1,721,146 research outputs found
Beyond Debiasing: Overconfidence in Tort Law
No full textOverconfidence is an overestimation of one’s own ability that is often associated with an underestimation of risks and inflated estimation of one’s future success. Debiasing overconfidence through tort law is not an easy task. If people tend to believe that risks are less likely to materialize for themselves than for others, they inadequately react to legal threats and incentives. For example, overconfidence may lead to the assumption of excessive risks, undermining the deterrent effect of liability rules, even if parties are provided accurate information about statistical facts
Behavioral Economics: limitazioni cognitive, preferenze sociali e comportamento economico
No full textAs far as recent developments in economic theory are concerned, «Behavioral Economics» consti- tutes one of the most promising frontiers in the last ten years, as the Nobel Prize for Economics recently won by the social psychologist Daniel Kahneman and the prestigious John Bates Clark Medal granted to the young economist Matthew Rabin testify. It is then worth asking the following questions: what is, exactly, Behavioral Economics? What are the reasons behind its recent success? This survey aims at pro- viding a first answer, both directly and indirectly, to such questions, by illustrating the main contribu- tions developed within such ambitious research program. Behavioral Economics aims at increasing the explanatory and predictive power of economic analysis through an increase in the degree of realism of the assumptions at the basis of economic models, i.e. by means of a greater and greater integration between economics and psychology (but also between economics and social sciences such as, for example, cultural anthropology). While standard economics assumes that agents are driven by well-defined and stable pref- erences and act rationally, psychology reveals that it is often the case that such assumptions cannot be taken as an adequate and satisfactory description of human behavior. In this light, Behavioral Econom- ics focuses on markets where some (if not all) economic agents involved make choices which appear to substantially deviate from traditional economic predictions. In this survey we focus on the following two fields of studies within Behavioral Economics: a first field deals with the main cognitive limitations af- fecting economic behavior (Sections 2 and 3), whereas a second one is related to the role of the so called «social preferences» (Section 4). Both areas aim at incorporating the major results obtained both experi- mentally and empirically into formal economic analysis. Within the first area, it is assumed, analogously to neoclassical models, that agents act according to the self-interest hypothesis, but also that «rational» be- havior is affected by several cognitive limitations (in line with classical contributions on bounded rational- ity; see, in particular, Simon 1978; 1979; 1992). By contrast, the second area departs from the neoclassical approach by introducing modifications at motivational level. Unlike traditional analyses, social preferences studies focus, at both theoretical and experimental level, on interaction scenarios where players act not on classic selfish preferences but on different types of social preferences. In other words, it is still assumed that individual behavior is rational, but also that various forms of non-selfish rationality get into the pic- ture. In particular, behavioral choices by individual agents (as well as their objective functions) can be (either positively or negatively) affected by other players’ preferences, intentions, material outcomes and/or behaviors
Painful regret and elation at the track
Full text linkWe present an empirical study of loss aversion in the Hong Kong horse betting market. We provide evidence of the presence of loss aversion in a context of complete absence of the favourite-longshot bias. This would suggest that, since loss aversion is a psychological bias, the favourite-longshot bias may not necessarily be caused by psychological issues and may be due, for instance, to informational asymmetry. We investigate different types of bettors and their attitude towards loss aversion. Our data set enables us to distinguish approximately among insiders, unsophisticated outsiders and sophisticated outsiders. The results show clearly that even sophisticated bettors are beset by loss aversion, while even unsophisticated outsiders display no favourite-longshot bias. Thus, our paper provides evidence that loss aversion may be an attitude innate rather than learned, regardless of the level of sophistication in designing economic behaviour or the extent of information asymmetry. Chen et al (2006) show that capuchin monkeys display biases when faced with gambles, including loss aversion, and provide evidence that loss aversion extends beyond humans. The present work supports the idea that loss aversion may be a more universal bias, arising regardless of experience and culture and demonstrates that loss aversion is displayed even by those bettors regarded in the market as 'smart money'. Further, we find that more sophisticated and experienced bettors display a higher level of loss aversion. This result is consistent with the findings of Haigh and List (2005), who show that professional traders in financial markets exhibit more loss aversion than do students
