• Selected
• Entire List

Abstract:
This essay discusses two recent episodes in the financial derivatives industry and the television coverage of those episodes. Our discussion focuses on (1) the 1994 bankruptcy of Orange County and the 60 Minutes television program describing that county's derivatives losses and (2) the 1998 near-collapse of Long-Term Capital Management (LTCM) and the PBS NOVA program describing that hedge funds' losses.

Orange County and LTCM appear at opposite ends of the spectrum of recent derivatives losses. Orange County's Treasury was a one-man show, and its now-infamous treasurer, Robert L. Citron, was a seventy-year-old college dropout. In contrast, LTCM was a slick, sophisticated hedge fund, led by John Meriwether, whose principals included two Nobel laureates and several "rocket scientists" recruited from the investment bank Salomon Brothers. Notwithstanding these differences, Orange County and LTCM had two things in common: each lost more than a billion dollars on derivatives and each shrouded the details of its operations in secrecy.

Coverage of LTCM was more accurate than coverage of Orange County. We discuss possible reasons for the difference and make some recommendations about how television programs could depict the derivatives markets more accurately, an important issue given the substantial number of policymakers who learn about derivatives through television. We conclude that television, when done properly, is more than capable of keeping pace with derivatives markets.

Abstract:
The collection, storage, processing, recombination, and (re)sale of consumers' data has grown tremendously. Consumer data is now usually maintained in on-line databases and collected without remuneration towards or even the informed consent of consumers. The mining of such consumer data raises a host of legal and economic issues. This paper considers the tradeoff between allocative efficiency from matching direct mail advertising with demographic niches versus consumer privacy; potential misuse or abuse of data mining, ranging from outright criminal theft to inaccurate or outdated records; piggy-backing of law enforcement agencies on privately created data mines; whether default rules about data mining effectively become mandatory; and finally, who does and should own such data as consumers' names, addresses, phone numbers and purchase histories. Traditional consumer protection law deals with such problems of fraudulent business practices as deceptive advertising and misrepresentation in product warranties. Such laws have the economics of information as their common intellectual basis. This paper applies psychological games and behavioral economics to investigate distinct justifications for and types of regulation of data mining. This paper also considers personhood and commodification perspectives critical of applying economic analysis to study legal rules and institutions, in particular, treating consumers' data as private property.

Abstract:
This Article analyzes whether the introduction of new derivative assets makes a society better or worse off. Because trading such non-redundant derivatives produces new distributions of income across time and over possible future contingencies, individuals can utilize such financial instruments to hedge risks not possible before the introduction of these assets. Thus, it may seem that new derivatives unambiguously benefit society. In fact, introducing sufficiently many new derivatives completes asset markets. Asset markets are complete if trading on them can attain every possible payoff pattern of wealth across time and over possible future contingencies. The first fundamental theorem of welfare economics provides that if asset markets are complete and perfectly competitive, the resulting equilibrium allocation of assets, commodities, and risk is Pareto-efficient. Thus, new derivatives that complete asset markets are unambiguously socially desirable.

But, from the perspective of most households, the empirical reality is that asset markets are severely incomplete. Trading on incomplete asset markets cannot achieve some distributions of money across time and over possible future contingencies. The recognition that asset markets are incomplete has three far-reaching implications for regulatory policy towards new derivatives. First, for most societies, the addition of new derivatives to sufficiently incomplete asset markets can make all households worse off. Second, for most societies, a regulator can make all households better off by reallocating existing asset portfolios without introducing any new assets. Third, although government regulation can in principle improve the social allocation of risk and the resulting levels of households' utilities, it may not due to informational, decisional or political limitations on real world regulators. These important normative implications of an incomplete asset markets analysis inform the debate over how to regulate new derivatives.

Abstract:
In this article suggest that litigation can be analyzed as though it is a competitive research and development project. Developing this analogy, we present a two stage real option model of the litigation process that involves sequential information revelation and bargaining over the surplus generated by early settlement. Litigants are risk neutral and have no private information. The model generates results that, we believe, have analytic and normative significance for the economic analysis of litigation.

