Category: Behavioral Law and Economics

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Self-Handicapping and Managers’ Duty of Care

I have recently posted my symposium essay Self-Handicapping and Managers’ Duty of Care on SSRN and Selected Works. You can read the abstract when you click through, so to convince you to download the essay, I’ll give you a taste of the introduction:

Authors commonly introduce their works in symposium issues with a few disclaiming words. They identify their scholarship as a “symposium essay,” not an “Article”; a “sketch” of an answer, not a fully-fleshed out argument. Casual readers might conclude that law professors are unusually humble and resist trumpeting the novelty and sophistication of their scholarship.

Social psychologists might instead believe that symposium authors seek to avoid reputational sanctions for publicizing arguments they have not fully dressed. Scholars try to signal an excuse for underdeveloped pieces: “I haven’t worked as hard on this paper as I would have if it were a ‘real’ article.” The goal of this excuse-making is simple: disappointed readers will attribute blame away from the author’s perceived acuity and professional reputation.

This is a symposium essay about the psychology of creating such pre-excuses for failure. Rather than focus on academics, I will examine the failings of overconfident corporate managers . . .

The piece grew out of a post I wrote here over a year ago, and will appear in the Wake Forest Law Review’s Business Law Symposium Issue.

Libertarians Against Subjectivism

Some commenters on my post on the Value of Pets took me to task for being too quick to discount individuals’ extraordinary attachment to their companion animals. I found some support in unlikely quarters–Will Willkinson’s critique of “happiness research” which recently appeared on the Cato Institute’s website. This is the most comprehensive recent comment on the literature of subjective well-being that I’ve seen, and raises all sorts of interesting questions for those who are trying to expand the boundaries of economic analysis.

A little background: A growing number of economists have begun to question traditional measurements of well-being, such as GDP or income, and have focused instead on self-reported “subjective well-being” from interviewed subjects. “Happiness research” has come up with some counterintuitive findings, reporting extraordinary levels of life dissatisfaction in apparently prospering liberal democracies.

Wilkinson takes these social scientists to task for failing to fully describe “the dependent variable—

the target of elucidation and explanation—in happiness research.” He claims there are four main possibilities:

(1) Life satisfaction: A cognitive judgment about overall life quality relative to expectations.

(2) Experiential or “hedonic” quality: The quantity of pleasure net of pain in the stream of subjective experience.

(3) Happiness: Some state yet to be determined, but conceived as a something not exhausted by

life satisfaction or the quality of experiential states.

(4) Well-being: Objectively how well life is going for the person living it.

Wilkinson provides some great arguments for questioning 1 and 2 as hopelessly subjective desiderata for public policy. He quotes Wayne Sumner, a Toronto philosopher, on 2: “Time and philosophical fashion have not been kind to hedonism . . . Although hedonistic theories of various sorts flourished for three centuries or so in the congenial empiricist habitat, they have all but disappeared from the scene. Do they now merit even passing attention[?]” “Life satisfaction” also comes in for heavy criticism, as epiphenomenal of various uncontrollable variables: “people have different standards for assessing how well things are going, and they may employ different standards in different sorts of circumstances.”

Of course, Wilkinson and I go entirely different directions at this point: he tries to argue that the whole line of research is useless, while I think inconsistencies like the ones he points out demonstrate the necessity of more objective and virtue-oriented accounts of well-being. (Or, to be more precise, Wilkinson (like Freud) appears to believe that debates over happiness may ultimately best be settled by brain analysis, while I tend to think the direction of Aristotelian theorists like Seligman & Nussbaum is the way to go.) But his perspective does demonstrate that even those most committed to the idea of individual liberty as a public policy goal are not necessarily wedded to the type of subjectivity in value that would underlie societal recognition of the more extreme claims of pet-owners mentioned in that post.