Politics With(Out) Coase
No full textPolitical markets may be curative of political externalities, yet they are often unviable due to the presence of bargaining externalities. In this paper we study the extent to which the choice of voting dimensions may affect the viability of Coasian bargaining in a political context. The results suggest that bargaining in a multi-dimensional policy space, although desirable in an ideal world of zero-transaction costs, is almost unavoidably affected by bargaining externalities. Disaggregating the policy choices and voting in a one-dimensional policy space can reduce bargaining externalities and lead to median-voter outcomes. Bargaining by a limited number of players in a median-voter situation can achieve a social first-best. We show the equivalence between the outcomes of multiple independent voting in one-dimensional space and the hypothetical outcome of Coasian bargaining in a multi-dimensional policy space
Enforcing Bilateral Promises: Comparative Law and Economics
Full text linkParties often exchange promises of future performance with one another. Legal systems frame and regulate contracts involving the exchange of bilateral promises of future performance differently from one another. Two conceptual and practical questions often arise in these bilateral situations. Should a breaching promisor be allowed to force the performance of his non-breaching promisee? Should a breaching party be able to collect damages in a contract if his counterpart was also in breach? This paper examines these interrelated questions from a comparative law and economics perspective. We consider contracts in which parties make reciprocal promises of performance and study the incentives created by applying a defense of non-performance in unilateral breach cases and the “plaintiff in default” preclusion rules in bilateral breach cases
Accuracy of Verdicts under Different Jury Sizes and Voting Rules
Full text linkJuries are a fundamental element of the criminal justice system. In this article, we model jury decision making as a function of two institutional variables: jury size and voting requirement. We expose the critical interdependence of these two elements in minimizing the probabilities of wrongful convictions, of wrongful acquittals, and of hung juries. We find that the use of either large nonunanimous juries or small unanimous juries offers alternative ways to maximize the accuracy of verdicts while preserving the functionality of juries. Our framework, which lends support to the elimination of the unanimity requirement in the presence of large juries, helps appraise US Supreme Court decisions and state legal reforms that have transformed the structure of American juries
Quantitative Methods in Comparative Law
No full textVarious important debates have accompanied the growth and evolution of comparative law. These debates have been an important force behind the transformation of the methodology of comparative law during the last several decades. Comparative law has evolved away from a merely descriptive methodology that characterized the main contributions to this field prior to the 1950s. The subsequent methodological variants to comparative law followed a variety of analytical approaches, unveiling common elements behind apparently different legal rules as well as revealing substantive differences that existed across legal systems behind the apparent uniformity of black letter law. Here, the focus on comparative legal history and the identification of legal formants typical of the best scholars in comparative law of the second half of the twentieth century has generated important contributions, identifying synecdoches and articulating cryptotypes.Unlike prior methodological transformations within the field of comparative law, the influence of the 'comparative law and economics method' has been at the same time broad and controversial. Comparative law and economics is increasingly fashionable among academics. It is probably the most successful example of the recent expansion of law and economics into areas that were once considered beyond the realm of economic analysis. Its popularity notwithstanding, comparative law and economics also attracts several criticisms and generates academic skepticism. The critiques are often on point and highlight the many misuses of economic analysis in comparative law (and law in general) and the resulting misunderstandings and inadequacies of the claims generated by scholars that utilize this method of analysis. Since we are both practitioners of law and economics and one of us teaches comparative law, in this article we wish to shed some light on the multi-faceted structure of the comparative law and economics method, endorsing some the recent critiques moved to comparative law and economics while defending the merits of the methodology in its proper domain of application
Jury Deliberation and the Hung Jury Paradox
Full text linkIn Williams v. Florida 399 U.S. 78 (1970), the U.S. Supreme Court decided a case concerning the minimum number of jurors required at trial under the Sixth and Fourteenth Amendments. The Court ruled that the a jury comprised of fewer than twelve jurors was constitutionally acceptable. In an effort to speed deliberation and reduce the rate of mistrials, eleven states have subsequently adopted juries of fewer-than-twelve in felony trials, and forty states have diminished their jury sizes for misdemeanor trials.