From an analytic perspective, we demonstrate that negative expected value (NEV) lawsuits are analogous to out of the money call options held by plaintiffs and that every NEV lawsuit is credible if the variance of the information revealed during the course of the litigation is sufficiently large. This finding helps explain the prevalence of a class of lawsuits that has proved puzzling to traditional, expected value-based modes of litigation analysis. The model also suggests that risk neutral defendants can act as though they are risk averse and that risk neutral plaintiffs can act as though they are risk seeking because increases in variance can increase a lawsuit's settlement option value just as it increases a call option's value without regard to the holder's degree of risk aversion. Models that presume defendants' relative risk aversion may therefore rely on an unnecessary assumption. Our model also suggests that a lawsuit's option settlement value is not a monotonically increasing function of the variance of the information revealed during the litigation. In particular, at low levels of variance a lawsuit's option settlement value may equal its traditional expected value, but as variance increases its option settlement value can display a discontinuity after which its option settlement value becomes a monotonically increasing function of variance. NEV lawsuits can also display dead zones - regions of variance over which the claim is not credible even though it is credible over higher or lower levels of variance. Comparative statics analysis also quantifies the extent to which a lawsuit's settlement value increases as plaintiff's litigation expenses occur later in the litigation process, as the ratio of defendant to plaintiff litigation expense increases, and as plaintiff bargaining power increases.

From a normative perspective, we offer an impossibility conjecture suggesting that the mere presence of an irreducible degree of uncertainty endemic to the litigation process can be sufficient to prevent private litigation incentives from equating to socially optimal incentives, even if one adopts all other assumptions necessary to equate private and social incentives. It follows that it may be impossible to articulate normative principles of law through substantive standards that ignore the uncertainty inherent in the litigation process and the procedural environment in which the litigation occurs.

litigation, real options, settlement, game-theoretic bargaining model

Abstract:
We advocate that law firms can and should foster authentic happiness and meaning in the professional lives of their associates. Based upon empirical and experimental research in behavioral economics and positive psychology, we consider how law firms can implement policies to promote authentic happiness and meaning in their associates' professional lives. We also believe that law schools can and should help to reduce the anxiety, stress, and unhappiness that individuals feel as law students and help them develop abilities to achieve meaningful careers as law firm associates. We provide a guide as to how law firms and law schools can design policies and procedures to nudge people towards achieving more authentic happiness and meaning in their professional (and personal) lives if people so desire.

authentic happiness, positive psychology, subjective well-being, signature strengths, meaning, law firm associates, quality of life

Abstract:
Individuals invest in securities markets via such financial intermediaries as brokers and dealers. Federal securities laws regulate the behavior of securities professionals towards their customers. The relationship between investors and securities professionals is an example of a principal-agent relationship. Such relationships suffer from well-known incentive and informational problems. This Article focuses on some novel emotional and psychological consequences of such relationships for investment decisions. This Article considers how expectations about securities investment behavior can interact with guilt on the part of securities professionals from breaching their clients' trust. This Article explains how imposing a fiduciary duty of loyalty can alter expectations about investment behavior, emotions that depend on those investment expectations, and investment behavior itself. This Article also discusses the applicability of such models to other fiduciary relationships.

Abstract:
This Article advocates that financial regulators analyze, measure, and take into account the emotional impacts of their policies and procedures. Examples of emotional impacts are investor confidence, process concerns, and overall market or social mood. Investor confidence or trust in securities markets, process concerns about how much securities regulators actually deliberate over proposed rules, and financial anxiety or investment stress affect and are affected by financial economic variables, such as consumer debt, consumer expenditures, consumer wealth, corporate investment, initial public offerings, and securities market demand, liquidity, prices, supply, and volume. Cost-benefit analysis does not quantitatively consider interdependencies between regulations' emotional impacts and their financial outcomes. Emotional impact analysis does. This Article addresses general conceptual and measurement issues about emotional impact analysis. Because financial regulations affect investors' confidence, process concerns, and social moods, this Article analyzes how financial regulators can quantitatively analyze emotional impacts of their regulations.

