Category: Behavioral Law and Economics


Data, A/B Testing, and Sales

A company called Adore Me that was founded in 2010 now has sales ($5.6 million) to rival La Perla has done well in part because they use data and A/B testing. Rather than rely on the intuition of photographers and designers, the company takes versions of an offering and shows them to consumers to see what works. Here are the surprising claims. Blonds don’t sell well. A picture of a model with her hand on her hip will sell less than if she places her hand on her head. According to Fast Company:

Through its research, Adore Me has found that the right model matters even more than price. If customers see a lacy pushup on a model they like, they’ll buy it. Put the same thing on a model they don’t, and even a $10 price cut won’t compel them. Pose matters as well: the same product shot on the same model in a different posture can nudge sales a few percentage points in either direction. Another test found that a popular model can sell a more expensive version of the same garment.

Adore Me also has a plus sized model (although I am sure that others can tell me best whether the company’s definition of size 12 and above is a good one) and presumably will see whether folks may buy more lingerie from someone with a body other than a Barbie-esque one. Of course they may find that the image machine controls how we shop, but I am curious to see whwther they will find ways to challenge and tweak what resonates with consumers. Now that may be unlikely as the author of the article, Rebecca Greenfield, wrote “Scrolling through the site, the models could all be related—long legs, olive skin, dark hair, insanely hot.” Yet when it came to race, the article suggests that pose, styling, and the emotional connection with the photo mattered more than race for selling a given item.

As with all data, the practice raises some difficult questions. Seeing how people behave can help sell. Assuming that one’s offering does not influence how people behave is a mistake. The ethics of what one does with data about buying habits and current preferences is a topic for another post and many papers are being written on the topic. For now, be aware of the practices. For Facebook thought it was cool to run thousands, if not hundreds of thousands, of tests on users. As Ian Ayres noted, people can use Google Ads to see what titles work best for a book. So maybe we care more about emotional manipulation than the variation in ad content. Maybe we care more about whether we see ads for the same item and same price as others than whether that ad is highlighted in red, blue, or green. Maybe we should know that poses and lighting can influence our desires and buying habits. Although business experiments are not new, how they are done and for what purpose forces us to re-examine practices. Along the way, we will re-visit markets versus manipulation versus power versus nudging versus culture versus shaping as we better see what is happening and then ask why and whether about those outcomes.


Evolving Contract Schemas

A Meeting of the Minds

A Meeting of the Minds?

With co-authors, I’ve been working on a series of experimental papers about contract law that appear to be converging on a theme: what individuals think “contract” means has purchase in the real-world, and that contractual schema is evolving.

A schema is nothing more than a mental model – a framework – to help us organize and process information. A contract schema is the set of background assumptions that we fill in when we think about a legally operative bargain. For those of us who grew up in a largely off-line world, our contract schema involve “doing the paperwork,” “getting it in writing,” and “signing on the dotted line.” (See this article for details). Indeed although most contracts law professors make fun of the metaphor of the meeting of the minds, it captures a real heuristic for a certain segment of society. That so even though form contracts have been part of modern life since the 50s, and almost none of us ever actually negotiate contracts that could end up in court. Indeed, when I started teaching in 2004, students routinely would say “she signed it, she must be bound to it,” even in cases like Specht.  Since this mental model is quite a ways from the reality of online contract, consumers may think they are in contracts when they aren’t, and visa versa.

But what happens when contracts widely explored in pop culture – and presented to you in your formative years – were never signed, never reduced to writing, never negotiated.  The cheerios arbitration debacle, facebook’s demystified terms, your cellphone contract, your cable company’s impossible-to-escape relationship.  What happens when every time you think “contract,” you don’t call up the mental image of a “signature on vellum” but instead “loki on steroids.”  And when companies, realizing this, increasingly pushed “no contract” plans that were actually contracts, just without penalty clauses attached.