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Fiduciary Duty and Financial Aid

loan.jpg

The financial aid scandal, sparked by NY Attorney General Andrew Cuomo’s investigation (and possibly a shut-out competitor) has already led to some settlements with lenders and universities. The basic thrust of Cuomo’s investigation is that if lenders pay administrators referral fees (whether direct or indirect) to steer students to take certain loans, that conduct is a deceptive trade practice, “in violation of New York Executive Law ‘ 63(12) and General Business Law 349 and 350 and other relevant state law.”

Universities are falling over themselves to settle with NY, as is the lending industry, in light of some bad facts: the companies have sought to influence financial aid administrators with stock, Broadway tickets, and other goodies. So this question is, literally, academic: is the alleged conduct by the university employees a violation of a fiduciary duty (loyalty) owed to students?

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Multitasking as Microliberty

Is it possible to do many things well, at once? A lot depends on how you define simultaneity. “‘A core limitation [of the brain] is an inability to concentrate on two things at once,’ [according to] René Marois, a neuroscientist and director of the Human Information Processing Laboratory at Vanderbilt University” (quoted in an article critical of multitasking.) According to this piece, “Listening to soothing background music while studying may improve concentration. But other distractions — most songs with lyrics, instant messaging, television shows — hamper performance.”

I have to dissent here. I find that I need a well-near constant aural background to get much done during the day….and sadly, soothing music is often just not loud enough to drown out the random noise that constantly assaults one in urban areas. Perhaps this music-addiction is just idiosyncratic to me (and surgeons). But I think the anti-multitasking literature is insufficiently attentive to idiosyncrasy; to wit:

[R]esearchers reported . . . that they used magnetic resonance imaging to pinpoint the bottleneck in the brain and to measure how much efficiency is lost when trying to handle two tasks at once. Study participants were given two tasks and were asked to respond to sounds and images. The first was to press the correct key on a computer keyboard after hearing one of eight sounds. The other task was to speak the correct vowel after seeing one of eight images. The researchers said that they did not see a delay if the participants were given the tasks one at a time. But the researchers found that response to the second task was delayed by up to a second when the study participants were given the two tasks at about the same time.

I like the application of this idea to driving with a hands-free cell-phone–I’m constantly amazed by the risks people take while hurtling at 60MPH in a 4000 pound hunk of steel. But I fail to see the extrapolability of many of the other experiments mentioned in the article. Sure, computer code writers may be distracted by email….but perhaps the epistolary stimuli are keeping them going till they get to their more productive moments. Similarly, on any particular day, I may spend way too much time perusing politicaltheory.info or reviewing all the blog headlines in my RSS feed, but the types of serendipitous finds I make on those procrastinating peregrinations can cut a Gordian knot I’ve been wrestling with for hours.

Nevertheless, I have to admit that I would love to have the self-discipline to, say, totally block out email for a few hours each morning. But I am afraid that the new multitasking research is going to ultimately feed into employee monitoring/prodding programs oblivious to the capricious character of productivity in many information age workers. I guess my fears here are driven by a scene in Neal Stephenson’s Snow Crash, where a worker of the future is presented with a bureaucratic email and given the guideline “This email should take 8 minutes to review.” The worker calculates that perusing the turgid document for seven minutes may win her points for efficiency, but any less will lead to demerits for failing to read it carefully enough. Nine minutes could land her in a dread “Remedial Speed Reading” course!

Which leads to one last random reflection here….what do libertarians think of workplace surveillance like that? Is it part of the inviolable freedom of employers? Or is there some role for law to carve out, say, basic privacy rights for employees? I plan to review Russ Muirhead’s Just Work some time to look for ideas. For now, Brandeis’s old quote on vacations provides some food for thought: “I can do a year’s worth of work in 11 months, but not 12.”

Photo Credit: Flickr/Krossbow.

Who Wants to be a Millionaire?

millionaire mind.jpgChief Justice Roberts raised eyebrows earlier this year by complaining that low federal judicial salaries threatened to create a “constitutional crisis.” Justice Kennedy has reiterated the chief’s view. The blogosphere is split on the issue, admitting that judges do a lot more for society than many of those paid much more….but also puzzled by the need to peg judicial salaries above, say, Congressional ones. Should we rally behind the Justices’ call to raise judicial salaries from current levels (which, at 160K, put them in 95th percentile of American wage-earners)? I think there’s an argument for that position, but it’s not the one the Justices are making.