Affect, Cost-Benefit Analysis, Emotions, Process Concerns, Securities Regulation

Abstract:
Professor Martha C. Nussbaum is an accomplished scholar in an impressive variety of fields. Drawing on her diverse academic backgrounds, Nussbaum has written extensively about emotions and their importance for law from the perspective of her primary specialty, philosophy. Her book Hiding from Humanity criticizes the roles that two particular emotions, disgust and shame, play in the law. Its central thesis is that, as legal actors, we should be wary of disgust and shame because indulging in those emotions allows us to hide from our humanity - both our humanity in the general sense and also those specific features of our humanity that are most animalistic: our vulnerability and mortality. In 2004, the Association of American Publishers awarded Hiding from Humanity its Professional and Scholarly Publishing Award for Law. Many have praised it, while others have been more critical. In light of the broad range of fields that Nussbaum draws upon in Hiding from Humanity, the book has predictably spawned much interesting discussion and commentary by law professors, literary scholars, philosophers, political scientists, and the media. Our unique contribution to this lively discourse surrounding Hiding from Humanity is an analysis of Nussbaum's argument from the perspective of recent advances in research about emotions, happiness, and well-being made by economists, legal academics, negotiation scholars, neuroscientists, and psychologists.

Positive Emotions, Law, Disgust, Shame, Psychology

Abstract:
This article discusses the role of emotions (or feelings or affects) in property rights bargaining. Real world people choose bargaining strategies based upon not only rational calculations, but also their gut feelings. This article considers the impact of anger and shame on bargaining over property rights and the Coase theorem. Such emotions may depend on beliefs (expectations or assessments) about whether particular strategic decisions should or will occur. Such beliefs can be viewed as attributions over the intentions of others.

Abstract:
This Article considers how guilt and pride about investing has implications for securities regulation. Both U.S. federal securities laws and the regulations of the National Association of Securities Dealers impose very high standards of professional conduct upon securities professionals. But, exactly what are and should be the legal responsibilities of securities professionals remains the subject of much debate. In particular, disagreement exists over whether broker-dealers are fiduciaries of their clients. A legal consequence of a fiduciary relationship is a duty of fair dealing. This Article is the first to consider the emotional, moral, and psychological consequences of broker-dealers being fiduciaries. This Article explains how finding that securities professionals are fiduciaries can alter expectations about securities professionals' behavior, guilt from breaching their clients' trust or pride from honoring such trust, and securities professionals' behavior itself. This Article demonstrates how fiduciary law can affect behavior even without much enforcement or severe legal penalties.

Abstract:
This paper analyzes the regulatory implications of irrational exuberance and anxiety in securities markets. U.S. federal securities laws mandate the disclosure of certain information, but regulate only the cognitive form and content of that information. An important and unstudied question is how to regulate securities markets where some investors respond not only cognitively to the form and content of information, but also emotionally to the form and content of information. This paper investigates that question when some investors feel exuberance or anxiety that is unjustified by cognitive processing of the available information. This paper develops the implications for mandatory securities disclosure of irrational exuberance and anxiety.

Anxiety, irrational exuberance, mandatory disclosures, securities regulation

Abstract:
Public interest lawsuits are ubiquitous and crucial to enforcing constitutional and statutory rights. A feature of such litigation is that plaintiffs' attorneys may not get paid unless they prevail. Courts responded to this by enhancing statutory attorneys fee awards with a multiplier reflecting the risk of losing. This Article provides five distinct contributions to the public interest literature. First, the Article applies to public interest litigation a new and very general technique of options analysis, which recognizes that a lawsuit consists of a sequence of options to continue instead of a once-and-for-all irreversible commitment. The Article demonstrates that an options theory of public interest lawsuits provides novel and central insights different from traditional analysis of plaintiffs' attorneys' incentives to accept cases. Third, the Article derives an options-based risk multiplier, in between the Supreme Court risk multiplier of one and the traditional risk multiplier. Fourth, the Article investigates plaintiffs' attorneys' incentives to settle lawsuits utilizing an options perspective. Finally, the paper utilizes options analysis to suggest reforming the statutory law or judicial doctrine of risk multipliers in order to compensate plaintiffs' attorneys for the risk of not getting paid if they lose.

