Limits of Personalization of Default Rules – Towards a Normative Theory

Abstract

Some scholars today praise a “personalization of the law” due to new technological possibilities such as algorithmic analysis of Big Data. Especially default rules seem to be particularly apt for personalization, because they are – at first glance – supposed to mirror what the parties would have wanted. This article aims to unveil the limits of preference-based personalization of default rules.

In the first part, I attack default rule personalization on theoretical grounds. I analyze the theoretical underpinnings of default rule personalization, which I describe as “empirical subjectivism,” and I challenge this position with arguments from classical and behavioral law and economics. I thereby develop a different explanatory model: “normative objectivism.” The arguments presented also provide new insights of default rule analysis which are valid well beyond the personalization debate. The “default rule paradox,” “pushing and pulling default rules,” and default rules as “property rules” and as “rules of civility” are some examples.

In the second part, I attack default rule personalization on constitutional grounds with particular focus on the United States and Germany. So far, neither default rules nor personalization have received a detailed analysis based on constitutional principles. My article provides this analysis with regard to the principles of freedom and equality. I show how personalization limits freedom in the private and public sphere, because the so-called choice- or agency-dimension of freedom will be significantly limited. In broader terms, the paternalistic tendencies of personalization will trigger a shift from “entrepreneur” and “citizen” to “consumer.” Economically, this shift will be accompanied by a shift from capitalism to what I call “micro-socialism.” With regard to the principle of equality, I analyze how personalization leads to inequality by distinguishing “intra-preference-classifications” and “inter-preference-classifications.” I then present justification problems, especially in the domain of strict and intermediate scrutiny, of preference-based personalization. Finally, I sketch out how personalization would dissolve the essence of the principle of equality and thereby trigger a shift “from contract to contact” or “from association to accumulation,” which is no less important than the older shift “from status to contract” or “from community to association.” Again, those shifts reflect – in economic terms – the advent of “micro-socialism.”

A brief conclusion will point to some potentials of personalization, for instance with regard to information disclosure. In sum, the article combines different discourses around default rules, personalization, and constitutional law, and thereby provides new insights in each of them.

Keywords: Personalization, Personalized Law, Default Rules, Micro-Socialism, Big Data, Equality, Freedom, Agency, Law and Economics, Behavioral Law and Economics

JEL Classification: K12, P11, P21, P37, P48