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Abstract:
This paper accepts the unusual invitation to see for yourself issued by the Supreme Court in Scott v. Harris, 127 S. Ct. 1769 (2007). Scott held that a police officer did not violate the Fourth Amendment when he deliberately rammed his car into that of a fleeing motorist who refused to pull over for speeding and instead attempted to evade the police in a high-speed chase. The majority did not attempt to rebut the arguments of the single Justice who disagreed with its conclusion that no reasonable juror could find the fleeing driver did not pose a deadly risk to the public. Instead, the Court uploaded to its website a video of the chase, filmed from inside the pursuing police cruisers, and invited members of the public to make up their own minds after viewing it. We showed the video to a diverse sample of 1,350 Americans. Overall a majority agreed with the Court's resolution of the key issues, but within the sample there were sharp differences of opinion along cultural, ideological, and other lines. We attribute these divisions to the psychological disposition of individuals to resolve disputed facts in a manner supportive of their group identities. The paper also addresses the normative significance of these findings. The result in the case, we argue, might be defensible, but the Court's reasoning was not. Its insistence that there was only one reasonable view of facts itself displayed a characteristic of a form of bias - cognitive illiberalism - that consists in the failure to recognize the connection between perceptions of societal risk and contested visions of the ideal society. When courts fail to take steps to counteract that bias, they needlessly invest the law with culturally partisan overtones that detract from the law's legitimacy.

cultural cognition, risk perception, Fourth Amendment, jury

Abstract:
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 misleading speech, a term of art at the heart of the Supreme Court's contested and still evolving commercial speech jurisprudence. Missing from that jurisprudence is a satisfactory account of how consumers and investors react to speech that is not literally false but which has false implications. I present such an account, focused on the incentives and capabilities of sellers to exploit buyers' cognitive vulnerabilities. I draw on economic, marketing, psychology and consumption literatures.

I conclude by offering a novel liability proposal. Because legal authorities are incapable of satisfactorily drawing a line between harmful and innocuous puffery, the law should make sellers presumptively liable if their speech contains exaggerated, but vague boasts. This approach would place the onus on sellers to balance the costs and benefits of puffery, and thus lead both to more satisfying doctrine and a more optimal level of fraud.

puffery, behavioral law and economics, advertising, warranty, securities, promissory estoppel, enterprise liability, marketing, consumption, puffing, Lanham Act, fraud, contract

Abstract:
How and when do courts determine that corporate disclosures are actionable under the federal securities laws? The applicable standard is materiality: would a (mythical) reasonable investor have considered a given disclosure important. As I establish through empirical and statistical testing of approximately 500 cases analyzing the materiality standard, judicial findings of immateriality are remarkably common, and have been stable over time. Materiality's scope results in the dismissal of a large number of claims, and creates a set of cases in which courts attempt to explain and defend their vision of who is, and is not, a reasonable investor. Thus, materiality provides an ideal lens through which to examine courts' understanding of behavioral psychology and how the insights of that discipline should inform legal decision making.

Significantly, judges have shifted from standards-based to bright-line tests over time, increasingly imposing on investors a duty to behave in economically rational ways in response to corporate disclosures, or risk losing the benefit of legal protections from securities fraud. From this shift, I derive a duty to act as a rational shareholder, attaching to every investor in the public capital markets. Because experimental evidence suggests that women and minorities have different financial risk preferences than white men, courts' applications of this duty may result in privileging white, male investors at the expense of all others. Finally, the very existence of a duty attaching to mere share ownership has the potential to significantly change the way we evaluate those corporate governance models which assume shareholder passivity.

securities law, behavioral law and economics, rationality, materiality, race, gender, duties, reasonable person, disclosure

Abstract:
This article describes important recent developments in normative law and economics, and the difficulties they create for the project of efficiency-based legal reform. After long proceeding without a well articulated moral justification for using economic decision procedures to choose legal rules, scholars have lately begun to devote serious attention to developing a philosophically attractive definition of well-being. At the same time, the empirical side of law and economics is also being enriched with an improved understanding of the complexities of individuals' decision-making behavior.