Abstract:
This Article critically analyzes the judicial decisions and reasoning of the United States Supreme Court and lower courts accepting certain defenses in securities fraud litigation. This Article develops how and why the core notions of materiality of information and the reasonable investor should be revised in light of recent empirical data, experimental evidence, and theoretical models of moody investing. This Article proposes modifying three recent developments in materiality doctrine to take into account moody investing. In particular, this Article argues that current judicial treatment of puffery is flawed because it neglects the power of puffery to alter moods. This Article also recommends modifying the judicial "total mix" analysis of the materiality of information to include a "total affect" analysis of information. Finally, this Article proposes refining the judicially created so-called "bespeaks caution" doctrine and statutory safe harbors codifying it to inquire whether so-called "meaningful cautionary language" is infused with affect.

Moody Investing, materiality, reasonable investor, securities regulation, puffery, total mix of information, bespeaks caution doctrine

Abstract:
This paper develops a new theory of possibly frivolous litigation by focusing on a plaintiff's options to unilaterally abandon a lawsuit. Federal Rule of Civil Procedure 41(a)(1)(i) and its various state law counterparts permit, under certain circumstances, a plaintiff to voluntarily dismiss her lawsuit without prejudice. This paper's options approach to litigation, including quite possibly, frivolous litigation is placed in the context of the literature of economic models about litigation in general and frivolous litigation in particular. This paper demonstrates that possibly frivolous lawsuits will be filed and settled when the values of a plaintiff's options to unilaterally abandon litigation exceed the costs of purchasing those litigation-abandonment options by continuing the litigation. This paper also addresses some of the limitations of an abandonment options game-theoretic model of litigation. In particular, there is reason to believe that people have cognitive limitations in their abilities to reason backwards in sequential interactions. Empirical and experimental evidence also exists that indicates that emotions affect how people make decisions. Finally, recent psychological experiments indicate that decision makers often overvalue options and over-invest in keeping options alive, even if those options present little intrinsic value. This paper briefly explains how and why many laws and judicial doctrines effectively preclude specific legal options. Appendix A provides an accessible, non-technical, self-contained, and user-friendly primer about options for those unfamiliar with options. Appendix B contains a formal, mathematical game-theoretic analysis of a plaintiff's options to unilaterally abandon a lawsuit.

Civil procedure, litigation, game-theoretic model, real options

Abstract:
The ability of individuals to choose the genes of their children has increased over time and may ultimately culminate in a world involving free market reprogenetic technologies. Reprogenetic technologies combine advances in reproductive biology and genetics to provide humans increased control over their children's genes. This paper offers economic perspectives that are helpful to understanding some of the perhaps unexpected ethical, legal, and social issues at stake in using reprogenetic technologies for trait enhancement selection. In particular, this paper analyzes two possible competitive games that might arise in such a biotechnological society. The paper focuses on herd behavior in the choice of genetic traits due to either a massive popularity contest or positional competition. The formal analytical game theoretic models can have several equilibrium outcomes in terms of individual reprogenetic technological choices and corresponding rational beliefs about what others will choose to do. This multiplicity of possible social outcomes suggests that a society can attain efficiency if the state or some private organization transforms individual parents' beliefs over the choices of other parents regarding children's traits and thus coordinates parental reprogenetic decisions by selecting as being focal certain beliefs over parents' reprogenetic decisions. A final section discusses other concerns with a world of designer genes and suggests novel implications about designer genes based on the analogy of genetic engineering to financial engineering.

