Reinforcing Law and Economics: Behavioral Support for the Predictions of Standard Economic Analysis
33 Pages Posted: 20 Apr 2018 Last revised: 1 May 2018
Date Written: April 20, 2018
Economic analysis has had a powerful influence on legal theory and policymaking. Based on the premise that people are rational maximizers of their own utility, economic analysis has a fairly successful record in correctly predicting human behavior in all spheres of life. This success is puzzling, given behavioral findings that show that people do not necessarily seek to maximize their own utility. Drawing on studies of motivated reasoning and self-serving biases, including recent advances in behavioral ethics, this article offers a new behavioral foundation for the predictions of economic analysis. The behavioral studies reveal how automatic and mostly unconscious processes lead well-intentioned people to make self-serving decisions (even when this entails violating moral, social, or legal norms). Thus, the behavioral studies support many of the predictions of standard economic analysis, without committing to an overly simplistic and cynical portrayal of human motivation. The article reviews the relevant psychological findings, explains how they provide a complementary, sounder foundation for much of economic analysis, and discusses their implications for legal policymaking.
Keywords: agency problem, positive economics, normative economics, behavioral law and economics, bounded ethicality, behavioral ethics, motivational rationality, self-serving biases, motivated reasoning
JEL Classification: A13, D00, D03, D64, K00
Suggested Citation: Suggested Citation