Archive for the ‘Behavioral Law and Economics’ Category

CELS V: The Year of the Experiment

posted by Dave Hoffman

For the last several years, I’ve posted recaps of the Annual Empirical Studies Conference.  (See me, @ Cornell, @ USC).  This year, as promised, will be no different.  Yale hosted CELS V, and the committee did a bang up job: the food was tasty; there were no technical snafus of note; and the panels appeared to have a high degree of internal validity & congruence. Richard Brooks, Alan Gerber, Dan Kahan, Yair Listokin, Tracey Meares, and (especially) Roberta Romano are all due a round of applause, or, better yet, supersized computer monitors so they can see their data better.  In this post, I’m going to provide a running diary of the conference.  It will be like you were there with me, except you don’t have to suffer through my bouts of social anxiety!

Unfortunately, I missed the hottest ticket of the conference, Bruce Ackerman’s commentary on Law/Versteeg’s The Evolution and Ideology of Global Constitutionalism.  From all reports, Ackerman said something like: “wrong questions, wrong data, wrong theory,” and then imploded in frustration.  Instead of watching those fireworks, I was watching Yair Listokin present The Meaning of Contractual Silence: A Field Experiment [Here’s an older version of the paper].  Listokin ran a field experiment selling ipods on ebay, some with a warranty, some as-is, and some silent on the warranty term. He found that individuals paid attention to the contract, and there was some evidence that the UCC default was about what they thought silence meant.  As he admitted, there were problems with the design of the study – particularly, (1) small & skewed samples; and (2) a lack of clarity about how much buyers know about ebay’s unique and self-contained dispute resolution system.  As someone remarked after the presentation, it would have been interesting had Listokin sold all the customers bad ipods (instead of good ones) and studied how the contract terms influenced behavior post-“breach”.  Then again, who needs that IRB hassle?

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  November 7, 2010 at 1:20 pm   Posted in: Bankruptcy, Behavioral Law and Economics, Conferences, Contract Law & Beyond, Economic Analysis of Law, Empirical Analysis of Law   Print This Post   4 Comments

Litigating Toward Settlement

posted by Dave Hoffman

What is the relationship between litigation and settlement?  In a new working paper, Christina Boyd and I explore that question using data from federal trial dockets.  Our basic intuition is that motion practice propels cases toward faster settlements, as it unlocks information about the facts, the parties’ strategies, the resources they will spend on the case, and (sometimes) what the judge thinks of the merits.  Our results essentially support such hypotheses: the mere filing of a motion speeds case settlement. Moreover, “motions which are granted are more immediately important to the settlement rate than motions denied, plaintiff victories are more important than defendant victories, motions about unclear areas of law are more important than motions about settled law, and motions later in cases are more important that motions earlier in cases.”  These findings are suggestive.  Though motion practice is often thought of as parasitic, driven by agency costs, and part the problem of litigation, our results imply that it has significant pro-social consequences.  Indeed, paying homage to Gilson, why not re-imagine lawyers as canny litigation costs engineers?

We also found some nifty case effects.  Women judges were on average (as Boyd had previously established) better at encouraging settlement than men: “the likelihood of a case settling in any given month is, on average, 25% larger when a female judge presides than when a male judge does.” Also, imbalance between the size of the firms representing the plaintiff and the defendant had a significant influence on compromise’s timing, as the figure below illustrates:

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  August 6, 2010 at 9:52 am   Posted in: Behavioral Law and Economics, Civil Procedure, Economic Analysis of Law, Empirical Analysis of Law, Law and Psychology   Print This Post   No Comments

When a (Health Care) Fine is a (Health Care Price): Israeli Day Cares and HCR

posted by Dave Hoffman

Fortune reports that during the health care debate, AT&T, Verizon, Caterpillar, and John Deere all  produced internal documents considering whether it made sense to stop providing health insurance and simply pay the fine:

AT&T produced a PowerPoint slide entitled “Medical Cost Versus No Coverage Penalty.” A document prepared for Verizon by consulting firm Hewitt Resources stated, “Even though the proposed assessments [on companies that do not provide health care] are material, they are modest when compared to the average cost of health care,” and that to avoid costs and regulations, “employers may consider exiting the health care market and send employees to the Exchanges.”  . . .

Kenneth Huhn, vice president of labor relations at Deere, said in an internal email that his company should look at the alternatives to providing health benefits, which “would amount to denying coverage and just paying the penalty,” and that he felt he already had the ability to make this change under his company’s labor agreement. Caterpillar felt it would have to give “serious consideration” to the penalty option.

You might see these documents as posturing, whimsical make-work*, or simply good business planning.   But I tend to think about this as an example of the Israeli day care problem: when you put prices on conduct that previously was enforced through social norms, you may increase its incidence.** This phenomenon, incidentally, would appear to be even more important when considering how to enforce the individual mandate .

*The whimsy story is supported by the unwillingness of the firms to stand behind their analysis today.

**Of course, you might object that employer-provided health insurance results from market incentives, not social practice, but I’m not so sure those concepts are easily segregated.