Abstract:
Much employment discrimination law is premised on a purely money-focused “reasonable” employee, the sort who can be made whole with damages equal to lost wages, and who does not hesitate to challenge workplace discrimination. This type of “rational” actor populated older economic models but has been since modified by behavioral economics and research on happiness. Behavioral and traditional economists alike have analyzed broad employment policies, such as the wisdom of discrimination statutes, but the devil is in the details of employment law, and on critical damages-and-liability issues the Supreme Court and litigators face regularly, the law essentially ignores the lessons of behavioral economics and the affective sciences. This Article analyzes particularly damages, employer duties, and employee duties. This Article also analyzes broad implications of behavioral and happiness research for law and economics. This Article thus offers a half-full/half-empty assessment of the usefulness of economics, and of behavioral and happiness research, to law. It sounds a cautionary note against using social science to assess grand legal policies, but a hopeful note that such research can improve decision-making by judges, firms, and individuals.

behavioral economics, positive psychology, happiness, damages, remedies, affirmative defenses, discrimination, harassment, diversity, employment, Faragher, Ellerth, Kolstad

Abstract:
This Article advocates that securities regulators promulgate rules based upon taking into consideration their impacts upon investors' and others' affect, happiness, and trust. Examples of these impacts are consumer optimism, financial stress, anxiety over how thoroughly securities regulators deliberate over proposed rules, investor confidence in securities disclosures, market exuberance, social moods, and subjective well-being. These variables affect and are affected by traditional financial variables, such as consumer debt, expenditures, and wealth; corporate investment; initial public offerings; and securities market demand, liquidity, prices, supply, and volume. This Article proposes that securities regulators can and should evaluate rules based upon measures of affect, happiness, and trust in addition to standard observable financial variables. This Article concludes that the organic statutes of the United States Securities and Exchange Commission are indeterminate despite mandating that federal securities laws consider efficiency among other goals. This Article illustrates analysis of affective impacts of these financial regulatory policies: mandatory securities disclosures; gun-jumping rules for publicly registered offerings; financial education or literacy campaigns; statutory or judicial default rules and menus; and continual reassessment and revision of rules. These regulatory policies impact and are impacted by investors' and other people's affect, happiness, and trust. Thus, securities regulators can and should evaluate such affective impacts to design effective legal policy.

affect, happiness, trust, securities regulation, subjective well-being

Abstract:
This Article analyzes three questions: can, how, and should legal policy help people in their individual quests for authentic happiness. This Article adopts psychologist Martin Seligman's definition of the phrase authentic happiness. This Article provides an introduction to examples of legal policies based upon empirical and experimental research in positive psychology, measures of subjective well-being, and quality of life studies.

authentic happiness, positive psychology, subjective well-being, signature strengths, self-concordance, legal policy

Abstract:
This Article critically analyzes the judicial decisions and reasoning of the United States Supreme Court and lower courts accepting certain defenses in securities fraud litigation. This Article develops how and why the core notions of materiality of information and the reasonable investor should be revised in light of recent empirical data, experimental evidence, and theoretical models of moody investing. This Article proposes modifying three recent developments in materiality doctrine to take into account moody investing. In particular, this Article argues that current judicial treatment of puffery is flawed because it neglects the power of puffery to alter moods. This Article also recommends modifying the judicial total mix analysis of the materiality of information to include a total affect analysis of information. Finally, this Article proposes refining the judicially created so-called bespeaks caution doctrine and statutory safe harbors codifying it to inquire whether so-called meaningful cautionary language is infused with affect.

