The Limits of Behavioral Economics in Tort Law

Abstract

Skeptics of rational choice theory have long predicted that behavioral economics would radically transform the legislation, adjudication, and analysis of law. Using tort law as an exemplar, this Article maps out the narrow set of conditions where substantive law can be modified to accommodate irrational decision-makers. Specifically, this Article demonstrates that if injurers are systematically biased, and the due care standard can be expressed quantitatively, and victims are unable to take meaningful precautions, then imposing punitive damages can induce irrational injurers to exercise efficient precautionary care. In all other cases, it is better that the law adopt a presumption of rationality, regardless whether individuals behave rationally in fact.

Keywords: behavioral law and economics, irrationality, tort law

JEL Classification: D03, K13