  May 7, 2010 at 3:14 pm   Posted in: Behavioral Law and Economics   Print This Post   5 Comments

Endowment Effects, Confirmation Bias, and the Politics of Health Care Post-Passage

posted by Dave Hoffman

Sen. Tom Harkin articulates the new conventional wisdom:

“I can’t wait for this debate [about Health Care reconciliation and repeal] to happen. I look forward to it. I will relish it,” Harkin said, on his way into a weekly Democratic caucus lunch. “Now the bill is passed, its signed into law. Now the American people have something. They own it. It’s theirs. And the Republicans are saying they want to take it away from them.”

This sounds like an argument based on the endowment effect. But it’s actually not all that clear that this “bias” operates in the way that Sen. Harkin posits, i.e., that individuals will value the benefits of a law more after it passes, because they exhibit loss aversion.  This optimism risks ignoring an important limitation on endowment, which (simplifying radically) suggests that how you obtain property seriously affects whether you exhibit an endowment superpreference.  That is: when people think that property is allocated randomly or by grace, they value it less than when they feel they’ve earned it.  It strikes me that Republicans will have every incentive to try to convince the public that health care goods have been allocated randomly or by influence peddling, rather than because the Congress deliberated fairly and divided by desert.  That’s why fighting about reconciliation and in the courts make strategic sense: not because such battles are likely to succeed (they aren’t) but because they reduce general belief in the procedural legitimacy of reform and attachment to its substantive products.

In other news, Prof. Ann Althouse is very defensive about saying “so what if some idiot said a bad word,” referring to the worst word there is.  Of course, what was objectionable was that she first asserted – with no evidence at all – that Representative Lewis had made up the charge  (“It’s one of the oldest dirty tricks.)  Then, she argued that it was actually white politicians who were upset by the protesters who were racist because they were “so quick to think of powerful black politicians as vulnerable and besieged.”  All this while refusing to permit her commentators to actually use the word, presumably because she recognizes that it is uniquely stigmatizing, evil, and, well, racist.

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  March 23, 2010 at 3:53 pm   Posted in: Behavioral Law and Economics, Health Law   Print This Post   10 Comments

Milgram on T.V.

posted by Dave Hoffman

From the hyper-civilized French comes a new game show:

Game show contestants turn torturers in a new psychological experiment for French television, zapping a man with electricity until he cries for mercy — then zapping him again until he seems to drop dead.

“The Game of Death” has all the trappings of a traditional television quiz show, with a roaring crowd and a glamorous and well-known hostess urging the players on under gaudy studio lights.

But the contestants did not know they were taking part in an experiment to find out whether television could push them to outrageous lengths, and which has prompted comparisons with the atrocities of Nazi Germany.

The better analogy is Stanley Milgram’s Yale experiments, which were the direct inspiration for this show.  Though the article blames television’s “absolutely terrifying power” to compel obedience here, I think the result can be explained much more simply as depending on the power of authority itself.

Maybe we need an IRB for reality show producers.

  March 17, 2010 at 7:07 am   Posted in: Behavioral Law and Economics, Bioethics, Current Events, Empirical Analysis of Law, Law and Psychology   Print This Post   One Comment

Contracting (or Arbitrating) Out of Medical Malpractice Liability

posted by Dave Hoffman

Jennifer Arlen came to Temple on Monday to workshop her paper, Contracting Over Malpractice Liability, forthcoming in the Penn Law Review.  I was her commentator.  Prof. Arlen uses fairly traditional economic analysis, assuming that patients are rational, to argue that it not welfare maximizing to permit patients to contract out of the background medical malpractice regime.

The argument is fairly easily to follow. She argues that tort liability, because it is prospective and systemic, motivates providers to invest in precautions that are general and non-rivalrous: a collective good.  Thus, medical safety investments will be underproduced if left to the incentives of individual contracting parties, since each patient will want to free-ride off others’ choices to purchase “liability” from their doctors.  Moving liability to managed care organizations doesn’t help matters, it turns out, because it would simply permit the company to segregate between consumers who need liability protection (ones who are, or are likely to become, sick) and those who don’t (the young and healthy).  Under such a system, MCOs will package “good” health insurance together with liability, meaning that healthy individuals with a taste for liability coverage will need to pay a premium to access it.  This again leads to insufficient amount of liability protection over all patients.

It’s an important paper, not least because the form of argument may generalize to other kinds of contracting over private law.  Isn’t it true for most forms of negligence protection that the benefits are non-rivalrous and hard to exclude?  If so, permitting any contracting out of tort law likely results in a net loss of socially optimal deterrence.  Similarly, contracting out of civil procedure may lead to loss in societal benefits (like, for example, the litigation-generated-spillovers resulting from more information about the content and operation of legal rules.)  That said, as I commented to Prof. Arlen, it’s not clear whether she really maintains that patients are rational maximizers, since some of the argument relies on facts about the world (e.g., bad monitoring by insurance companies, insufficient lawsuits) that are difficult to square with rational choice theory. Also, what does medical error mean anyway?

I thought it would be worthwhile to bring this paper to your attention, since we’re living in a world where contract law’s dominance over torts is becoming ever more evident.  As this law firm circular points out, doctors are requiring patients to sign enforceable arbitration clauses.  It’s my sense that the bleak view that Arlen’s paper gives of contracting out of liability entirely also extends to such agreements.

