Rational Ignorance, Rational Closed-Mindedness, and Modern Economic Formalism in Contract Law
Florida State University - College of Law
July 1, 2009
California Law Review, Vol. 97, p. 943, 2009
FSU College of Law, Public Law Research Paper No. 345
FSU College of Law, Law, Business & Economics Paper No. 09-04
This article identifies modern economic formalism in contract law as little more than an incorrect argument for rational ignorance in courts. Distinct from other varieties of contract formalism, modern economic formalism rests on the notion that information beyond the text of contracts is a valuable interpretive aid -- but not valuable enough to justify its costs, at least for rational, risk-neutral parties.
In this article, I challenge the leading argument for this kind of formalism, made by Alan Schwartz and Bob Scott. Most fundamentally, Schwartz and Scott's noted argument conflates probability with uncertainty, and as a result is fundamentally circular. Their argument also draws untenable distinctions between gap-filling and interpretation, and it fails to recognize that under the strong assumptions it adopts, contracting parties would be unlikely to litigate disputes in the first place.
Number of Pages in PDF File: 37
Keywords: contracts, interpretation, formalism, rational ignorance, law and economics
JEL Classification: K12
Date posted: February 25, 2009 ; Last revised: November 3, 2009