Perhaps citizens born after 1980 will have dramatically different attitudes toward contract than those born before. If that’s true, we’ll increasingly find cohort effects in contracting behavior online, as lay intuitions about how to respond to “contract” increasingly turn on the age of the promisee. For those coming of age offline, “click to agree” calls up memories of signature, and consequently infuses bargains with personal honor; for those born digital, “click to agree” means “nothing good is about to happen to me.” Those attitudes toward contract will play out in behavior – in likelihood to breach, to shirk, and to behave opportunistically.

At some point we expect to have direct evidence worth sharing in support of this argument! For now, I thought start discussion by fast forwarding fifteen years, when many judges born in the digital age will have assumed the bench. What changes in contract doctrine follow from changes in contract’s schema? Then again, will there be any contract cases left to decide, or will they all been sucked into arbitration’s black hole?



Economic Dynamics and Economic Justice: Making Law Catastrophic, Middling, or Better?

Contrary to Livermore,’s post,  in my view Driesen’s book is particularly powerful as a window into the  profound absurdity and destructiveness of the neoclassical economic framework, rather than as a middle-ground tweaking some of its techniques.  Driesen’s economic dynamics lens makes a more important contribution than many contemporary legal variations on neoclassical economic themes by shifting some major assumptions, though this book does not explore that altered terrain as far as it might.

At first glance, Driesen’s foregrounding of the “dynamic” question of change over time may, as Livermore suggests, seem to be consistent with the basic premise of neoclassical law and economics:   that incentives matter, and that law should focus ex ante, looking forward at those effects.   A closer look through Driesen’s economic dynamics lens reveals how law and economics tends to instead take a covert ex post view that enshrines some snapshots of the status quo as a neutral baseline.  The focus on “efficiency” – on maximizing an abstract pie of “welfare”  given existing constraints —  constructs the consequences of law as essentially fixed by other people’s private choices, beyond the power and politics of the policy analyst and government, without consideration of how past and present and future rights or wrongs constrain or enable those choices.  In this neoclassical view, the job of law is narrowed to the technical task of measuring some imagined sum of these individual preferences shaped through rational microeconomic bargains that represent a middling stasis of existing values and resources, reached through tough tradeoffs that nonetheless promise to constantly bring us toward that glimmering goal of maximizing overall societal gain (“welfare”) from scarce resources.

Driesen reverses that frame by focusing on complex change over time as the main thing we can know with certainty.  In the economic dynamic vision, “law creates a temporally extended commitment to a better future.” (Driesen p. 52). Read More


Facebook Privacy Dinosaur


I have yet to see it “in the wild,” but media outlets are reporting that Facebook has created a Privacy Dinosaur—a little helper that checks in on users in real-time to help ensure that they understand who will see their update or post.   Whether you think of this as “visceral notice,” a privacy “nudge,” or “obscurity by design,” suffice it to say that this development will be of interest to many a privacy scholar.


‘Cognitive Infiltration': the Dark Side of the Nudge

In their influential book Nudge: Improving Decisions About Health, Wealth, and Happiness, Richard Thaler and Cass Sunstein make the case that the government can and should leverage what it understands about behavioral psychology to “nudge” citizens toward healthier activities and outcomes.  One objection the authors acknowledge is that hacking people’s behavior, while not coercive in the classic sense, is still manipulative.  The authors anticipate this critique and respond by invoking the publicity principle from the work of John Rawls: officials should not nudge people in ways that would raise serious concerns were their methods made public.  “The government should respect the people whom it governs,” write Thaler and Sunstein, “and if adopts policies it could not defend in public, if fails to manifest that respect.”

The publicity principle is not an adequate response to the manipulation critique for a few reasons.  First, the response conflates what is publicly acceptable with what is democratically legitimate.  And second, because it calls for internal deliberation (“could not defend”) rather than actual transparency, the response assumes officials and the public will be on the same page about what methods are objectionable.  This turns out to be a questionable assumption.

I discuss these and other objections to nudging in my recent essay Code, Nudge, or Notice?  What I want to focus on here is the revelation this week that the British government is using psychology to influence and disrupt “hacktivist” and other online communities.  What was particularly astonishing (to me) was that Sunstein advocated for a version of this practice the very year Nudge hit the market.  Specifically, according to reporting by the indomitable Glenn Greenwald, Sunstein co-authored a 2008 memo suggesting the use of “cognitive infiltration” against “anti-government groups.”