That is where the problems begin. Scholars may have better, more plausible conceptions of well-being in hand, but it is not at all clear how to develop practical techniques for measuring and comparing individuals' gains and losses in well-being, so defined. And at the practical end, behavioral research suggests that the range of individual preferences that economic analysis must accommodate is broader and more complex than was previously assumed. We detail a variety of psychological studies that suggest that individuals often hold law-related preferences: direct preferences about the content and fairness of their legal system. These preferences defy market valuation, yet we argue that they cannot be ignored. Most intriguingly, studies suggest that in some cases people hold a preference that legal decisions should not be made on an economic basis. We describe such anti-utilitarian preferences, collecting evidence of their strength and permanence.

In the final part of the article, we offer predictions about the future development of law and economics, in light of its growing theoretical sophistication and the evidence of law-related preferences. The most likely outcomes are: (1) scholars advocating various forms of paternalism, whether by excluding citizens from participation in the legal system or by discounting some types of individual preferences from consideration in choosing policies; or (2) a limited implementation of economic techniques, applying them strongly in some areas of the law but not in others. We discuss the relative strengths and failures of each proposed approach, and offer suggestions for future empirical work. We conclude by giving a tentative answer to the question that titles the article.

Law and economics, welfare, cost benefit analysis, utilitarianism, behavioral economics, juries, preferences, fairness, paternalism, legal theory, wealth maximization, Pareto, Kaldor-Hicks

Abstract:
How does large-scale social production coordinate individual behavior to produce public goods? Hardin (1968) denied that the creation of public goods absent markets or the State is possible. Benkler (2006), Shirky (2008), Zittrain (2008), and Lessig (2008) recently countered that the needed coordination might emerge though social norms. However, the means to this coordination is under-theorized.

Focusing on Wikipedia, we argue that the site’s dispute resolution process is an important force in promoting the public good it produces, i.e., a large number of relatively accurate public encyclopedia articles. We describe the development and shape of Wikipedia’s existing dispute resolution system. Further, we present a statistical analysis based on coding of over 250 arbitration opinions from Wikipedia’s arbitration system. The data show that Wiki-dispute resolution ignores the content of user disputes, instead focusing on user conduct. Based on fairly formalized arbitration findings, we find a high correlation between the conduct found and the remedies ordered. In effect, the system functions not so much to resolve disputes and make peace between conflicting users, but to weed out problematic users while weeding potentially productive users back in to participate.

Game theorists have modeled large scale social production as a solution to the herder problem/multi-player prisoner’s dilemma. But we demonstrate that the “weeding in” function reflects dynamics more accurately captured in coordination games instead. In this way, dispute resolution can provide a constitutive function for the community.

social production, social norms, law, dispute resolution, arbitration, empirical legal studies

Abstract:
Empirical legal scholars have traditionally modeled trial court 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 trial court opinions, finding that civil rights and other "hot" topics are more likely to be explained than purportedly ordinary legal problems involved in resolving social security and commercial law cases. This orthodoxy comforts consumers of legal opinions, because it suggests that they are largely representative of judicial work.

To test such views, we collected data from a thousand cases in four different jurisdictions. We recorded information about every judicial action over each case's life, ranging the demographic characteristics, workload, and experience of the writing judge; to information about the case, including its jurisdictional basis, complexity, attorney characteristics, and motivating legal theory; to information about the individual orders themselves, including the relevant procedural posture and the winning party. This approach permits a significantly more fine-grained look at how courts give meaning to legal rights than had been previously available.

Descriptively, we find that opinions are rare events in the litigation process: only 3% of all orders are explained in opinions, and only 17% of orders applying facts to law are similarly reasoned. Using a hierarchical linear model, we find that judges do not write opinions to curry favor with the public or with powerful audiences, nor do they write more when they are less experienced, seeking to advance their careers, or in more interesting case types. Instead, opinion writing is significantly affected by procedure: we predict that judges are three times more likely to write an opinion on a summary judgment motion than a discovery motion, all else held equal. Judges similarly write more in cases that are later appealed, and in commercial cases. Finally, jurisdictional culture is very important. These findings challenge conventional views of trial court opinion writing, and suggest the need for further research to test a behavioral model for judges' behavior.

empirical, statistics, opinions, courts, civil procedure, orders, dockets, behavioral, risk aversion, doctrine

Abstract:
In this Article, we argue that current debates on the legitimacy of punitive damages would benefit from a comparison with jury nullification in criminal trials. We discuss critiques of punitive damages and of jury nullification, noting the surprising similarities in the arguments scholars use to attack these (superficially) distinct outcomes of the jury guarantee. Not only are the criticisms alike, the institutions of punitive damages and jury nullification also turn out to have many similarities: both are, we suggest, examples of what we call nullificatory juries.