*Whether they are a true public good or rather a club good is a little bit obscure in the paper.

  February 24, 2010 at 12:10 pm   Posted in: Articles and Books, Behavioral Law and Economics, Consumer Protection Law, Contract Law & Beyond, Economic Analysis of Law, Law and Psychology, Tort Law   Print This Post   4 Comments

Spurning Free Kisses and the Iron Laws of Behavioral Psychology

posted by Dave Hoffman

In Free, The Future of a Radical Price, Chris Anderson leverages a few behavioral psychology experiments to assert that companies ought to embrace free distribution as a business model.  In particular, he highlight’s Dan Ariely’s work with Hershey kisses.  As Malcolm Gladwell explained Arielly’s work in his review of Free:

Ariely offered a group of subjects a choice between two kinds of chocolate—Hershey’s Kisses, for one cent, and Lindt truffles, for fifteen cents. Three-quarters of the subjects chose the truffles. Then he redid the experiment, reducing the price of both chocolates by one cent. The Kisses were now free. What happened? The order of preference was reversed. Sixty-nine per cent of the subjects chose the Kisses. The price difference between the two chocolates was exactly the same, but that magic word “free” has the power to create a consumer stampede.

On this narrow reed Anderson concludes that free goods create extraordinary psychic effects.  Both Gladwell and Matt Yglesias, otherwise quite critical of Anderson, embrace the point.  Ygelesias argues that companies will compete away any behavioral effects, and that costs will never actually get to zero.  He observes that, “the whole subject could stand to benefit from a little less good writing and a bit more plodding distinction-drawing.”

Well, I think I am well qualified to be a worse writer than Malcolm Gladwell, so I’ll try plodding for a bit.  To begin with, folks should read the paper.  It offers a readable description of the experimental series.  Or, if you’ve a copy of Ariely’ book, he apparently synopsizes the results.  After you’ve read the paper, return here for three quick questions about the general applicability of Ariely’s work:

First, we don’t know whether those effects are robust.  Even if companies aren’t well-situated to compete away the “free” bonus, is it a universal attribute of human cognition, or something contingent and culturally fleeting?  My sense is that the modern economy makes it much harder for ordinary consumers to know the worth/value of goods.  (I bet this is testable: have people gotten worse, as I’d guess, at the “Final Showcase” estimates at the Price is Right over time?)

Second, will the result will hold up against debiasing?  Most of the studies conducted involved relatively quick decisions in an noisy environment (a school cafeteria).  Would you get the same result if you told people about the “free effect” before exposing them to the choice? I tend to think not — doesn’t engaging in this kind of behavior make the subject into a bit of a sucker?

Third, what about heterogeneity? Ariely doesn’t tell us much about individuals who continued to prefer truffles.  Are the different demographically from the switching individuals?  There’s a very strong nomothetic theme in Ariely’s work (like most BLE work).  But not all individuals fall prey to the pull of free goods.  Maybe we ought to study those who don’t want kisses, before we reform our marketing (and our law) to exploit (or protect) those that do.

  February 18, 2010 at 8:21 pm   Posted in: Behavioral Law and Economics, Consumer Protection Law   Print This Post   One Comment

Book Review: Divergent Opinions: Why Community Matters — A Review of Sunstein’s Going to Extremes

posted by Marc Roark

Going to Extremes: How Like Minds Unite and Divide, by Cass Sunstein. Oxford University Press: New York 2009. Pp. 171. $21.95

Cass Sunstein argues in his new book Going to Extremes: How Like Minds Unite and Divide that extremism is a phenomenon that is enhanced when people of like minds get together to talk. When we think of people that lie at the extremes of society, our minds are often drawn to reclusive characters. People like John the Baptist living in the wilderness “wearing clothes made of camel hair, eating locusts and wild honey;” (Matt. 3:3-4) or people like Raskolnikov from Fydor Doystoyveski’s Crime and Punishment – a reclusive character who develops a radical and warped sense of morality in response to his perception of society’s values. In reality, people that live on the extremes are rarely alone. They are surrounded by a network of like thinkers who confirm the attitudes, beliefs and interpretations of sensory data that those persons embrace as normal. Extremes are about information. That is, where you get your information from; whether you believe that information to be reliable, and how willing you are to accept information outside of your preferred source.

Going to Extremes is about how, when and why extremes develop in communities. The theme of the book is that “[w]hen people find themselves in groups of like-minded types they are especially likely to move to extremes” (p. 2). Sunstein’s work fits into the genre of human behavioral psychology proposed by James Sidanius and others that views extremists’ cognitive complexity as more complex than moderates. See James Sidanius, Functioning Sociopolitical Ideology Revisted, 6 POLITICAL PSYCHOLOGY 637, 639 (1985). This is in contrast to extremism theory, which largely assumes that political extremists display less-sophisticated cognitive behavior than moderates. About the form of extremism we call terrorism, Sunstein writes at one point,

it is tempting to think that terrorism is a product of extreme poverty, lack of education, or a kind of mental illness. It turns out that all of these thoughts are quite wrong. Most of the time, [terrorists] come from middle-income families. Nor have terrorists lacked education. There is no evidence that they suffer from mental illness…. Alan Krueger argues that terrorism is a form of political protest, and those who lack civil rights and civil liberties not having other means of engaging in protest resort to terrorism. To Krueger’s point, we might add that when civil liberties do not exist citizens have only one prominent source of information – the state – and that source cannot be trusted. (p. 115)

Terrorism then becomes a reaction against information that the extreme positions assume can’t be right. Thus, in Sunstein’s work, the why and how of extremisms (like terrorism) can be associated with how individuals interact in communities – the trust they place in the information received, the confidence they derive from like-minded members, and the authority or submission they respond to as a member of the community.