I point this out not to demonstrate somehow that Sunstein is a hypocrite.  In addition to being rude and ad hominem, such an allegation finds little support.  I personally have tremendous respect for Sunstein as an intellectual and public servant.  Rather, I offer the example of cognitive infiltration—which, let us be clear, represents the sheep of libertarian paternalism in wolf’s clothing—as a vivid illustration of how a publicity principle falls short.  Some officials in the United States and Great Britain thought it would be just fine to manipulate citizens psychologically in an effort to disrupt inconvenient (if often misguided) ideologies.  Other individuals think the practice is, well, disrespectful.


UCLA Law Review Vol. 61, Issue 3

Volume 61, Issue 3 (February 2014)

How to Feel Like a Woman, or Why Punishment Is a Drag Mary Anne Franks 566
Free: Accounting for the Costs of the Internet’s Most Popular Price Chris Jay Hoofnagle & Jan Whittington 606
The Case for Tailoring Patent Awards Based on Time-to-Market Benjamin N. Roin 672



Here Comes the Sun: How Securities Regulations Cast a Shadow on the Growth of Community Solar in the United States Samantha Booth 760
Restoration Remedies for Remaining Residents David Kane 812





The Dualities of Freedom and Innovation

What a rollercoaster week of incredibly thoughtful reviews of Talent Wants to Be Free! I am deeply grateful to all the participants of the symposium.  In The Age of Mass Mobility: Freedom and Insecurity, Anupam Chander, continuing Frank Pasquale’s and Matt Bodie’s questions about worker freedom and market power, asks whether Talent Wants to Be Free overly celebrates individualism, perhaps at the expense of a shared commitment to collective production, innovation, and equality. Deven Desai in What Sort of Innovation? asks about the kinds of investments and knowledge that are likely to be encouraged through private markets versus. And in Free Labor, Free Organizations,Competition and a Sports Analogy Shubha Ghosh reminds us that to create true freedom in markets we need to look closely at competition policy and antitrust law. These question about freedom/controls; individualism/collectivity; private/public are coming from left and right. And rightly so. These are fundamental tensions in the greater project of human progress and Talent Wants to Be Free strives to shows how certain dualities are pervasive and unresolvable. As Brett suggested, that’s where we need to be in the real world. From an innovation perspective, I describe in the book how “each of us holds competing ideas about the essence of innovation and conflicting views about the drive behind artistic and inventive work. The classic (no doubt romantic) image of invention is that of exogenous shocks, radical breakthroughs, and sweeping discoveries that revolutionize all that was before. The lone inventor is understood to be driven by a thirst for knowledge and a unique capacity to find what no one has seen before. But the solitude in the romantic image of the lone inventor or artist also leads to an image of the insignificance of place, environment, and ties…”.  Chapter 6 ends with the following visual:


Dualities of Innovation:

Individual / Collaborative


Accidental /Deliberate

Global /Local

Passion / Profit





And yet, the book takes on the contrarian title Talent Wants to Be Free! We are at a moment in history in which the pendulum has shifted too far. We have too much, not too little, controls over information, mobility and knowledge. We uncover this imbalance through the combination of a broad range of methodologies: historical, empirical, experimental, comparitive, theoretical, and normative. These are exciting times for innovation research and as I hope to convince the readers of Talent, insights from all disciplines are contributing to these debates.


Individuals & Teams, Carrots & Sticks

I promised Victor Fleisher to return to his reflections on team production. Vic raised the issue of team production and the challenge of monitoring individual performance. In Talent Wants to Be Free I discuss some of these challenges in the connection to my argument that much of what firms try to achieve through restrictive covenants could be achieved through positive incentives:

“Stock options, bonuses, and profit-sharing programs induce loyalty and identification with the company without the negative effects of over-surveillance or over-restriction. Performance-based rewards increase employees’ stake in the company and increase their commitment to the success of the firm. These rewards (and the employee’s personal investment in the firm that is generated by them) can also motivate workers to monitor their co-workers. We now have evidence that companies that use such bonus structures and pay employees stock options outperform comparable companies .”

