Beyond Liability: Correcting Optimism Bias Through Tort Law

Abstract

Due to their unrealistic optimism, people believe that risks are less likely to materialize for themselves than for others and hence inadequately react to legal threats and incentives such as tort liability. Optimism bias creates a distinctive problem in the design of tort rules, since it leads parties to assume excessive risks, in spite of the threat of liability, even when parties are provided accurate information about statistical facts. In this paper, we consider the opportunity to insulate the effects of optimism bias by exempting the parties from the liability due to optimism errors.

Keywords: Unrealistic Optimism, Debiasing, Tort Remedies, Exemption of Liability

JEL Classification: K13, K43, D03, D81