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  February 4, 2010 at 12:09 am   Posted in: Articles and Books, Behavioral Law and Economics, Book Reviews, Law and Humanities, Law and Psychology, Philosophy of Social Science, Politics, Sociology of Law   Print This Post   2 Comments

“I’ve Created a Very Large Microwave . . . And New Year’s Eve I Intend to Enter That Very Large Chamber . . .”

posted by Dave Hoffman

Many professors have turned of late to survey research, which promise to answer long-standing questions about individuals’ relationships with legal institutions and their understanding of the law. Occasionally, if you run these kinds of surveys, you’ll see respondents who aren’t quite taking the task as seriously as you might want them to.   Listen to this pretty awesome recording, and try to figure out what the survey was designed to accomplish.  Regardless, it’s probably a good general rule, in designing such surveys, not to call longmont potion castle.

(H/T: Noted surveyor D.B.)

  January 19, 2010 at 4:50 pm   Posted in: Behavioral Law and Economics, Empirical Analysis of Law, Sociology of Law   Print This Post   One Comment

Penalty Clauses and the Nexus One

posted by Dave Hoffman

Tech blogs are astir today at the fine print in Google’s Nexus One’s terms of sale. Turns out, if you buy a subsidized phone through google and cancel your phone contract “early”, not only must you pay a fee to the carrier, but google also wants you to pay it the difference between the list price of the phone and the sale price.

“You agree to pay Google an equipment subsidy recovery fee (the “Equipment Recovery Fee”) equal to the difference between the full price of the Nexus handheld device without service plan and the price you paid for the Nexus handheld device if you cancel your wireless plan prior to 120 days of continuous wireless service. For example, if the full price of the Nexus handheld device without service plan was $529 USD and the price you paid for the Nexus handheld device was $179 USD with a service plan, the Equipment Recovery Fee you pay will be $350 USD in the event you cancel within the first 120 days of carrier service . . . You authorize Google to charge the Equipment Recovery Fee directly to your credit card, or other payment method used to purchase the Nexus handheld device, upon cancellation of your wireless plan . . .

You agree that the Equipment Recovery Fee is not a penalty but is for liquidated damages Google will incur as a result of such cancellation. These damages may include, but are not limited to, loss of compensation and administrative costs associated with such cancellation or changing of wireless service provider(s), market changes, and changes in ownership. Please note that the Equipment Recovery Fee is imposed by Google and not your chosen carrier and is in addition to any early termination fees that may be charged by your chosen carrier in connection with termination of your wireless plan prior to fulfillment of your chosen carrier’s service agreement term.”

Notwithstanding the language of agreement that this is a liquidated damages clause, I’m pretty sure that customers could legitimately challenge this fee in court as a penalty .  As many have noted, customers will end up paying more in termination fees than the cost of the phone (since both google and the carrier can charge in this model).  As we all know, liquidated damages must be either a fair estimate of an uncertain harm, or be relatively close to the actual damages suffered by the promisee.  The harm here isn’t at all uncertain, and I don’t think that charging more than the sales price constitutes a good measure of the seller’s actual damages.  Notably, we can’t simply use the difference between list price and sales price as the lost expectation, since the sales price is inflated by the business model (sort of like health care costs charged by hospitals).

The collection method that google built into contract here is also a problem.  It’s a form of self-help which customers ought to be able to challenge with their credit card companies.  Indeed, the clause is so riddled with obvious legal issues that I started to wonder whether google wrote it seeking to take advantage of behavioral research suggesting that liquidated damages clauses change individuals’ feelings about breach.  What do you think?  Is google’s new slogan “Don’t be evil.  But if you must be evil, be really good at it?”

  January 15, 2010 at 3:02 pm   Posted in: Behavioral Law and Economics, Consumer Protection Law, Contract Law & Beyond, Technology   Print This Post   19 Comments

On Brains and Football

posted by Dave Hoffman

There are many candidates for the best visual display of quantitative information.  But how about a prize for worst display of information?  Call it the anti-Tufte. There has been some competition of late.  The graph can’t be merely misleading, or distracting. That’s too darn easy! A really bad display has several characteristics: (1) it has to overstate the certainty of the underlying data; and (2) by using pictures, it must reinforce our biases.  A recent example is the Obama Cabinet/Private Experience graphic.

Here’s another example I’ve been thinking about lately: the claim that offensive linemen are smarter than other players on the field.  Think about it.  Doesn’t it just feel true?  And here’s the graph that popularized the claim:

Ben Fry, a smart fella by all accounts, created the graph.  The size of the circles represent mean scores by position on the Wonderlic, a 12 minute, 50-question, intelligence test which players take during the combine before the NFL draft.  This graphic is often deployed to support the cliché that players closer to the ball have to be smarter. But closer examination has led me to believe that the claim – and the graph – are bunk.  And bunk of a particular sort: misleading empiricism of the sort that reinforces racial stereotypes.

