Category: Behavioral Law and Economics

1

The Disclosure Crisis

Thank you to Danielle for the lovely (re)introduction and to Concurring Opinions for inviting me to blog this month.

The Washington Law Review hosted a symposium Thursday entitled “The Disclosure Crisis,” which covered everything from privacy policies to restaurant hygiene grades. The gist of the conference, on my view, was that the only thing piling up faster than examples of mandated disclosure as a regulatory strategy is the evidence it does not work. Time and time again, officials choose to intervene in a given area by requiring companies and others to reveal information so that individuals can protect themselves and police the market. And time and time again, disclosure ends up helping few if any consumers or citizens actually make better decisions.

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Shoves, Nudges, and Freedom

Cass Sunstein reviews a book by Sarah Conly on coercive paternalism in the NYRB this month:

A natural objection [to paternalism] is that autonomy is an end in itself and not merely a means. On this view, people should be entitled to choose as they like, even if they end up choosing poorly. . . . Conly responds that when government makes (some) decisions for us, we gain not only in personal welfare but also in autonomy, if only because our time is freed up to deal with what most concerns us. . . .

Conly’s most controversial claim is that because the health risks of smoking are so serious, the government should ban it. She is aware that many people like to smoke, that a ban could create black markets, and that both of these points count against a ban. But she concludes that education, warnings, and other nudges are insufficiently effective, and that a flat prohibition is likely to be justified by careful consideration of both benefits and costs, including the costs to the public of treating lung cancer and other consequences of smoking.

As Big Beverage’s tactics come closer and closer to those of big tobacco, might it be the next target?

For those who’d like government to influence decisions in subtler ways, check out Kate Greenwood’s review of recent health care proposals from Richard Frank and Christopher Robertson. Very interesting ideas there.

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BRIGHT IDEAS: Werbach and Hunter on For the Win: How Game Thinking Can Revolutionize Your Business

This Bright Ideas post looks at Kevin Werbach and Dan Hunter’s new book, For the Win: How Game Thinking Can Revolutionize Your Business. I have posted about it, but Kevin and Dan were gracious enough to answer some questions. We go into what is gamification, the differences between internal and external uses of the technique, how it relates to super-crunching, and the ethical and legal implications of the technique.

Kevin and Dan, you have drilled into an area, gamification, that seems almost arcane, a technique known to initiates. Why do it?

[KW] We actually think gamification is quite relevant for a broad range of audiences. First of all, video games have a huge impact on our culture. The games industry generates more revenue annually than Hollywood does at the box office. According to a Pew survey, 97% of American teeagers play video games, and it’s not just young people: the Entertainment Software Association reports that the average age of a gamer is 30, with almost half of them women. We can dismiss video games the way we used to dismiss social networking… and e-commerce before that… and the Internet before that… or we can look at why they are so powerful and apply those lessons in other contexts.

Second, the core goal of gamification is motivation. Think about all the situations where motivation matters: at work, at home, as consumers, in legal compliance, in social activism, and in collective action, to name a few. In all these cases, greater engagement drives material results. If there were motivational techniques that were proven in real-world businesses, consistent with decades of psychological research, and synergistic with big data and other leading-edge technology trends, wouldn’t you want to understand them?

And third, gamification is happening. It’s a rapidly growing business trend among startups, Fortune 500 companies, non-profits, and even government agencies. It raises a host of significant legal, operational, and ethical issues, as well as a variety of practical business concerns. We felt that my work on emerging technology and policy trends through the Supernova conference, and Dan’s scholarship on virtual worlds and background in cognitive psychology, gave us a unique ability to tackle these questions in a serious way. That’s why we put together the first gamification course at Wharton, and wrote For the Win as business guide to this emerging field.

OK, so what is gamification?

[KW] Gamification means applying design techniques from video games to business and other problems. In other words, it’s the process of motivating customers, employees, and communities by thinking like a game designer. It doesn’t mean turning everything into a game. Quite the contrary! Gamification involves incorporating elements of games into existing activities, the way Nike weaves levels and awards into its Nike+ system, or Microsoft motivated employees to review half a million Windows 7 dialogue boxes for localization errors with a competition among offices.

When you look at it that way, the basic concept of gamification is pretty simple, but doing it well is hard. Even experienced game designers often create games that aren’t much fun. Executing gamification effectively requires a combination of skills and knowledge, which we describe in For the Win.

Right. I see games are important in that they are big business and a big part of many folks’ lives. Let’s talk a little more about motivation. Is this approach a sort of applied behavioral economic one? Someone identifies levers and then builds systems to nudge or indeed shift the way others engage and behave?

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3

CELS VII: Low Variance, High Significance

[CELS VII, held November 9-10, 2012 at Stanford, was a smashing success due in no small part to the work of chief organizer Dan Ho, as well as Dawn Chutkow (of SELS and Cornell) and Stanford’s organizing committee.  For previous installments in the CELS recap series, see CELS III, IV, V, and VI. For those few readers of this post who are data-skeptics and don’t want to read a play-by-play, resistance is obviously futile and you might as well give up. I hear that TV execs were at CELS scouting for a statistic geek reality show, so think of this as a taste of what’s coming.]

