The Evolutionary Force of Behavioral Economics in Law
University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. 923
20 Pages Posted: 28 Jun 2021
Date Written: June 21, 2021
Many of the behavioral insights in economics arise out of experiments or examples in which the conventional claims of economics, and rational choice quite generally, are contradicted by observed results. The conventional view – that people and firms maximize utility and profit, and often do so rather cleverly, even accounting for various feedback effects and thinking about marginal costs and benefits – is rationalist, marginalist, or incentive-based (the expression I will usually use in this Article). In contrast, behavioral economics tries to find patterns in the observations that do not match the conventional approach advanced by economists. There are more than twenty widely-recognized categories or behavioralist theories of this kind. By now, every economics – and even law – student knows to look for endowment effects as much as she looks for profit maximization. Theories like utility maximization remain at center stage, but papers that demonstrate a failure to conform to this long-serving king-of-the-mountain get more attention than those that contradict the belief in endowment effects or other behavioral standbys. The two approaches are in every social scientist and legal academic’s bag of tools. Both behavioral insights and rationality calculations are modestly predictive, but a good deal of modern academic work is conducted as if the two approaches are in competition. The argument and the many examples presented in this Article suggest that joint work, motivated by behavioral as well as incentive-based thinking, is a better perspective than is the instinct to look for a winner and a loser in a competition between the two approaches.
Keywords: behavioral; evolution; N-of-1; endowment effect
Suggested Citation: Suggested Citation