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  December 21, 2009 at 12:48 pm   Posted in: Behavioral Law and Economics, Civil Rights, Economic Analysis of Law, Empirical Analysis of Law, Law and Psychology, Race   Print This Post   8 Comments

Reforming the Non-Medical IRB: A Shift from Preventing Harm to Doing Good

posted by Adam Benforado

As some of you know (grandma), my area is law and mind sciences. To date, most of my scholarship has involved applying existing insights from social psychology, social cognition, and other fields to legal topics. However, over the last few months, I’ve been working on designing a set of experiments with a cognitive psychologist and, as a result, I have had a chance to engage the institutional review board process for the first time.

I must say that while the people running the IRBs at Drexel and Penn seem well-intentioned and nice enough, the process is utterly befuddling to me. As has been noted on this blog previously, more legal academics are doing work that is potentially covered by IRBs than ever before and it is worth pausing to think about whether radical changes to the existing approach are not appropriate.

(I certainly do not purport to be the first person to advocate reform in this area or to have thought about it as much as others; my hope is that this post will provoke some readers to consider their experiences and whether they feel like the current IRB process is worth its costs.)

I’d like to focus on the non-medical IRB (covering social and behavioral research, ethnography studies, etc.) and I’d like to propose eliminating review completely in this area. No more paper work, no more calls, no more meetings. Instead, we will simply rely on professional norms to channel behavior and existing legal mechanisms to deter the most harmful conduct. (I will leave to the side, in this post, the sticky issue of university liability.)

Now, this doesn’t mean that everyone is off the hook. All of the money and energy that universities currently expend on the IRB process will simply be redirected. The idea is to use resources to directly improve people’s lives, rather than to try to avoid harms that may or may not arise. All of the time previously spent on filling out paperwork, on the phone asking and answering questions, taking human subjects tests, and filing updates, among other things, would now be spent actively participating in socially-beneficial endeavors.

As a licensed attorney, what if I used every hour I would expend on IRB compliance volunteering at a legal aid clinic instead? Or what if I used that time to help high school students in north Philadelphia work on their college essays or removing trash from the Schuylkill River? What if all of the staff at the Office of Research Compliance spent their days finding and coordinating opportunities for professors to volunteer in the community? I would argue that the social good likely to result would considerably outweigh the potential costs of not subjecting non-medical experiments to formal review.

The truth is that the new regime would not be perfect—people would occasionally be harmed—but the magnitude of this threat might be less than imagined. When a person goes to design a psychology experiment there are many factors that act as constraints on the design: Do my colleagues approve of my proposal? Will members of my field look favorably on this experiment? Will resulting harms negatively impact my tenure review (remember that Stanley Milgram was denied tenure at Harvard)? Does this align with my sense of morality? Will my friends/parents/wife/children think less of me if someone is hurt on my watch? How does this experiment compare to other experiments that were conducted in the past and how did people react to those projects?

The IRB process is not the primary reason why the vast majority of non-medical experiments today do not pose major risks to human subjects. It would seem to me that while the process prevents some harms, it does not prevent enough to justify its existence and thinking of alternative uses of the resources currently dedicated to IRBs has the potential to leave us all better off.

  December 8, 2009 at 7:02 am   Posted in: Behavioral Law and Economics, Law and Psychology, Psychology and Behavior   Print This Post   10 Comments

Asteroidgate: The Rocket, Not the Asteroid, Packs the Punch

posted by Dave Hoffman

Eric Posner muses about Asteroidgate:

Suppose that astronomers around the world alerted us that a large asteroid is headed in our direction, and might collide with the earth in the year 2012.  The astronomers cannot give us a precise probability of collision because of many imponderables . . .  To build a defense system—say, rockets that would intercept the asteroid and knock it off course—would cost hundreds of billions of dollars . . . As is always the case, there are a few dissenters . . .   A scandal erupts when emails at the West Anglia Space Research Unit are released, and shows that some scientists tried to arrange a boycott of a journal that published a few articles of the skeptics.  At the same time, thousands of astronomers not connected with the West Anglia Unit continue to insist that the risk of a collision is very high . . . A few questions.  In this scenario, would there emerge an industry of non-credentialed “astronomy skeptics” in the press and public comparable to the current batch of “climate skeptics”?  My instinct is that the world would quickly get to work building the rocket system, and disregard the views of the skeptics.  Is this right or wrong?  If it is right, is there some reason to think that climate science and astronomy are different, justifying the skepticism about climate science that does not (yet) exist about astronomy?

This is a clever scenario, and its gives me a launching pad to talk about why climate-change skeptics and believers have reacted so differently to the same set of information: namely the stolen East-Anglia emails.