Moody Investing, Materiality, Reasonable Investor, Securities Regulation, Puffery, Total Mix of Information, Bespeaks Caution Doctrine

Abstract:
This is a chapter from this book, Law & Popular Culture: Text, Notes, & Questions, by David Ray Papke, Christine Alice Corcos, Melissa Cole Essig, Peter H. Huang, Lenora P. Ledwon, Diane H. Mazur, Carrie Menkel-Meadow, Philip N. Meyer, & Binny Miller (2007). This book is a classroom text which analyzes American law-related popular culture. This chapter starts with a list of these five movies related to business law: Boiler Room (2000), Enron - The Smartest Guys in the Room (2005), Other People's Money (1991), The Corporation (2003), and Wall Street (1987). This chapter discusses a number of topical subjects and contains various notes and questions, in addition to excerpts from articles by leading law (and popular culture) scholars. The remaining chapters of the book focus on popular cultural depictions of these legal actors and institutions: law students, lawyers, clients, witnesses, judges, and juries; these first-year law school curriculum areas: Constitutional law, criminal law, and torts; as well as these upper-level law school electives: family law, international law, and military law.

Business Law, Popular Culture, Securities Regulation, Corporate Governance, Corporate Finance, Derivatives, Commensurability

Abstract:
This chapter makes three fundamental points about law and economics. First, although some people feel strong, negative emotional reactions to utilizing microeconomics to analyze non-business areas of law, others feel no such emotional reactions. This chapter advances the hypothesis that people who do not view the world exclusively through an economics lens are likely to experience negative feelings toward applying microeconomics to non-business law areas, while people who view the world primarily through an economics lens are unlikely to experience such emotional reactions. Second, although law and economics remains an uncontroversial subfield of applied microeconomics; it has become a dominant, yet still controversial field of scholarship in legal academia. This chapter proposes that differences in how most academic and professional economists perceive law and economics versus how most academic and professional lawyers perceive law and economics are due primarily to differences in how familiar they are with microeconomics presented in a mathematically rigorous fashion. Third, much research considerably and significantly qualifies many well-known and often quoted alleged benefits of competitive markets and unbounded rationality. People who are familiar with this research appreciate that the extent to which markets and rationality are socially desirable is more complicated than people do not understand this research suggest. This research involves not only traditional microeconomics, but also behavioral economics, cognitive psychology, social psychology, and neuroeconomics.

emotions, cultural cognition, law & economics, markets, rationality

Abstract:
The happiness revolution is coming to legal scholarship. Based on empirical data about the how and why of positive emotions, legal scholars are beginning to suggest reforms to legal institutions. In this article we aim to redirect and slow down this revolution.

One of their first targets of these legal hedonists is the jury system for tort damages. In several recent articles, scholars have concluded that early findings about hedonic adaptation and affective forecasting undermine tort awards for pain and suffering, mental anguish, loss of enjoyment of life, and other non-economic damages. In the shadow of a broader debate about the propriety of indefinite damages, the legal hedonists argue that these findings provide new support for the argument that jurors cannot award indefinite damages rationally or consistently. The legal hedonists argue that, on the one hand, awards for non-economic tort damages are inappropriate, because individuals will adapt to any negative emotional or physical state. On the other hand, they argue that jurors are incapable of granting these damages, because they systematically predict inaccurately the impact of injuries upon tort victims.

We conclude that these legal hedonists understate the flexibility of the law and overstate dated empirical research on which their arguments are based. First, the law is more nuanced than these legal hedonists care to admit. To the extent it is appropriate, the law allows jurors to take account of adaptation, and more importantly, the law provides compensation for far more than just emotional changes. It compensates for loss of capabilities, loss of emotional and experiential variety, and lost options. Second, recent studies document the incompleteness and variability of hedonic adaptation. This reinforces our concerns about basing legal policy on hedonic adaptation and our belief that judges and juries, acting in combination, appropriately individuate tort awards. That said, we conclude that expert testimony may help jurors craft awards by providing information about hedonic and non-hedonic losses.