The justices focus on comparisons between federal judges and high-paying coastal firms. In Kennedy’s words, “[s]omething is wrong when a judge’s law clerk, just one or two years out of law school, has a salary greater than that of the judge or justice he or she served the year before.” However, not many lawyers practice at those firms. The median lawyer makes 96K per year, and a federal judge’s salary of 160K is well above that (and well outpaces the median income of all households, about $46K).

On the other hand, given that “profits per partner at the nation’s 100 highest-grossing law firms in 2005 averaged $1.07 million,” judicial salaries might seem paltry in comparison. But is this the proper reference group? It strikes me that the SC’s perspective on matters financial can be unduly patrician. Consider this comment from the NYT on their view of “extreme punishment,” as evidenced by yesterday’s Philip Morris case:

The court in recent years has become increasingly activist when it comes to defending the rights of corporations by striking down punitive damage awards. . . . Unfortunately, the court has been far less activist when ordinary people seek protection or challenge their punishments. The ruling stands in particular contrast with the court’s 2003 decision that the Eighth Amendment’s ban on “cruel and unusual punishments” did not bar California, under its “three strikes” law, from sentencing a man to 50 years in prison for stealing $153.53 worth of videotapes.

Many supreme court justices have a net worth of over $1 million, and thus can afford housing outside of areas where they’d actually casually run into people who routinely run afoul of the justice system (or the relatives who may be devastated by their long imprisonment). The people on the “wrong side of the law” may be utter strangers to them, so it’s not surprising when an SC majority throws up its hands and looks the other way in cases like “3 strikes.” On the other hand, they know quite well how devastating unpredictable punitive damages judgments can be for a portfolio.

So do constrained judicial salaries somehow produce a more representative judiciary? It’s tempting to think so, especially since the overheated DC housing market could well force someone with a salary of, say, 160K (and few assets) to purchase a home in a neighborhood rife with urban problems (i.e., crumbling schools, crime, etc.). But I think it may have precisely the opposite effect, pushing would-be judges to insulate themselves from such “penury” by making as much as possible before ascending to the bench. So higher salaries may help ensure a bench more diverse in its class character, and less the province of “noblesse oblige.”

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Mindreading, Intent and Law

fmri.jpgWell, this is cool, or terrifying, depending on whether you sometimes have evil thoughts. The Guardian (UK) reports that:

A team of world-leading neuroscientists has developed a powerful technique that allows them to look deep inside a person’s brain and read their intentions before they act.

The research breaks controversial new ground in scientists’ ability to probe people’s minds and eavesdrop on their thoughts, and raises serious ethical issues over how brain-reading technology may be used in the future.

The team used high-resolution brain scans to identify patterns of activity before translating them into meaningful thoughts, revealing what a person planned to do in the near future. It is the first time scientists have succeeded in reading intentions in this way.

This sounds somewhat more advanced that the actual research results, which involved addition:

During the study, the researchers asked volunteers to decide whether to add or subtract two numbers they were later shown on a screen.

Before the numbers flashed up, they were given a brain scan using a technique called functional magnetic imaging resonance. The researchers then used a software that had been designed to spot subtle differences in brain activity to predict the person’s intentions with 70% accuracy.

The study revealed signatures of activity in a marble-sized part of the brain called the medial prefrontal cortex that changed when a person intended to add the numbers or subtract them.

Well, it isn’t the same as intent to commit a crime, but a slippery slope beckons.

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The Limits of Law & Econ in IP: The Case of Digital Music

Once again, the folks at Truth on the Market have celebrated the recording industry’s efforts to assure perfect control over copyrighted content via Digital Rights Management. Free marketeers like Tyler Cowen are beginning to question DRM as a tax on consumers, and even one of the big four record companies is considering abandoning it. Untroubled by such doubts, Josh Wright and Geoff Manne push for ever more latitude for the dominant platform (iTunes) and dominant content providers (the big four recording companies).