We discuss the features of such juries, and consider recent behavioral data relating to the common sense moral intuitions that appear to motivate nullificatory juries to reject utilitarianism. After considering these root causes, we provide a theoretical framework for analyzing the benefits these juries provide to society. We conclude with some modest suggestions for future avenues of research.

Behavioral, law and economics, jury behavior, jury nullification, criminal law, punitive damages, paternalism, rule of law

Abstract:
In this Article, we argue that current debates on the legitimacy of punitive damages would benefit from a comparison with jury nullification in criminal trials. We discuss critiques of punitive damages and of jury nullification, noting the surprising similarities in the arguments scholars use to attack these (superficially) distinct outcomes of the jury guarantee. Not only are the criticisms alike, the institutions of punitive damages and jury nullification also turn out to have many similarities: both are, we suggest, examples of what we call "nullificatory juries."

We discuss the features of such juries, and consider recent behavioral data relating to the common sense moral intuitions that appear to motivate nullificatory juries to reject utilitarianism. After considering these root causes, we provide a theoretical framework for analyzing the benefits these juries provide to society. We conclude with some modest suggestions for future avenues of research.

behavioral, law and economics, jury behavior, jury nullification, criminal law, punitive damages, paternalism, rule of law

Abstract:
In this project, we utilize six years of original federal district court data to identify the first representative sample of corporate veil piercing litigation. This study will provide a more nuanced understanding of the process of litigation of piercing claims than previous studies, which have been modeled on Robert Thompson's (1991) groundbreaking work on this topic. Our method first identifies veil piercing litigation through Westlaw's trial pleadings database, and proceeds to code each case through detailed examination of PACER records.

We identify and model the differing types of success plaintiffs achieve when they seek to pierce the veil, including those related to jurisdiction, the merits, and discovery. As with all trial court cases, the interstitial motions and resolutions during litigation impact all subsequent case events. This can be the case even when the case is terminated through settlement and would go unnoticed in studies that merely examine reported opinions. Studying the stages of litigation with respect to piercing will also likely help illuminate the selection bias inherent in opinions-based empirical work.

veil piercing, dockets, litigation, alter ego, trial courts, pleadings, settlement

Abstract:
This essay reviews "Punitive Damages: How Juries Decide" by Cass Sunstein, et al. The book provides a good example of a recent trend: the use of behavioralist research to justify surprisingly paternalistic legal reforms.

While critics of behavioralism often contend that its theoretical foundations are weak, this approach is unlikely to prove an effective rejoinder in the new debate about what kinds of paternalism are made permissible by human "irrationality". A better approach: (1) notes the lack of a nexus between behavioralism and the supposed emergent necessity of paternalist reforms; and (2) suggests that juror unwillingness to apply cost-benefit formula provides the true motivating force for the new paternalism in law and economics. Rather than asking if jurors act rationally (and punishing them if they will not), we should instead question what law and economists mean when they use the word "rational" as an initial matter.

Abstract:
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 past success. To avoid the regret associated with the future failure that they anticipate, such individuals then create hurdles (through active or passive self-sabotage) or excuses. When failure comes, individuals hope to shift attention from their merits to the handicap. Research shows that self-handicapping works. Indeed, managers in failing firms who self-handicap may escape with their reputations and compensation burnished.

