Download this Paper Open PDF in Browser

Rational Ignorance, Rational Closed-Mindedness, and Modern Economic Formalism in Contract Law

37 Pages Posted: 25 Feb 2009 Last revised: 3 Nov 2009

Shawn Bayern

Florida State University - College of Law

Date Written: July 1, 2009

Abstract

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.

Keywords: contracts, interpretation, formalism, rational ignorance, law and economics

JEL Classification: K12

Suggested Citation

Bayern, Shawn, Rational Ignorance, Rational Closed-Mindedness, and Modern Economic Formalism in Contract 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. Available at SSRN: https://ssrn.com/abstract=1349365

Shawn J. Bayern (Contact Author)

Florida State University - College of Law

425 W. Jefferson Street
Tallahassee, FL 32306
United States

Paper statistics

Downloads
592
Rank
36,637
Abstract Views
1,782