The Placebo Effect of Law: Law's Role in Manipulating Perceptions

Abstract:     
Much of legal scholarship, and in particular Law and Economics, evaluates law and predicts its effects based on an analysis of law's manipulation of individuals' incentives. Although manipulating incentives certainly explains some of law's impact on behavior (e.g., increasing airport security may deter some airplane hijackers), law has an equally important impact on behavior by manipulating perceptions (e.g., causing the public to believe that the risk of airplane hijacking has diminished as a result of the law that increased airport security).

Thus, like the placebo effect of medicine, a law may impact social welfare beyond its objective effects by manipulating the public's subjective perception of the law's effectiveness. Failure to consider this largely ignored legal placebo effect may cause significant overstatement or understatement of a law's benefits.

By shedding light on laws' effects on perceptions, this Article reveals forces that shape the creation of law. Legal placebo effects are a method by which politicians extract private benefits from the identification and mitigation of gaps between real and perceived risks. Some private entities compete with lawmakers through extra-legal methods. This competition affects laws' subject matter and the manner in which laws are presented to the public.

Keywords: cognitive bias, behavioral law & economics, risk

JEL Classifications: D72, H11, H49, K22, K23, P16

Accepted Paper Series