Are Courts Biased? The Anchoring Heuristic and Judicial Decisions in Personal Bankruptcy Proceedings

30 Pages Posted: 29 May 2020

See all articles by Yevgeny Mugerman

Yevgeny Mugerman

Bar Ilan University

Neta Nadiv

Reichman University - Interdisciplinary Center (IDC) Herzliyah - Harry Radziner School of Law

Moran Ofir

Reichman University (IDC Herzliya); London School of Economics - Law School

Date Written: May 1, 2020

Abstract

This research examines the seminal heuristic of anchoring and adjustment and its effects on personal bankruptcy proceedings. Using a unique and detailed database of bankruptcy files we analyze the effect of the official receiver’s recommendation on court decisions. The official receiver in bankruptcy proceedings is appointed by a judicial authority and is required to bring before the court any relevant information needed in order to reach a judicial decision. As part of her responsibilities, the official receiver is required to submit a financial report, which serves as the basis for the court’s proposal for the debtor’s payment plan. This report sets out the main factual infrastructure for determining the payment order under bankruptcy proceedings and should include information relevant to the court's discretion. The richness of the data allows us to investigate the impact of the receiver’s recommendation on court final decisions. We find that overall, the receiver’s recommendation serves as an anchor to the judges, and, moreover, that deviations from this recommendation by the court are extremely rare. Notably, this outcome differs dramatically from that of corporate proceedings. Since personal bankruptcy proceedings do not allow for substantive oversight, which examines the plausibility of the actions or recommendations that the receiver seeks, there is no pure rational explanation for this finding.

Keywords: Bankruptcy, Anchoring, Judicial Decisions, Behavioral Finance

JEL Classification: K35, K41, G40, G51

Suggested Citation

Mugerman, Yevgeny and Nadiv, Neta and Ofir, Moran, Are Courts Biased? The Anchoring Heuristic and Judicial Decisions in Personal Bankruptcy Proceedings (May 1, 2020). Available at SSRN: https://ssrn.com/abstract=3590544 or http://dx.doi.org/10.2139/ssrn.3590544

Yevgeny Mugerman

Bar Ilan University ( email )

Ramat Gan
5290002
Israel

Neta Nadiv

Reichman University - Interdisciplinary Center (IDC) Herzliyah - Harry Radziner School of Law ( email )

P.O. Box 167
Herzliya, 46150
Israel

Moran Ofir (Contact Author)

Reichman University (IDC Herzliya) ( email )

P.O. Box 167
Herzliya, 4610101
Israel

London School of Economics - Law School ( email )

Houghton Street
London WC2A 2AE, WC2A 2AE
United Kingdom

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