Possibility and Plausibility in Law and Economics

Abstract:     
The general acceptance won by the behavioral law-and-economics approach to legal analysis raises an important methodological question for law-and-economics scholars. For purposes of deriving policy recommendations, how should the researcher determine whether to assume strict rational choice (RCT) behavior or something more consistent with the behavioral decision theory (BDT) literature, such as bounded rationality or susceptibility to cognitive biases? Although most scholars now are willing to assume that strict rationality is not ubiquitous in the world and not even always the most useful behavioral assumption for purposes of crafting legal scholarship, this does not suggest that the opposite is true. That is, it is almost certainly the case that in many law-relevant situations, many actors evaluate information in a relatively unbiased way, make decisions that maximize their expected utility given available information, and implicitly measure utility in terms of their selfish interest.

In a submission to the Florida State University Law Review's symposium issue on Behavioral Analysis of Law, Professor Jonathan Klick, responding to my previously published work on the subject of standard form contracts, implicitly provides two answers to this methodological question. The first response, can be paraphrased as follows: the scientific method should be used to determine whether an RCT-based or BDT-based assumption is empirically accurate in the law-relevant circumstances under consideration. The second response is that, until proven otherwise, researchers should presume that citizens act in accordance with RCT.

In this rejoinder to Klick, I argue that the first response is unobjectionable but often not helpful for the purposes of legal scholarship, and that the second response should be rejected. Instead, I will argue that the choice between using an RCT-based behavioral assumption and a BDT-based behavioral assumption in law-and-economics analysis should turn on the relative plausibility of competing accounts in light of existing knowledge, which is often incomplete and indeterminate.

Keywords: Behavioral Law and Economics, Bounded Rationality, Rational Choice Theory, Standard Form Contracts

Accepted Paper Series