Survey Research isn't just for the 1%!

Unlike last year, I got to the conference early and even went to a methods panel. Skipping the intimidating “Spatial Statistics and the GIS” and the ominous “Bureau of Justice Statistics” panels, I sat in on “Internet Surveys” with Douglas Rivers, of Stanford/Hoover and YouGuv. To give you a sense of the stakes, half of the people in the room regularly use mTurk to run cheap e-surveys. The other half regularly write nasty comments in JELS reviewer forms about using mTurk.  (Oddly, I’m in both categories, which would’ve created a funny weighting problem if I were asked my views.) The panel was devoted to the proposition “Internet surveys are much, much more accurate than you thought, and if you don’t believe me, check out some algebraic proof.  And the election.”  Two contrasting data points. First, as Rivers pointed out, all survey subjects are volunteers, and thus it’s a bit tough to distinguish internet convenience samples from some oddball scooped up by Gallup’s 9% survey response rate.  Second, and less comfortingly, 10-15% of the adult population has a reading disability that makes self-administration of a survey prompt online more than a bit dicey.  I say: as long as the disability isn’t biasing with respect to contract psychology or cultural cognition, let’s survey on the cheap!

Lunch next. Good note for presenters: avoid small pieces of spinach/swiss chard if you are about to present. No one will tell you that you’ve spinach on a front tooth.  Not even people who are otherwise willing to inform you that your slides are too brightly colored. Speaking of which, the next panel I attended was Civil Justice I. Christy and I presented Clusters are AmazingWe tag-teamed, with me taking 9 minutes to present 5 slides and her taking 9 minutes to present the remaining 16 or so.  That was just as well: no one really wanted to know how our work might apply more broadly anyway. We got through it just fine, although I still can’t figure out an intuitive way to describe spectral clustering. What about “magic black box” isn’t working for you?

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6

The Price of Bankruptcy

Credit Slips highlights a very cool new paper, Bankruptcy Spillovers: Distance, Public Disclosure, and Opaque Information.  In the paper, Barry Scholnick examines bankruptcy filings in Canada at a micro level.  Looking at the postal code of every filer – which code is a much more precise geographic identifier than our zip codes – Scholnick concludes:

“The punch line of my study is that there is indeed a significant impact from the past bankruptcies of neighbors (as defined by the very small Canadian Post Codes) to the probability that an individual in the neighborhood will file . . . I propose, and provide evidence for, the hypothesis that if a defaulter lives in a neighborhood with a large number of previous bankruptcies among the neighbors, then that individual will choose to default via bankruptcy rather than charge-off. This is because more neighborhood bankruptcies will lower stigma or provide more information about the process of bankruptcy.

On the other hand, I show that defaulters who live in low bankruptcy neighborhoods choose to default via charge-off rather than bankruptcy. This is consistent with the argument that low bankruptcy neighborhoods have higher levels of bankruptcy stigma, thus individual defaulters choose to default via charge-off in order to maintain more privacy about their default.”

This paper not only fits within a literature on bankruptcy, but also is a nice match to work by my co-author Tess Wilkinson-Ryan on how mortgage foreclosure and other forms of breach are socially mediated events.  Abiding by onerous contracts is unpleasant, but we do it so long as it is socially validated. When it stops being socially normal to stick with terrible deals, we exit them.

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Volume 59, Issue 5 (June 2012)

Volume 59, Issue 5 (June 2012)


Articles

Implicit Bias in the Courtroom Jerry Kang et al. 1124
The Supreme Court’s Regulation of Civil Procedure: Lessons From Administrative Law Lumen N. Mulligan & Glen Staszewski 1188


Comments

Techniques for Mitigating Cognitive Biases in Fingerprint Identification Elizabeth J. Reese 1252
Credit CARD Act II: Expanding Credit Card Reform by Targeting Behavioral Biases Jonathan Slowik 1292
Shocking the Conscience: What Police Tasers and Weapon Technology Reveal About Excessive Force Law Aaron Sussman 1342
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Stanford Law Review, 64.5 (2012)

Stanford Law Review

Volume 64 • Issue 5 • May 2012

Articles
The City and the Private Right of Action
Paul A. Diller
64 Stan. L. Rev. 1109

Securities Class Actions Against Foreign Issuers
Merritt B. Fox
64 Stan. L. Rev. 1173

How Much Should Judges Be Paid?
An Empirical Study on the Effect of Judicial Pay on the State Bench

James M. Anderson & Eric Helland
64 Stan. L. Rev. 1277

Note
How Congress Could Reduce Job Discrimination by Promoting Anonymous Hiring
David Hausman
64 Stan. L. Rev. 1343

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Stanford Law Review, 64.4 (2012)

Stanford Law Review

Volume 64 • Issue 4 • April 2012

Articles
The Tragedy of the Carrots:
Economics and Politics in the Choice of Price Instruments

