Behaviorism in Finance and Securities Law

26 Pages Posted: 1 Aug 2013 Last revised: 25 Feb 2015

See all articles by David A. Skeel

David A. Skeel

University of Pennsylvania Law School; European Corporate Governance Institute (ECGI)

Date Written: 2014


In this Essay, I take stock (as something of an outsider) of the behavioral economics movement, focusing in particular on its interaction with traditional cost-benefit analysis and its implications for agency structure. The usual strategy for such a project — a strategy that has been used by others with behavioral economics — is to marshal the existing evidence and critically assess its significance. My approach in this Essay is somewhat different. Although I describe behavioral economics and summarize the strongest criticisms of its use, the heart of the Essay is inductive, and focuses on a particular context: financial and securities regulation, as recently revamped by the Dodd-Frank Act and subsequent rule making. To lay the foundation for the Essay, I begin by briefly describing behavioral economics and by surveying the most significant critiques of its use. I then consider how behavioral economics has informed, or might inform, the work of the Consumer Financial Protection Bureau; SEC rulemaking on proxy access; and the efforts of the new financial legislation to ban bailouts. I suggest, among other things, that behavioralism’s implications are quite different for rules and rulemaking than for questions of regulatory structure.

Keywords: Cost-benefit analysis, CBA, administrative agency structure, risk, Kahneman, Nudge, financial crisis, Dodd-Frank Act, Consumer Financial Protection Bureau, Securities Exchange Commission, SEC, proxy access, Federal Reserve emergency powers, bailouts, Financial Stability Oversight Council, FSOC

JEL Classification: D03, H81, K22

Suggested Citation

Skeel, David A., Behaviorism in Finance and Securities Law (2014). Supreme Court Economic Review, Vol. 21, P. 77, U of Penn, Inst for Law & Econ Research Paper No. 13-25, Available at SSRN: or

David A. Skeel (Contact Author)

University of Pennsylvania Law School ( email )

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European Corporate Governance Institute (ECGI)

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