Happiness, Affective Forecasting, Emotional Harms, Hedonic Adaptation, Juries, Non-pecuniary Damages, Torts

Abstract:
In this Article, we suggest that litigation can be analyzed as though it is a competitive research and development project. Developing this analogy, we present a two-stage real option model of the litigation process that involves sequential information revelation and bargaining over the surplus generated by early settlement. Litigants are risk-neutral and have no private information. The model generates results that, we believe, have analytic and normative significance for the economic analysis of litigation.

From an analytic perspective, we demonstrate that negative expected value (NEV) lawsuits are analogous to out of the money call options held by plaintiffs and that every NEV lawsuit is credible if the variance of the information revealed during the course of the litigation is sufficiently large. This finding helps explain the prevalence of a class of lawsuits that has proved puzzling to traditional, expected value-based modes of litigation analysis. The model also suggests that risk-neutral defendants can act as though they are risk-averse and that risk-neutral plaintiffs can act as though they are risk-seeking because increases in variance can increase a lawsuit's settlement option value just as it increases a call option's value without regard to the holder's degree of risk aversion. Models that presume defendants' relative risk aversion may therefore rely on an unnecessary assumption. Our model also suggests that a lawsuit's option settlement value is not a monotonically increasing function of the variance of the information revealed during the litigation. In particular, at low levels of variance a lawsuit's option settlement value may equal its traditional expected value, but as variance increases its option settlement value can display a discontinuity after which its option settlement value becomes a monotonically increasing function of variance. NEV lawsuits can also display "dead zones" - regions of variance over which the claim is not credible even though it is credible over higher or lower levels of variance. Comparative statics analysis also quantifies the extent to which a lawsuit's settlement value increases as plaintiff's litigation expenses occur later in the litigation process, as the ratio of defendant-to-plaintiff litigation expense increases and as plaintiff bargaining power increases.

From a normative perspective, we offer an "impossibility conjecture" suggesting that the mere presence of an irreducible degree of uncertainty endemic to the litigation process can be sufficient to prevent private litigation incentives from equating to socially optimal incentives, even if one adopts all other assumptions necessary to equate private and social incentives. It follows that it may be impossible to articulate normative principles of law through substantive standards that ignore the uncertainty inherent in the litigation process and the procedural environment in which the litigation occurs.

Litigation

Abstract:
This is an entry from a forthcoming book, The Encyclopedia of Positive Psychology, edited by Shane J. Lopez (forthcoming). This volume has as its target audience high school and college library users in addition to consumers, primarily corporate and government professionals, who are educated but desire more information concerning the many topics that are covered. The encyclopedia is also intended as a resource for budding positive psychologists. This encyclopedia will contain more than 250 separate entries from all areas related to positive psychology. This entry provides an overview of the area of positive law & policy.

positive psychology, subjective well-being, legal policy

Abstract:
John Bronsteen, Christopher Buccafusco, and Jonathan Masur argue in Hedonic Adaptation and the Settlement of Civil Lawsuits, 108 Columbia Law Review 1516 (2008) that prolonged litigation allows tort victims to adapt emotionally to even permanent injuries, and hence those lawsuits are more likely to settle and for less than if litigation took less time. This Response demonstrates that such a claim is a facile application of the hedonic adaptation literature with the following three points. First, people care about a lot more than just happiness and unhappiness. Emotions in tort litigation can be cultural evaluations. Tort victims may sue to pursue identity, justice, meaning, or vengeance. In fact, if plaintiffs fear losing litigation options, they are less likely to settle and for more than if their lawsuits proceeded faster. Second, longitudinal and more recent data finds that hedonic adaptation can be very slow and remain incomplete after many years. Third, fostering emotional adaptation via lengthy tort litigation raises a host of ethical issues and normative concerns.

emotional adaptation, happiness, litigation, settlement, cultural cognition, meaning, identity, justice, ethics, vengeance

Abstract:
This is a chapter from a forthcoming book, The 2d edition of the Handbook of Positive Psychology, edited by Shane J. Lopez (forthcoming). This Handbook provides a guide to a burgeoning literature of positive psychology about human strengths and virtues. This Handbook has as its target audience both seasoned professionals and students just entering the field of positive psychology. This 2d edition of the Handbook continues the tradition of the 1st edition to collect in one volume the voice of leading scholars in the emerging field of positive psychology. This chapter provides an overview of the area of positive institutions, law, & policy.