In this essay, I summarize an extensive body of research on self-handicapping that surprisingly has not been well explored by corporate law theorists. I then suggest that modern corporate scandals traditionally understood as products of failures of monitoring - like Enron - might be better explained in part as a function of self-handicapping by managers. This explanation supports recent efforts to move beyond a purely carrot-and-stick model of corporate governance. Finally, I briefly discuss mechanisms to reduce self-handicapping by corporate officers, in particular, making them self-aware and selecting executives less prone to engage in this type of wasteful activity. The law has a potential role to play in this process, but its proper focus is directors' negligence in hiring, not managers' failures in taking business risks.

fiduciary duty, self-handicapping, duty of care, corporate governance, behavioral law and economics, negligence, duty of loyalty, managers, officers

Abstract:
This paper presents results from three experiments offering evidence that parties see breach of contract as a form of exploitation, making disappointed promisees into “suckers.” In psychology, being a sucker turns on a three-part definition: betrayal, inequity, and intention. We used web-based questionnaires to test the effect of each of the three factors separately. Our results support the hypothesis that when breach of contract cues an exploitation schema, people become angry, offended, and inclined to retaliate even when retaliation is costly. This theory offers a useful advance insofar it explains why victims of breach demand more than similarly situated tort victims and why breaches to engorge gain are perceived to be more immoral than breaches to avoid loss. In general, the sucker theory provides an explanatory framework for recent experimental work showing that individuals view breach as a moral harm. We describe the implications of this theory for doctrinal problems like liquidated damages, willful breach, and promissory estoppel, and we suggest an agenda for further research.

contracts, breach, expectation, sucker, exploitation, reciprocity, promissory estoppel, willful breach, liquidated damages

Abstract:
In this paper we critique the increasingly prominent claims of punishment naturalism – the notion that highly nuanced intuitions about most forms of crime and punishment are broadly shared, and that this agreement is best explained by a particular form of evolutionary psychology. While the core claims of punishment naturalism are deeply attractive and intuitive, they are contradicted by a broad array of studies and depend on a number of logical missteps. The most obvious shortcoming of punishment naturalism is that it ignores empirical research demonstrating deep disagreements over what constitutes a wrongful act and just how wrongful it should be deemed to be. But an equally serious shortcoming of punishment naturalism is that it fails to provide a credible account of the social and cognitive mechanisms by which individuals evaluate both crime and punishment, opting instead for explanations that are either specific and demonstrably wrong or so vague as to be untestable.

By way of contrast we describe an alternative approach, punishment realism, that develops the core insights of legal realism via psychology and anthropology. Punishment realism, we argue, offers a more complete account of agreement and disagreement over the criminal law and provides a more detailed and credible account of the social and cognitive mechanisms that move people to either agree or disagree with one another on whether and how much praise or punishment a given act deserves. The differences between these two empirical accounts also entail contrasting implications for how those interested in maximizing social welfare and public satisfaction with the law should approach questions of crime and punishment.

Abstract:
This project presents six years of hand-collected federal district court data to analyze the first representative sample of veil piercing litigation. Our method identifies veil piercing complaints through Westlaw's trial pleadings database and codes each case through a detailed examination of PACER records. We test a variety of hypotheses to understand how such litigations are resolved.

We find that plaintiffs succeed quite often in veil piercing litigation, if success is defined as winning on motions that do not terminate a case. A variety of legal and extra-legal factors predict such interstitial veil piercing successes. Voluntary creditor causes of action promote veil piercing; LLCs are in very limited circumstances better insulated from veil piercing claims than corporations; undercapitalization is strongly associated with success while conclusory grounds like "façade" and "sham" are not; and defendants' legal sophistication is predictive of plaintiff failure. Extra-legal factors play a more striking and counterintuitive role. Plaintiffs suing companies with few employees are much more likely to win veil piercing motions, and obtain relief in cases, than plaintiffs suing companies employing many workers. This results holds even when controlling for legally-relevant variables. Contrary to both theory and previous empirical work, we also find that judicial liberalism is inversely related to the likelihood of plaintiff success.

Our results call into question existing normative and descriptive approaches to the disputation of limited liability and contribute to more general scholarship about selection effects and judicial behavior. They do not provide any easy answers to the question of what defendants can do to insulate themselves from veil piercing. Our analysis suggests: Very little, apart from being very big.

veil piercing, docketology, selection effects, priest-klein, undercapitalization, ideology, cultural cognition, LLCs, limited liability, empirical analysis, settlement