in Suicide-Related Decisions

2019 ◽  
Vol 15 (1) ◽  
pp. 44-61 ◽  
Author(s):  
Brian W. Bauer ◽  
Daniel W. Capron
Keyword(s):  
Decision Making ◽  
Suicide Attempt ◽  
Behavioral Economics ◽  
Bounded Rationality ◽  
Suicide Prevention ◽  
Cognitive Biases ◽  
Confirmation Bias ◽  
Computational Power ◽  
Behavioral Economic ◽  
New Evidence

People regularly make decisions that are not aligned with their own self-interests. These irrational decisions often stem from humans having bounded rationality (e.g., limited computational power), which produces reliable cognitive biases that occur outside of people’s awareness and influences the decisions people make. There are many important decisions leading up to a suicide attempt, and it is likely that these same biases exist within suicide-related decisions. This article presents an argument for the likely existence of cognitive biases within suicide-related decision making and how they may influence people to make irrational decisions. In addition, this article provides new evidence for using a behavioral economic intervention—nudges—as a potential way to combat rising suicide rates. We explore how nudges can help increase means safety, disseminate suicide prevention skills/materials, diminish well-known biases (e.g., confirmation bias), and uncover biases that may be occurring when making suicide-related decisions.

Reasonable Bounds on Rationality

2020 ◽  
Author(s):  
Igor Grossmann ◽  
Richard Eibach
Keyword(s):  
Decision Making ◽  
Bounded Rationality ◽  
Cognitive Resources ◽  
Previous Theory ◽  
Making Choices ◽  
Points Of View ◽  
Sound Judgment

Previous theory and research on bounded rationality has emphasized how limited cognitive resources constrain people from making utility maximizing choices. This paper expands the concept of bounded rationality to consider how people’s rationality may be constrained by their internalization of a qualitatively distinct standard for sound judgment, which is commonly labeled reasonableness. In contrast to rationality, the standard of reasonableness provides guidance for making choices in situations that involve balancing incommensurable values and interests or reconciling conflicting points-of-view. We review recent evidence showing that laypeople readily recognize the distinctions between rationality and reasonableness and thus are able to utilize these as distinct standards to inform their everyday decision-making. The fact that people appear to have internalized rationality and reasonableness as distinct standards of sound judgment supports the notion that people’s pursuit of rationality may be bounded by their determination to also be reasonable.

Behavioral Law and Economics

2018 ◽  
Author(s):  
Eyal Zamir ◽  
Doron Teichman
Keyword(s):  
Economic Analysis ◽  
Bounded Rationality ◽  
Law And Economics ◽  
Empirical Studies ◽  
Securities Regulation ◽  
Critical Examination ◽  
Entire Body ◽  
Economic Analysis Of Law ◽  
Behavioral Law And Economics ◽  
The Impact

In the past few decades, economic analysis of law has been challenged by a growing body of experimental and empirical studies that attest to prevalent and systematic deviations from the assumptions of economic rationality. While the findings on bounded rationality and heuristics and biases were initially perceived as antithetical to standard economic and legal-economic analysis, over time they have been largely integrated into mainstream economic analysis, including economic analysis of law. Moreover, the impact of behavioral insights has long since transcended purely economic analysis of law: in recent years, the behavioral movement has become one of the most influential developments in legal scholarship in general. Behavioral Law and Economics offers a state-of-the-art overview of the field. The book surveys the entire body of psychological research underpinning behavioral analysis of law, and critically evaluates the core methodological questions of this area of research. The book then discusses the fundamental normative questions stemming from the psychological findings on bounded rationality, and explores their implications for establishing the aims of legislation, and the means of attaining them. This is followed by a systematic and critical examination of the contributions of behavioral studies to all major fields of law—property, contracts, consumer protection, torts, corporate, securities regulation, antitrust, administrative, constitutional, international, criminal, and evidence law—as well as to the behavior of key players in the legal arena: litigants and judicial decision-makers.