The Cultural Cognition Project has a perspective on this problem which may be helpful.  Dan Kahan, Don Braman, Paul Slovic, John Gastil, and Geoffrey Cohen wrote a paper called The Second National Risk and Culture Study: Making Sense of – and Making Progress In – The American Culture War of Fact. Using a large random and nationally representative study sample, the paper confirms that Americans are deeply divided over basic questions about the climate, such as “how much risk does global warming pose for people in our society?” Those divisions track the cultural identities that the project has often explored — and which relate back to pioneering work by anthropologist Mary Douglas. That is, group-grid theory.

Of particular interest, Kahan et al. tested the hypothesis that individuals’ perceptions about the same set of facts about the severity of the problem turned on what policy solutions were recommended to deal with it.  When the policy solution was nuclear power, hierarchical and individualist Americans were far less likely to discredit global warming facts than when the solution was an expanded set of anti-pollution measures.  Such individuals find expanded anti-pollution policy threatening to their identities: it suggests restriction of market activities (upsetting to individualists) and it implicitly challenges the legitimacy of the ruling order (upsetting to hierarchs).  Confronted with such a threat, individuals are less likely to credit information about increased risks of warming.  Conversely, egalitarians and communitarians were more likely to see global warming as a severe threat when the solution was anti-pollution control.

What does such research teach us?  Well, for one, it makes reactions to “climate-gate” easier to understand.  We know that people are looking at the benefit/risk calculus in highly polarized ways.  The East Anglia emails, which go to the weight of the evidence about warming, is yet more fodder in that filtered debate.  This  polarization is (notably) neither partisan nor conscious.

More importantly, the research suggest a very concrete strategy for those who worry about climate change and who want to see their position persuade unbelievers: you should be more attentive to finding politically congenial solutions, and spend less energy trying to use data to convince those you disagree with.  Thus, former VP Gore’s approach, which focused on staking out a data-driven position on the scope of the problem, has at best produced a fragile coalition in support of change, which will be undermined quickly when individuals are presented with alternative data, information about imperfect scientists, or threatening policy solutions.

Rounding back to Eric’s post,  the reason that asteroidgate seems like a clear example where an organized opposition would not emerge is that neither the underlying disaster nor the policy solution poses a threat to the identities of large and discrete groups of Americans. Expensive rockets simply aren’t the bogeymen that private-property-destroying pollution controls are.  The case would be different if the solution to our asteroid problem were to unequally burden a minority group.  In that scenario, egalitarians and communitarians would be much less likely to credit the risks of a massive asteroid than would hiearchs and egalitarians.

  December 3, 2009 at 3:55 pm   Posted in: Behavioral Law and Economics, Current Events, Environmental Law, Psychology and Behavior   Print This Post   14 Comments

The Endowment Effect and Legal Policy (Highly Wonky Post)

posted by Dave Hoffman

Several bloggers have recently discussed Kathy Zeiler and Charles Plott’s work on the endowment effect.  According to Josh Wright, for example:

“[Plott/Zeiler] in my view, provide burden-shifting quality evidence that the endowment effect observed in the literature is better explained by experimental procedures than preferences.  Proponents of regulation based on the endowment effect, in my view, need not agree with my interpretation of these findings but they ought to respond to them if they want to be taken seriously.  Unfortunately, as I discuss here, out of the 255 articles in JLR discussing the endowment effect (210 also discuss regulation, btw), only 16 cite either Zeiler and Plott article.  I find that ratio discouraging for the discipline of behavioral law and economics generally.”

I recently had the pleasure of attending a one day conference about Plott/Zeiler’s work hosted by Georgetown, and didn’t end up persuaded to the strong position held by Wright.  Here’s a short and informal essay I wrote in advance of the conference, which highlights a few studies that postdate PZ and which challenge their findings.  (In particular, I hope more legal bloggers will read Burson et al.’s paper.)  The day was useful and edifying — as several attendees noted, it’s to PZ’s credit that they are so clear about their findings, the sources of their data, and various potential interpretations. I entirely agree with Josh that people who talk about the endowment effect literature in the law journals ought to at least cite PZ, at should take seriously the potential that the effect is significantly less robust than had been previously believed.

That said, I came away from the day convinced that “endowment” means something different to economists than it does to psychologists.  The economists in the room understood the endowment of the titular effect to attach as soon as someone was told that they owned a good, while for the psychologists, endowment was a phenomenon that they wouldn’t have expected to reveal itself unless some of the incidents of ownership (especially, tangibility and proximity) were present.  I ended up convinced that PZ found that they could either “debias” psychologists’ endowment effect, or undermine the theoretical grounding of economists’ endowment effect, but not both.

There is a deep problem here of experimental theory. We want to predict how naive buyers and sellers will act outside of the lab  in response to endowment with real goods (from my perspective, the important questions concern legal goods).  Experiments are always imperfect reflections of this real market, with controls that hopefully don’t seriously undermine the likelihood of external validity.  PZ admittedly don’t have a theory of why the controls they use are the right set to permit extrapolation to the real-world, and implicitly, their design means that they’ve picked the controls they have because they hold a definition of endowment that I think is psychologically heterodox.  This choice isn’t wrong. But it does make it a little bit harder to know to evaluate the work, since there’s a significant danger of people talking past one another.