 But I also warn:

 “[W]hile stock options and bonuses reward hard work, these pay structures also present challenges. Measuring employee performance in innovative settings is a difficult task. One of the risks is that compensation schemes may inadvertently emphasize observable over unobservable outputs. Another risk is that when collaborative efforts are crucial, differential pay based on individual contribution will be counterproductive and impede teamwork, as workers will want to shine individually. Individual compensation incentives might lead employees to hoard information, divert their efforts from the team, and reduce team output. In other words, performance-based pay in some settings risks creating perverse incentives, driving individuals to spend too much time on solo inventions and not enough time collaborating. Even more worrisome is the fear that employees competing for bonus awards will have incentives to actively sabotage one another’s efforts.

A related potential pitfall of providing bonuses for performance and innovative activities is the creation of jealousy and a perception of unfairness among employees. Employees, as all of us do in most aspects of our lives, tend to overestimate their own abilities and efforts. When a select few employees are rewarded unevenly in a large workplace setting, employers risk demoralizing others. Such unintended consequences will vary in corporate and industry cultures across time and place, but they may explain why many companies decide to operate under wage compression structures with relatively narrow variance between their employees’ paychecks. For all of these concerns, the highly innovative software company Atlassian recently replaced individual performance bonuses with higher salaries, an organizational bonus, and stock options, believing that too much of a focus on immediate individual rewards depleted team effort.

Still, despite these risks, for many businesses the carrots of performance-based pay and profit sharing schemes have effectively replaced the sticks of controls. But there is a catch! Cleverly, sticks can be disguised as carrots. The infamous “golden handcuffs”- stock options and deferred compensation with punitive early exit trigger – can operate as de facto restrictive contracts….”

 All this is in line with what Vic is saying about the advantages of organizational forms that encourage longer term attachment. But the fundamental point is that stickiness (or what Vic refers to as soft control) is already quite strong through the firm form itself, along with status quo biases, risk aversion, and search lags. The stickiness has benefits but it also has heavy costs when it is compounded and infused with legal threats.


The Hard Questions about Talent, Market Regulation, and the World of Work

Each in his own sharp and perceptive way, Brett Frischmann, Frank Pasquale and Matthew Bodie present what are probably the hardest questions that the field of human capital law must contemplate. Brett asks about a fuller alternative vision for line drawing between freedom and control. He further asks how we should strike the balance between regulatory responses and private efforts in encouraging more openness. Finally, he raises the inevitable question about the tradeoffs between nuanced, contextual standards (what, as Brett points out, I discuss as the Goldilocks problem) versus rigid absolute rules (a challenge that runs throughout IP debates and more broadly throughout law). Frank and Matt push me on the hardest problems for any politically charged debate: the distributive, including inadvertent and co-optive, effects of my vision. I am incredibly grateful to receive these hard questions even though I am sure I am yet to uncover fully satisfying responses. Brett writes that he wanted more when the book ended and yes, there will be more. For one, Brett wanted to hear more about the commons and talent pools. I have been invited to present a new paper, The New Cognitive Property in the Spring at a conference called Innovation Beyond IP at Yale and my plan is to write more about the many forms of knowledge that need to be nurtured, nourished, and set free in our markets.

Matt describes his forthcoming paper where he demonstrates that “employment” is reliant on our theory and idea of the firm: we have firms to facilitate joint production but we need to complicate our vision of what that joint production, including from a governance perspective, looks like. “Employers are people too” Matt reminds us, as he asks, “Do some of the restrictions we are talking about look less onerous if we think of employers as groups of people?” And my answer is yes, of course there is a lot of room for policy and contractual arrangements that prevent opportunism and protect investment: my arguments have never been of the anarchic flavor “let’s do away with all IP, duties of loyalty, and contractual restrictions”. Rather, as section 2 (chapters 3-8) of Talent Wants to Be Free is entitled we need to Choose Our Battles. The argument is nicely aligned with the way Peter Lee frames it: we have lots of forms of control, we have many tools, including positive tool, to create the right incentives, let us now understand how we’ve gotten out of balance, how we’ve developed an over-control mentality that uses legitimate concerns over initial investment and risks of opportunism and hold-up to allow almost any form of information and exchange to be restricted. So yes: we need certain forms of IP – we have patents, we have copyright, we have trademark. Each one of these bodies of law too needs to be examined in its scope and there is certainly some excess out there but in general: we know where we stand. But what about human capital beyond IP? And what about ownership over IP between employees and employers?