Beyond Bounded Rationality: CEO Reflective Capacity and Firm Sustainability Performance

2021 ◽  
pp. 1-38
Author(s):  
Yingya Jia ◽  
Anne S. Tsui ◽  
Xiaoyu Yu
Keyword(s):  
Decision Making ◽  
Bounded Rationality ◽  
Three Dimensional ◽  
Strategic Decision ◽  
Future Research ◽  
Sustainability Performance ◽  
Business Executives ◽  
Dimensional Measure ◽  
Reflective Capacity ◽  
Mediating Mechanisms

ABSTRACT Optimal or rational decision making is not possible due to informational constraints and limits in computation capability of humans (March & Simon, 1958; March, 1978). This bounded rationality serves as a filtering process in decision making among business executives (Hambrick & Mason, 1984). In this study, we propose the concept of CEO reflective capacity as a behavior-oriented cognitive capability that may overcome to some extent the pervasive limitation of bounded rationality in executive decision-making. Following Hinkin's (1998) method and two executive samples, we developed and validated a three-dimensional measure of CEO reflective capacity. Based on two-wave surveys of CEOs and their executive-subordinates in 213 Chinese small-medium sized firms, we tested and confirmed three hypotheses on how CEO reflective capacity is related to a firm's sustainability performance (including economic, societal, and environmental dimensions) through the mediating mechanisms of strategic decision comprehensiveness and CEO behavioral complexity. We discuss the contribution of this study to the literature on the upper echelons and information processing perspectives. We also identify the implications for future research on strategic leadership and managerial cognition in complex and dynamic contexts.

CHOICE ARCHITECTURE IN SHAKESPEARE’S PUBLIC MEETINGS: NUDGE THEORY AND RICHARD III, CORIOLANUS, AND JULIUS CAESAR

2020 ◽  
Author(s):  
Ceri Sullivan
Keyword(s):  
Decision Making ◽  
Early Modern ◽  
Behavioural Economics ◽  
The Political ◽  
Julius Caesar ◽  
Choice Architecture ◽  
Group Norms ◽  
Richard Iii ◽  
Public Meetings

Abstract The political and dramatic intentions behind the use of appeals to the early modern public (on and off stage) have already been examined by Shakespeareans. This article points out the technical workings of such appeals by using two new areas of research on decision-making: the ethnography of public meetings and behavioural economics on how to influence choosers. These theories can illuminate the strategies used by the tribunes in handling the citizens of Coriolanus, by Antony in dealing with the plebeians in Julius Caesar, and by Buckingham and Richard when gathering support from the Londoners in Richard III. Using six common psychological biases (anchor-and-adjust, availability, representativeness, priming, arousal, and group norms), Shakespeare’s politicians prompt their hearers to change their minds: a celebrity warrior is recast as a wily tyrant, an execution as a murder, and a regent as the legitimate king.

Climate Displacement and the Legal Gymnastics of Justice: Is It All Political?

2021 ◽  
Vol 35 (2) ◽  
pp. 303-312
Author(s):  
Andrea C. Simonelli
Keyword(s):  
Climate Change ◽  
International Law ◽  
Legal System ◽  
Legal Analysis ◽  
Refugee Convention ◽  
Legal Remedy ◽  
The Future ◽  
Law And Justice ◽  
International Instruments

AbstractThe future for people becoming displaced due to climate processes is still unknown. The effects of climate change are more apparent every day, and those most acutely impacted are still unable to access an appropriate legal remedy for their woes. Two new books evaluate the limits to international legal protections and the application of justice. Climate Change, Disasters, and the Refugee Convention, by Matthew Scott, investigates the assumptions underpinning the dichotomy between refugees and those facing adversity due to climate-induced disasters. Climate Change and People on the Move: International Law and Justice, by Fanny Thornton, goes further by examining how justice is used—and curtailed—by international instruments of protection. Thornton's legal analysis is thorough and thoughtful, but also demonstrative of the limitations of justice when confined by historical precedent and political indifference. With so little still being done to hold industries to account, is it any surprise that the legal system is not yet ready to protect those harmed by carbon pollution? Demanding justice for climate displacees is an indictment of modern Western economics and development; it implicates entire national lifestyles and the institutions and people that support them.

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