  November 25, 2009 at 6:26 pm   Posted in: Behavioral Law and Economics   Print This Post   2 Comments

Email: Fear mongerer or neighborhood policing’s best friend?

posted by Sarah Waldeck

Last week I received at least twenty different emails forwarding the same story about a house in my town that was almost burglarized.  A man with a rake who appeared to be looking for work knocked on a front door and realized it was open.  He went to the sidewalk and consulted with his friends.  The owner, who was in the house, locked the door.  After the men returned to the front door and found it locked, they tried to open a back door and then a basement window.  The owner called 911 and the police caught one of the men.  Not exactly high drama, but plenty scary for the owner inside the house.

Each email contained the same information: soliciting is illegal and police want residents to report all solicitors because these individuals might be casing houses.

Almost every email also contained either a subtle or not-so-subtle ratcheting up of the fear.  Some emails lamented that our blocks weren’t safe.  Others warned that criminals need money for the holidays.  One advised that we consider this story as our children start to get older and move around the town without parents.  Another suggested that we watch the movie “Taken” because it would make us rethink letting students travel to Europe.

The upside is that I now know that soliciting is illegal and that the police want me to report it.  I’m also being more careful about locking my doors, a good habit in any event. 

But here’s the downside to this email flurry.   I am discomforted as I move about my town and house in a way that I have never been before.  This is true even though I know about the availability heuristic, i.e., the tendency to think events are more probable if we can recall such an event occurring.  I also know how bad humans are at processing information about low-risk occurrences.   Email  only exacerbates this faulty reasoning.  The Rakeman story is significantly more available to me than it would have been had I heard about it once or twice through old-fashioned word-of-mouth.

Many would argue that discomfort is good.  They are probably right, to a point.  But here is what I would have said if I had allowed myself to respond to all those emails:  Lock your doors.  Be smart.  And relax, because you are a lot safer than you think you are.

  November 17, 2009 at 12:10 pm   Posted in: Behavioral Law and Economics   Print This Post   One Comment

A Proposed Study To Measure Law Clerk Influence

posted by Dave Hoffman

Citation studies as a proxy for judicial quality are all the rage.  I concur with Larry that the effort spent often seems disproportionate to the result.  Selection is the culprit here, not just academic modesty: it’s hard to imagine that any truly dramatic effects of judicial character, or legal rule, would not be washed away by parties’ ability to settle strategically.

Exogenous shocks open windows – of limited scope – which may help us penetrate this fog.  There’s one ongoing today that I think could in several years allow us to test one of the most important, but obscure, questions about judicial performance.  Although there have been a few studies about the usage, hiring, and quality of law clerks, I haven’t seen work that really convinces me that clerks change judicial performance (rather than match it).  That question of influence is pretty important for all kinds of reasons — not least because if law clerks were really influencing their judges, we might want to spend a little bit more time thinking about their roles, ethics, hiring, etc.

So what’s the shock?  I think that the period of 2008-2011 will prove, in retrospect, to be bumper years for clerk quality.  Anecdotally, I’ve heard that the clerkship market has never been more competitive: Yale grads have been encouraged to take state court clerkships (the horror); judges in popular jurisdictions are receiving literally four to five thousand applications per clerk year; individuals who before might have taken firm jobs are instead throwing their hats in the ring; magistrate judges are taking clerks previously destined for district judges; alumni in practice for five years are going back into the clerk market and competing with fresh-faced 3Ls.  As an organ of the government, the judiciary simply eats better brains when the economy stinks.

Assuming the effect is real (which we could test by looking at placement statistics), I’d propose that eight to ten years from now – in 2018 or thereabouts – we test whether opinions arising from this bumper-clerk period are cited at a higher rate than opinions from the ordinary market periods immediately preceding and following.  The hypothesis would be that if clerks influence judges to write better opinions, better clerks will produce to more citable opinions.  Notably, we can’t perform this same analysis on the effect of past recessions, as (1) they reportedly didn’t have the same effects on the clerkship market; and (2) opinion collection practices were really sporadic before 1995.  It’s 2018 or bust.  Mitu et al., I call dibs!

  October 7, 2009 at 8:34 am   Posted in: Behavioral Law and Economics, Economic Analysis of Law, Empirical Analysis of Law, Sociology of Law   Print This Post   12 Comments

Principles for the Health Reform Homestretch

posted by Frank Pasquale

House and Senate leaders will soon have to reconcile several different versions of health reform bills. The bills are complex, but some simple principles should guide the process of integrating them into a final product. As the press reports on a whirlwind of proposed laws, we need to ask of any particular proposal: Does it . . .

1) Increase productive competition in health care? Everyone talks about “increasing competition” among insurers and providers, but there are many ways to compete. Hospitals and doctors can game the reimbursement system. Insurers may not directly discriminate against the sick, but can find other ways to keep high-risk patients out of their plans, as even the most market-oriented health policy experts realize:

[T]o avoid patients with costly, complicated medical conditions, health plans could include in their networks relatively few doctors who specialize in treating those conditions, said Mark V. Pauly, professor of health-care management at the University of Pennsylvania’s Wharton School.

Both the Netherlands and Switzerland have already experienced problems in this area, even though the Netherlands has implemented risk-adjustment methods (which attempt to deter such “cherrypicking” and “lemondropping”) far more serious than anything proposed in current bills in the US. As Karen Pollitz has repeatedly argued, we’re going to need a much greater investment in insurance regulation to make any reform bill work.

