When the Claim Hits: Bilateral Investment Treaties and Bounded Rational Learning

Abstract

Using the international investment regime as its point of departure, the paper introduces notions of bounded rationality to the study of economic diplomacy. Through a multi-method approach, it shows that developing countries often ignored the risks of bilateral investment treaties (BITs) until they themselves became subject to an investment treaty claim. Thus the behavior of developing country governments with regard to the international investment regime is consistent with that observed for individuals in experiments and field studies: they tend to ignore high-impact, low-probability risks if they cannot bring specific ‘vivid’ instances to mind.

Keywords: bounded rationality, international political economy, international economic law, bilateral investment treaties

JEL Classification: D03, F00, F02, F13, F20, F21, F23, F51, F53, F55, K33