Refounding Law and Economics: Behavioral Support for the Predictions of Standard Economic Analysis
Review of Law and Economics, Forthcoming
36 Pages Posted: 27 Aug 2019 Last revised: 24 Sep 2019
Date Written: August 26, 2019
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. 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, self-serving biases, and 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. Thus, the behavioral studies support many of the predictions of standard economic analysis, without committing to a simplistic portrayal of human motivation. The article reviews the psychological findings, explains how they provide a sounder, complementary foundation for 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