2) Make it easier for uninsured or underinsured individuals to buy coverage? Many of the proposals for allocating and awarding subsidies for coverage sound exceedingly complex. We’re hearing about serious limitations on access to exchanges, subexchanges, burdensome “free rider” provisions, etc. Any particular provision may sound good in the abstract, but taken as a whole they could become an obstacle course that makes obtaining insurance coverage a miserable and exasperating experience for those supposedly aided by reform. During the second Bush administration, hundreds of thousands of children eligible for subsidized health insurance were not enrolled because states failed to make enrollment convenient enough for time- and cash-strapped parents. As Liebman and Zeckhauser remind us, “we must design systems for mere mortals, not the people who inhabit the models of traditional economists.” What seems easy to one of DC’s privileged elite can be very hard for an overworked mom or minimum wage-earning service worker.
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  October 4, 2009 at 8:17 pm   Posted in: Behavioral Law and Economics, Health Law   Print This Post   One Comment

Bernie Madoff and the Unfortunate Consequences of Celebrity Bias

posted by Danielle Citron

Celebrity is intoxicating.  We have long been willing to play the fool to the rich and powerful, even if that means turning a blind eye to signs of trickery.  In the late 1980s, a 37-year-old con artist convinced Duke University administrators and students that he hailed from the wealthy Rothschild family of France despite the fact that he spoke no French, drove a run-down car, and offered clipped out magazine articles to show his family’s homes. During a two-year charade, the imposter borrowed (stole) thousands of dollars from Duke and joined a fraternity. (I was an Duke undergraduate at the time, but alas did not know him).  More recently, Christopher Chichester tricked many into believing that he was a Rockefeller despite his gauche manners and outrageous claims (e.g, that he owned “the key to Rockefeller Center”).  As Clark Rockefeller, he gained admission to exclusive clubs and married a partner at McKinsey Consulting.  Only after Mr. Chichester kidnapped his daughter from his ex-wife did the police discover his true identity and connection to unsolved murders.

Perhaps such celebrity bias had some role in the SEC’s bungling of the Bernie Madoff fiasco.  On Thursday, the S.E.C.’s Inspector General’s Report explored why the agency missed so many “red flags” about Madoff since 1992.  The report discussed missed leads, bureaucratic snafus, and investigators’ inexperience.  Investigators were far too believing because they were simply awed by him.  One investigator described Madoff as “a wonderful storyteller” and a “captivating speaker.”  As with the faux Rockefeller and Rothschild incidents, Madoff’s ruse worked for so long despite the clues of foul play perhaps because investigators and investors could not shake their sense of Madoff as a rich, powerful, and trusted financial guru.  Madoff’s celebrity reputation anchored their thinking, permitting Madoff to get away with his scheme for far longer than it should have.  As Madoff’s victims’ stories attest, celebrity bias had profoundly destructive consequences.

StockXchange Image; Wikimedia Commons Image

  September 5, 2009 at 3:39 am   Posted in: Behavioral Law and Economics, Corporate Law, Culture, Current Events, Psychology and Behavior, Securities Regulation, Uncategorized   Print This Post   No Comments

Game Theory and Law

posted by Gerard Magliocca

Yesterday The New York Times magazine profiled Bruce Bueno de Mesquita, who was a professor of mine at Stanford and is a leading figure in using game theory to predict political and social outcomes.  His was the best class that I ever took as an undergraduate.  (Honestly, ten years out of school, how many classes do you look back on and think, “Wow, that was really terrific.”)  One lesson from that course that I took into my legal scholarship is that you have to study near-misses as well as successes to understand a phenomenon. He made us look at foreign policy crises that did not lead to wars and asked “Why not?”  This is pretty good model for thinking about law, especially in the constitutional area.  Indeed, my forthcoming book on the Populists and article on the defeat of the Child Labor Amendment apply that concept aggressively and yield some interesting insights as a result.

  August 17, 2009 at 12:05 pm   Posted in: Behavioral Law and Economics   Print This Post   No Comments

A Breach Born Every Minute

posted by Dave Hoffman

In the Spring, I asked you folks for some help thinking of examples of true Holmesian agreements, “contracts which, when breached, have a similar psychological profile to a speeding ticket.”  It turned out to be pretty hard to identify such agreements, since most people believe breach to be a morally wrongful activity – not simply an option to pay damages at will.  As Jonathan Baron and Tess Wilkinson-Ryan previously have found, the degree to which individuals find breach to be “bad” is quite manipulable:  breaches to gain are worse than breaches to avoid loss, liquidated damages ameliorate feelings of reprehensibility, etc.  Missing from this research has been a psychological theory of what makes breach so aversive.

Tess and I came up with a working hypothesis: breach is seen as a form of interpersonal exploitation that makes the breachee a sucker.  We’ve put together a paper that reports on a series of experiments supporting this hypothesis, titled (naturally) “Breach Is For Suckers.“  Check out the abstract, after the jump.

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  August 15, 2009 at 9:41 am   Posted in: Behavioral Law and Economics, Contract Law & Beyond, Law and Psychology   Print This Post   7 Comments

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