So yes, we need joint inventorship doctrines for sure when two inventors work together. But what about firm-employee doctrines? Do we need work-for-hire and hired-to-invent doctrines? Here we arrive to core questions about the differences between employment versus joint ventures or partnerships between people. And even here, the argument is that we continue to need during employment certain firm protections over ownership. But the reality is that so many highly inventive and developed countries, diverse as Finland, Sweden, Korea, Japan, Germany, and China, all have drawn more careful lines about what can fall under “service inventions” or inventions produced within a corporation. These countries have some requirement for fair compensation of the employee, some stake in inventions, rather than a carte blanche to everything produced within the contours of the firm. The key is a continuous notion of sharing, fairness and boundaries that we’ve lost sight of. Intense line-drawing as Brett would have it that is based on context and evidence, not on an outdated version of the meaning of free markets.

What about non-competes and trade secrets? Again, my argument is that these protections alternate, they should be discussed in relation to one another, and we need to understand their logic, goals, and the cost/benefit of each given that they exist in a spectrum. Non-competes is the harshest restriction: an absolute prohibition post-employment to continue in one’s professional path outside the corporation. This is unnecessary. The empirics are there to support their absolute ban rather than the fine dance that of balancing that is needed with some of the other protections. Sure it makes life momentarily easier for those who want to use non-competes, but over time, not only can we all live without that harsh tool, we will actually benefit from ceding that chemical weapon in the battle over brains and instead employ more conventional arms. And yet, even in California, this insight doesn’t and shouldn’t extend to partnerships. The California policy against non-competes is limited to the employment context. If two people, as in Matt’s hypo, are together forming a business, their joint property rights in that business suggest to us that allowing some form of a covenant not to compete will be justified. There will still be a cost to positive externalities but the difference between the two forms of relationships allow for absolute ban in one and a standard of reasonableness for the other. And yes, as Brett alludes to, the world is not black and white and we will have to tread carefully in our distinctions between employees and partners.

I completely agree with Matt and Frank that there are fundamental injustices created by our entire regime of work law. Talent Wants to Be Free takes those deep structures into account in developing the more immediate and positive vision for better innovation regimes and richer talent pools. Matt writes that a more radical alternative lies within Talent but “deserves more exegesis: namely, whether we should eliminate the concept of employment entirely.” What if people will always be independent contractors?, he asks. The reforms promoted in Talent Wants to Be Free, allowing more employees more control over their human capital, indeed bring these two categories – employees and independent contractors – closer together in some respects. But far more would be needed to shift our work relations to be more “democratic and egalitarian: a post-industrial Jeffersonian economy.” As both Frank and Matt show, in their own scholarship and in their provocative comments here, this will require us to rethink so much of the world we live in.