Abstract:
This paper considers how emotions can foster compliance by rational actors with international environmental law. Many environmental issues are highly emotionally charged. Both supporters of and opponents to international environmental law often feel very strongly about their positions and views. A psychological game-theoretic model focuses on the disciplinary role that losing face may play in compliance with international environmental law. This model implies that non-compliance, especially by high-profile international actors, should be highly and swiftly publicized upon detection and verification. The model also explains why actors care so much about soft, that is, non-binding international environmental law, such as international environmental declarations, protocols, or resolutions.

international environmental law, compliance, losing face, psychological games

Abstract:
This article applies psychological game theory to study ther maintenance of social order. It models the control of corruption in principal-supervisor-agent relationships. The models possess multiple equilibria, which correspond to certain social norms and organizational cultures or their absence. The models demonstrate how expectations concerning the likeklihood of corrupt behavior can influence decisions to engage in such behavior via the magnitude of endogenous remorse on the part of the actor.

Abstract:
This Article provides five distinct contributions to the literature about federal civil rights litigation. First, the Article applies a new and very general technique of real options analysis to federal civil rights litigation. A real options approach to litigation recognizes that litigation contains a series of continuation options. Second, the Article demonstrates that a real options theory of federal civil rights litigation provides insights different from traditional views on the incentives of plaintiffs' attorneys to accept cases. Third, the Article derives an options-based risk multiplier that lies in between the current Supreme Court position of no risk multiplier and the traditional risk multiplier equal to the reciprocal of the initial probability of the plaintiff winning at trial. Fourth, the Article makes use of a real options perspective to investigate plaintiffs' attorneys incentives to settle lawsuits. Finally, the paper utilizes a real options theory of federal civil rights litigation to suggest reforming the statutory law or judicial doctrine of risk multipliers to compensate plaintiffs' attorneys for the risk of not getting paid if they lose.

Abstract:
This paper suggests that litigation can be profitably modeled as a compound real option with two potential "payoff vectors": a payoff that reflects potential recovery on the merits of a claim and a payoff that reflects defendants' willingness to avoid future litigation costs. Plaintiffs engage in staged investments that can be abandoned at any point, but that require them to incur litigation costs at each stage of the process. Plaintiffs' litigation expenditures impose litigation costs on defendants and simultaneously generate new information about the magnitude of potential verdicts and the magnitude of potential plaintiff and defendant litigation costs. Settlements then reflect the likely outcome on the "merits" (i.e., the verdict), as well as defendants' avoided litigation costs and plaintiffs' prosecution costs. This paper demonstrates that a recent model by Bebchuk is a special case of a compound real option model in which probability distributions are degenerate. The universe of negative expected value lawsuits that can be credibly brought by plaintiffs may be materially larger than Bebchuk suggests, and the size of likely settlements greater. The paper also demonstrates that litigation can be classified into one of three broad categories reflecting the extent to which lawsuits are "meritorious," "vexatious," and/or "exploratory." This taxonomy contributes precision to the current litigation reform debate. It also supports distinctions that differ from traditional characterizations of litigation as "frivolous" or as involving "fishing expeditions." The paper further derives a set of comparative statics results illustrating, among other things, the effect of changed volatility in plaintiffs' and defendants' litigation expenditures. The analysis also suggests a family of cost-shifting rules that are different from the British or American Rules. Under one implementation of the proposed "Stanford Rules," plaintiffs would be taxed for an amount that is a function of the excess, if any, of defendants' reasonable litigation costs over plaintiffs' litigation costs. This payment could be made contingent on the outcome of the lawsuit and could also be made payable to the registry of the court. We demonstrate that this rule has characteristics that may make it preferable to either the British or American Rules.