Their posts provide classic examples of what Reza Dibadj has called the key shortcomings of conventional law & economics (L&E) reasoning. As Dibadj summarizes,

[T]hree of the most basic assumptions to the popular L&E enterprise–that people are rational, that ability to pay determines value, and that the common law is efficient–while couched in the metaphors of science, remain unsubstantiated.

Let’s take a look at how each of these assumptions drives the TOTM approach to digital music markets.

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Why Don’t Sick Ships Sink?

royalcarribiean.jpgI see stories like this with distressing frequency:

Holland America’s Volendam returned to Port Everglades at about 6:30 a.m. Thursday with 74 sick people on board.

According to the Centers for Disease Control and Prevention, 68 passengers and six crewmembers became violently ill with flu-like symptoms. But shortly before noon Thursday, the cruise line issued a statement that said that the total number had escalated to 112.

So, are cruise ships death traps, or merely availability cascades gone amok? The question touches, I think, on behavioral l&e and the problem of deterrence without law. The law governing accidents on ships is complicated, and cruise lines are notorious for attempting, through forum selection and arbitration clauses, to reduce the scope and intensity of tort damages that might deter unsafe living conditions.

Thus, the industry provides a good natural experiment to see whether warnings, together with market forces, work to constrain bad behavior where tort law is relatively under enforced. Quality signals here are provided by the CDC, accessed through their query system or a monthly compilation. Despite lawyers’ best efforts, it is unclear if these signals are getting through to consumers. For example, the Volendam’s recent report score of a 93 seems pretty low for the industry, and contained specific warnings about food handling practices onboard. (Basically, they didn’t keep cream cool, and left it out too long). So why was the ship so fully booked? To the extent that market forces are to correct negligent sanitation practices, consumers have to actually care about getting sick. Is the problem an underappreciation of the risk? Or, a sense that the relevant costs of getting sick are less pressing because folks on vacation don’t miss work? (I looked for pricing differences between high and low quality ships, but couldn’t find good data in the time available.)

For what it is worth, the worse violator on the list that I saw was the Stad Amsterdam Clipper, with a 62. But it sure is a pretty sight to see.

Photo: Royal Caribbean Adventure (Score: 98 on November 5, 2006)

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Total Persuasion Awareness

total-information-awareness.bmpThis story from the Times, on the increasing prevalence of advertising, is disturbing.

Marketers used to try their hardest to reach people at home, when they were watching TV or reading newspapers or magazines. But consumers’ viewing and reading habits are so scattershot now that many advertisers say the best way to reach time-pressed consumers is to try to catch their eye at literally every turn.

“We never know where the consumer is going to be at any point in time, so we have to find a way to be everywhere,” said Linda Kaplan Thaler, chief executive

at the Kaplan Thaler Group, a New York ad agency. ‘Ubiquity is the new exclusivity.

Gosh, I wish I were smart enough to know for sure what Ms. Thaler means there. But it puts me in mind of the TIA program out of DARPA.

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Dream Makers, Dream Breakers

stars.jpgI recently saw Dreamgirls, a well-marketed movie that’s largely about Barry Gordy-style marketing of music from the 50s to the 80s. Although there’s a lot to viscerally enjoy in the film, I kept analyzing the action from a lawyerly angle. Compulsory licenses, payola laws, restrictive entertainment industry contracts–all play pivotal roles in the movie. Each becomes a tool in the hands of a mogul and his enemies, as they struggle for fans and creative control.

Later in the weekend, I heard an interview with hip-hop impresario Ryan Leslie, who aims to be a 21st century starmaker. After scoring a perfect 1600 on the SAT, Leslie went to Harvard at 15, and is now precociously producing videos with Hollywood icons. Leslie’s career promises to be a lot less destructive than that of prior industry powerbrokers (for some spoiler-revealing reasons I’ll disclose after the jump). But what few fully realize is how important the law is to such a development.

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