Frank Pasquale’s review is so rich that I hope he extends and publishes it as a full article. Frank says that “for every normative term that animates [Orly’s] analysis (labor mobility, freedom of contract, innovation, creative or constructive destruction) there is a shadow term (precarity, exploitation, disruption, waste) that goes unexplored.” I would agree that the background rules that define our labor market, at will employment, inequality, class and power relations, are not themselves the target of the book. They do however deeply inform my analysis. To me, the symmetry I draw between job insecurity and the need for job opportunity is not what Frank describes as a “comforting symmetry”. It is a call for the partial correction of an outrageous asymmetry. And yes, as I mentioned at the very beginning of the symposium, I hoped in writing the book to shift some of the debates about human capital from the stagnating repetition of arguments framed as business-labor which I view not only as paralyzing and strategically unwise but also as simply incorrect and distorting. There is so much more room for win-win than both businesses and labor seem to believe. On that level, I think Frank and I actually disagree about what we would define as abuse. I do in fact believe that many of us can passionately decide to give monetary gains in return for a job that provides intangible benefits of doing something we love to do. Is that always buying into the corporate fantasy? Is that always exploitation? Don’t all of us do that when we become scholars? Still, of course I agree with many of the concrete examples that Frank raises as exploitation and precarious work – he points to domestic workers, which is a subject I have written about in a few articles (which I just realized I should probably put on ssrn - Family Geographies: Global Care Chains, Transnational Parenthood, and New Legal Challenges in an Era of Labor Globalization, 5 CURRENT LEGAL ISSUES 383 (2002) and  Class and Care, 24 HARVARD WOMENS LAW JOURNAL 89 (2001)]. Frank describes a range of discontent in such celebrated workplaces as Silicon Valley giants, which I too am concerned with and have thought about how new hyped up forms of employment can become highly coercive. Freeing up more of our human capital is huge, but yes, I agree, it doesn’t solve all the problems of our world and by no means should my arguments about the California advantage in the region’s approach to human capital and knowledge flow be read as picturing everything and anything Californian as part of a romantic ideal.



A Time for Action: The Double Gain of Freer Regions and the Double Speak about Talent Droughts

As Catherine Fisk and Danielle Citron point out in their thoughtful reviews here and here, the wisdom of freeing talent must go beyond private firm level decisions; beyond the message to corporations about what the benefits of talent mobility, beyond what Frank Pasquale’s smartly spun as “reversing Machiavelli’s famous prescription, Lobel advises the Princes of modern business that it is better to be loved than feared.” To get to an optimal equilibrium of knowledge exchanges and mobility, smart policy is needed and policymakers must to pay attention to research. Both Fisk and Citron raise questions about the likelihood that we will see reforms anytime soon. As Fisk points out — and as her important historical work has skillfully shown, and more recently, as we witness developments in several states including Michigan, Texas and Georgia as well as (again as Fisk and Citron point out) in certain aspects of the pending Restatement of Employment — the movement of law and policy has actually been toward more human capital controls rather than less. This is perhaps unsurprising to many of us. Like with the copyright extension act which was the product of heavyweight lobbying, these shifts were supported by strong interest groups. What is perhaps different with the talent wars is the robust evidence that suggests that everyone, corporations large and small, new and old, can gain from loosening controls. Citron points to an irony that I too have been quite troubled by: the current buzz is about the intense need for talent, the talent drought, the shortage in STEM graduates. As Citron describes, the art and science of recruitment is all the rage. But while we debate reforms in schooling and reforms in immigration policies, we largely neglect to consider a reality of much deadweight loss of through talent controls.

The good news is that not only in Massachusetts, where the governor has just expressed his support in reforming state law to narrow the use of  non-competes, but also in other state legislatures , courts and agencies, we see a greater willingness to think seriously about positive reforms. At the state level, the jurisdictional variations points to the double gain of regions that void or at least strongly narrow the use of non-competes. California for example gains twice: first by encouraging more human capital flow intra-regionally and second, by its willingness to give refuge to employees who have signed non-competes elsewhere. In other words, the positive effects stem not only from having the right policies of setting talent free but also from its comparative advantage vis-à-vis more controlling states. This brain gain effect has been shown empirically: areas that enforce strong post-employment controls have higher rates of departure of inventors to other regions. States that weakly enforce non-competes are on the receiving side of the cream of the crop. One can only hope that legislature and business leaders will take these findings very seriously.

At the federal level, in a novel approach to antitrust the federal government recently took up the investigation of anti-competitive practices between high-tech giants that had agreed not to poach one another’s employee. This in fact relates to Shubha Gosh’s questions about defining competition and the meaning of free and open labor markets. And it is a good moment to pause about the extent to which we encourage secrecy in both private and public organizations. It is a moment in which the spiraling scandals of economic espionage by governments coupled with leaks and demand for more transparency require us to think hard. In this context, Citron is right to raise the question of government 2.0 – for individuals to be committed and motivated to contribute to innovation, they need some assurances that their contributions will not be entirely appropriated by concentrated interests.