Curiously however, contrary to the predictions of probability theory and "common sense", these reductions in jury sizes have failed to deliver the expected reduction in mistrial rates. In this paper we offer two interrelated explanations for this fact.
We formulate a jury model, from which we derive several formal propositions relating to jury deliberation in the presence of informational cascades and heterogeneous jurors. These results inform not only our understanding of jury deliberation, but also democratic theory more broadly
Rules versus Standards
No full textJust like contracts, laws are of necessity incomplete. Lawmakers cannot effectively foresee all the particular circumstances to which their laws could apply. Incompleteness of law is not only a matter of unavoidable necessity. At times, incomplete laws can be purposefully enacted as a way to delay the decision-making process, transferring to the judiciary some of the tasks otherwise carried out ex ante by the legislature. Lawmakers can choose the level of incompleteness of the laws that they write by formulating laws with different degrees of specificity. The law and economics literature refers to the choice of specificity of legal rules as a choice between "rules" (laws with high levels of specificity) and "standards" (laws with low levels of specificity). The present study concerns the functionality of these rules or standards, the consequences of their incorporation into laws, and their significance from an economic perspective
Comparative Law and Economics: Accounting for Social Norms
No full textRecent comparative law and economics literature utilizes quantitative methods to evaluate the effectiveness of alternative laws and legal institutions. The effectiveness of the law critically hinges upon compliance. Legal policymakers announce the consequences of a violation of law by threatening sanctions or promising rewards. The extent to which sanctions or rewards are actually imposed depends on the level of legal enforcement. Legal policymakers create incentives for compliance by selecting the severity of legal sanctions or the magnitude of rewards and by setting levels of legal enforcement. Deterrence theory assumes that higher expected punishments (the combination of severity and probability of punishment) produce higher detererrence. Enforcement is generally imperfect since not all behavior is observed; hence sanctions and rewards are administered with uncertainty. The expected legal sanction (reward) affects individual private incentives through a change in expected costs (benefits) of legal compliance. Deterrence theory assumes that individuals make a calculated and rational decision, weighing the pros and cons of specific activities under the law. Note however that many acts are committed under exceptional circumstances and a rational calculation of costs and benefits may be overshadowed by other contingent factors.Whether through threats or promises, the effects of the law depend on the actual level of enforcement. Legal theorists believed that a law without enforcement was equivalent to a law without a sanction (lex imperfecta) and was doomed to be ineffective. However, recent legal and economic literature has shown that the effects of a law are not limited to the creation of incentives through the enforcement of legal sanctions. Law conveys social values to society. According to expressive law theories and focal-point theories of law (Cooter, 1998 and 2000; McAdams, 2000a, 2000b), law plays an expressive role in society. To the extent that the values expressed by the law are internalized, private enforcement and compliance becomes possible even in the absence of central legal enforcement. Self-compliance stems from the internalization of the rule and the resulting first-party enforcement.Individual values and social norms of conduct influence human behavior. Personal values represent an individual's expressed value judgments identifying what someone should and should not be allowed to do. Individuals willfully behave according to their personal values and impose sanctions on violators of private norms. Personal values and norms provide private incentives to individuals, affecting the payoff associated with a given behavior. Alternatively, social norms identify frequency distributions of individual values and norms in the population, indicating private values and norms more frequently adopted by individuals in the population. Hence, the exogenous restrictions imposed by legal rules may not be the only driving force behind individual behavior; an individual's choices are also substantially influenced by private and social norms.The present contribution examines the determinants of self-compliance with rules in the absence of legal enforcement. Self-compliance with the law refers to the effects of first-party enforcement, where individuals withhold action because of their preference for law-abiding behavior, even if the rule lacks external enforcement. Current legal and economic theory adopts the term “first-party enforcement” to refer to situations where the subject of the law faces a conditional cost in case of violation of the law under the form of guilt or shame. These conditional costs stem from an honor system of "upright conduct," in which compliance with the rules stands as an ethical imperative
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