Thinking Fast and Slow About the Concept of Materiality
15 Pages Posted: 10 May 2018 Last revised: 15 May 2018
Date Written: April 24, 2018
Determining whether, for securities law purposes, a misrepresentation or omission is material raises interesting questions. The Court of Appeals in SEC v. Texas Gulf Sulfur Co. provided some guidance on materiality and the U.S. Supreme Court has weighed in several times in the past 50 years. This article first discusses what Texas Gulf Sulfur contributed to the doctrine of materiality, then briefly considers other dimensions of the doctrine, and finally moves to its thesis: The doctrine of materiality should take into account important psychological insights and heuristics that may affect the way that a fact finder decides whether a misrepresentation or omission is material. In that regard, this article draws heavily on the work of a Nobel Prize winning psychologist, Daniel Kahneman, and his influential book, Thinking, Fast and Slow.
Keywords: materiality, securities fraud, heuristics
JEL Classification: K22
Suggested Citation: Suggested Citation