Brian Galle
64 Stan. L. Rev. 797

“They Saw a Protest”:
Cognitive Illiberalism and the Speech-Conduct Distinction

Dan M. Kahan, David A. Hoffman, Donald Braman, Danieli Evans & Jeffrey J. Rachlinski
64 Stan. L. Rev. 851

Constitutional Design in the Ancient World
Adriaan Lanni & Adrian Vermeule
64 Stan. L. Rev. 907

The Copyright-Innovation Tradeoff:
Property Rules, Liability Rules, and Intentional Infliction of Harm

Dotan Oliar
64 Stan. L. Rev. 951

Notes
Testing Three Commonsense Intuitions About Judicial Conduct Commissions
Jonathan Abel
64 Stan. L. Rev. 1021

Derivatives Clearinghouses and Systemic Risk:
A Bankruptcy and Dodd-Frank Analysis

Julia Lees Allen
64 Stan. L. Rev. 1079

3

Measurable Things

The Misleadingly Convenient Source of Information

A common criticism one reads of ELS is that “too much of the work is driven by the existence of a data set, rather than an intellectual or analytical point.”  It’s ironic that this is the very critique that the realists made of traditional legal scholarship. Consider the great Llewellyn:

“I am a prey, as is every man who tries to work with law, to the apperceptive mass.  I see best what I have learned to see.  I am a prey, too — as are the others — to the old truth that the available limits vision, the available bulks as if it were the whole.  What records have I of the work of magistrates?  How shall I get them?  Are there any?  And if there are, must I search them out myself?  But the appellate courts make access to their work convenient.  They issue reports, printed, bound, to be had all gathered for me in the libraries.  The convenient  source of information lures.  Men work with it, first, because it is there; and because they have worked with it, men build it into ideology.  The ideology grows and spreads and gains acceptance, acquires a force and an existence of its own, becomes a thing to conjure with:  the rules and concepts of the courts of last resort.”

Or to put it differently, all of our work – quantitative empiricists, doctrinalists, corporate finance wizards, administrative regulation parsers, legal philosophers, and derivative social psychologists alike – is driven by the materials at hand. For most lawyers and legal academics, appellate opinions are the most convenient pieces of information available; we use such opinions to create mental models of what the “law” is, and (ordinarily in legal scholarship) what it ought be. Indeed, whenever trial court opinions are cited, they are often discounted as aberrant or transitory, in part because they are known to be unrepresentative!

Why, you might wonder, is the convention of data-driven-scholarship a particular problem in quantitative empirical work? ELS’s detractors make three interrelated claims:

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0

Some Truly Fascinating Numbers on Video Game Economics

Back in October, Valve co-founder Gabe Newell explained the economics of video games as his company sees it. The Geekwire article is worth the read. For now, I’ll point out that he admits “We don’t understand what’s going on” and uses the language of co-creation of value, which I happen to believe is the current future as it were, to describe what the company is doing:

This is probably the biggest change that’s affected the gaming business over the last few years. It’s not just that we have digital distribution to our customers. It’s that we have this incredible two-way connection that we’ve never had before with our customers.
We’ve gone from a situation where we dream up a game, we spend three years making it, we put it in a box, we put it out in stores, we hope it sells, to a situation that’s incredibly more fluid and dynamic, where we’re constantly modifying the game with the participation of the customers themselves

The comments on piracy comport with insights from other industries:

One thing that we have learned is that piracy is not a pricing issue. It’s a service issue. The easiest way to stop piracy is not by putting antipiracy technology to work. It’s by giving those people a service that’s better than what they’re receiving from the pirates. For example, Russia. You say, oh, we’re going to enter Russia, people say, you’re doomed, they’ll pirate everything in Russia. Russia now outside of Germany is our largest continental European market. … the people who are telling you that Russians pirate everything are the people who wait six months to localize their product into Russia. … So that, as far as we’re concerned, is asked and answered. It doesn’t take much in terms of providing a better service to make pirates a non-issue.

The information on pricing is really cool. “[W]e varied the price of one of our products. We have Steam so we can watch user behavior in real time. That gives us a useful tool for making experiments which you can’t really do through a lot of other distribution mechanisms. What we saw was that pricing was perfectly elastic. In other words, our gross revenue would remain constant. We thought, hooray, we understand this really well. There’s no way to use price to increase or decrease the size of your business.”

Yet he goes on to describe how sales such as a 75% price reduction lead to a “gross revenue increased by a factor of 40.” They tested against a product they did not own and saw similar results. Then they tested free. It turns out free to play and and free work differently. His thought is that the user base matters because they value the products differently including “what the statement that something is free to play implies about the future value of the experience that they’re going to have.”

Furthermore, conversion rates shift too. Free to play often “see[s] about a 2 to 3 percent conversion rate of the people in their audience who actually buy something, and then with Team Fortress 2, which looks more like Arkham Asylum in terms of the user profile and the content, we see about a 20 to 30 percent conversion rate of people who are playing those games who buy something.”

What do all these tests mean? As Newell said, it’s unclear. That is why I could see some rather cool studies being done for this emerging area.