Behavioral Law and Economics Behavioral Law and Economics Eyal Zamir Doron Teichman Behavioral Law and Economics Eyal Zamir and Doron Teichman © Oxford University Press 2018 Published 2018 by Oxford University Press Oxford University Press is a department of the University of Oxford It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide Oxford is a registered trademark of Oxford University Press in the UK and certain other countries Published in the United States of America by Oxford University Press 198 Madison Avenue, New York, NY 10016, United States of America © Oxford University Press 2018 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, by license, or under terms agreed with the appropriate reproduction rights organization Inquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above You must not circulate this work in any other form and you must impose this same condition on any acquirer Library of Congress Cataloging-in-Publication Data Names: Zamir, Eyal, author | Teichman, Doron, author Title: Behavioral law and economics / Eyal Zamir, Doron Teichman Description: New York : Oxford University Press, 2018 | Includes bibliographical references and index Identifiers: LCCN 2017057744 | ISBN 9780190901349 ((hardback) : alk paper) | ISBN 9780190901356 ((pbk.) : alk paper) Subjects: LCSH: Law and economics—Psychological aspects | Economics—Psychological aspects | Human behavior models—Economic aspects Classification: LCC K487.E3 Z359 2018 | DDC 340/.19—dc23 LC record available at https://lccn.loc.gov/2017057744 1 3 5 7 9 8 6 4 2 Paperback printed by WebCom, Inc., Canada Hardback printed by Bridgeport National Bindery, Inc., United States of America Note to Readers This publication is designed to provide accurate and authoritative information in regard to the subject matter covered It is based upon sources believed to be accurate and reliable and is intended to be current as of the time it was written It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services If legal advice or other expert assistance is required, the services of a competent professional person should be sought Also, to confirm that the information has not been affected or changed by recent developments, traditional legal research techniques should be used, including checking primary sources where appropriate (Based on the Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations.) You may order this or any other Oxford University Press publication by visiting the Oxford University Press website at www.oup.com To my parents, Yona and Meir Teichman D.T To Daphna, Abigail, and Yaara E.Z Contents Preface Introduction xvii Part One Economic and Psychological Background Economic Analysis of Law: An Overview A Introduction B Positive Economics C Normative Economics D Conclusion Behavioral Studies A An Overview History, Methodology, and Interdisciplinary Impact Dual-Process Theories Theories of Heuristics and Biases Cognitive Biases versus Fast-and-Frugal Heuristics Typology of Phenomena and Structure of the Chapter B Probability Assessments and Related Issues Conjunction and Disjunction Fallacies Base-Rate Neglect Inverse Fallacy Insensitivity to Sample Size and Related Phenomena Certainty Effect Availability Subadditivity 7 13 18 19 19 19 21 23 25 27 28 28 30 32 32 34 34 37 viii C on tents Hindsight Bias Ambiguity Aversion C Prospect Theory and Related Issues General Loss Aversion and Emotions Reference-Dependence Framing Effects Status Quo and Omission Biases Endowment Effect (a) Significance and Scope (b) Causes and Explanations Sunk Costs and Escalation of Commitment D Egocentrism and Motivated Reasoning General Motivated Reasoning and Confirmation Bias Overoptimism and the Better-than-Average Effect Overconfidence Naïve Realism and False-Consensus Effect Fundamental Attribution Error Planning Fallacy Illusion of Control Behavioral Ethics E Reference-Dependence and Order Effects General Contrast and Assimilation Effects Anchoring and Adjustment Order Effects: Primacy and Recency Compromise and Attraction Effects Diminishing Sensitivity F Procrastination, Myopia, and Bounded Willpower Procrastination Myopia and Bounded Willpower G Moral Judgment and Human Motivation General Deontology versus Consequentialism (a) Normative Ethics (b) Behavioral Studies Fairness and Social Justice (a) General (b) Substantive Fairness (c) Procedural Fairness (d) Belief in a Just World 38 39 42 42 44 45 46 48 50 50 53 56 58 58 58 61 64 66 68 69 71 72 76 76 77 79 82 83 85 87 87 88 93 93 94 94 97 101 101 102 104 106 C on tents Prosocial Behavior and Altruism (a) Helping Others (b) Cooperation H Cross-Phenomenal Factors Individual Differences Expertise Deciding for Others Group Decision-Making and Advice-Taking Cultural Differences Debiasing (a) Preliminary Comments (b) Technological Strategies (c) Motivational Strategies: Incentives and Accountability (d) Cognitive Strategies I Concluding Remarks ix 106 106 109 110 111 114 117 120 124 127 127 128 129 134 138 Part T wo Behavioral Law and Economics: A Synopsis An Overview of Behavioral Law and Economics A Introduction B History C Methodology D Challenges E Conclusion Normative Implications A Introduction B Behavioral Findings and Normative Theories C Prevailing Moral Judgments and the Law D Behaviorally Informed Lawmaking General Ends (a) Introduction (b) Preventing Exploitation (c) Legal Paternalism Means (a) Introduction (b) Disclosure Duties (c) Nudges and Shoves E Conclusion Behavioral Insights and Basic Features of the Law A Introduction 141 141 141 145 150 156 157 157 158 161 162 162 163 163 163 165 171 171 171 177 185 187 187 604 In de x consumer contracts (Cont.) information problems, 306–07 information overload, 285, 316 informed minority theory, 301–02 in-store hoarding, 289 limited availability, 287–90 loss aversion, 288–89 low-ball technique, 290, 378 low-probability risks, 303–04 mandatory rules, 305, 318–23 marketing techniques, 283–92 market solutions, 306–12 missing information, disregard of, 284–85, 310 multidimensional pricing, 297–98, 315 myopia, 304, 311, 316, 320–21 odd pricing, 293, 299–301 omission bias, 291–92, 305–06, 322 on-line product reviews, 306–07, 311 overoptimism, 304, 311, 313 payday loans, 314 post-contracting behavior, 305–06 price framing, 294–96 pricing, 292–301, 315 prohibition on the inclusion of invalid terms in contracts, 322–23 pyramid promotional schemes, 314 rebates, 296, 305, 382–83 renewal clauses, automatic, 305 renewal cycle, 289 reputation, 310–12 return policies, lenient, 290–92 rules versus standards, 321–22, 557 safe harbors, 314 standard-form contracts, 239, 243–45, 281–82, 301–04, 307, 310–12 sunk costs, 304, 316 trust, excessive, 306 unilateral changes by the supplier, 305–06, 307, 315 withdrawal, right of, 165, 319–20 consumer credit, 175, 282, 295, 297–98, 314–15, 320 overoptimism, 298 teaser rates, 282, 320–321 context-dependence of heuristics and biases, 152–53, 532–35 contract law, 191, 237–79, 301–04 See also consumer contracts altruism, 259–60, 278 anchoring, 245 antitrust law, and, 380–88 asymmetric information, 243, 249 auctions, 239 autonomy, 256, 269n181 availability heuristic, 245–46 bargaining power, 259 bilateral monopoly, 267 boilerplate, 243–45 bonus contracts, 274–75, 277 causa, 252 caveat emptor, 248 caveat venditor, 248 civil law systems, 246, 252, 266, 269, 274 clickwrap, 255 Coase theorem, 248 cognitive dissonance, 243, 261 cognitive rationality, 238 common law systems, 252, 253, 254n94, 266, 269, 272, 274–75, 276n222 confirmation bias, 257, 261 consideration, 252–54 consumer contracts, 239 content regulation, 239 contra proferentem interpretation, 245, 321 corporate behavior, 241n24 corrective justices, 263, 265–66 course of dealing, 247–48, 256 crowding out intrinsic motivation, 278 default rules, 181, 238, 247–52, 256–57, 277, 313 deontology, 268, 270–71 dictator game, 240–41 disclosure duties, 239 disgorgement, 191, 263, 270–72 distributive justice, 237, 250, 252, 258, 265 dollarization, 251 economic analysis of, 238–40, 247–49, 253, 256, 258, 260, 263, 267–68, 270, 273–74, 278, 380–85 efficient breach, 267–68, 270 elimination-by-aspect method, 246, 303 endowment effect, 250 expectation damages, 263, 266–71 expectation interest, 262–66 expertise, 239 externalities, 238, 279 fairness of exchange, 237 fiduciary duties, 272n197 fixed pie bias, 245 formalist heuristic, 245 formal requirement, 252–54 formation of contract, 252–55, 259, 261 framing effect, 245 German law, 262 good faith, 256–57, 261–62 guilt aversion, 241 hindsight bias, 277 incomplete contracts, 239, 248 information overload, 246 information problems, 238 insurance contracts, 250–52, 311 intention to be legally bound, 252 interpretation and supplementation, 256–58 Israel, 251–52, 270, 273, 278 Kaldor-Hicks efficiency, 237 In de x labor and employment contracts, 250–51 liberal (will) theories of, 237, 256, 263, 264 liquidated damages, 263, 273–79 loss aversion, 271–72 mandatory rules, 252 market failure, 238 mitigation of losses, 267, 554–55 moral hazard, 239 moral judgments, 244, 258, 272–73, 277, 279 motivated reasoning, 243, 257 motivational rationality, 238 non-legal sanctions, 259, 262 no-reading problem, 239, 243, 301–04 offer and acceptance, 252, 255 omission bias, 250 overoptimism, 257, 276 Pareto efficiency, 237 pay now, terms later (PNTL), 255 penalty default rules, 249 plain meaning rule, 257 planning fallacy, 276 procedural fairness, 243 promise, and, 237–43, 252, 254, 261, 264–66, 268, 270, 272, 277–79 promissory estoppel, 247n54 prospect theory, 273 reactive devaluation, 246 real-estate contracts, 251 reciprocity, 254, 259 reference dependence, 247 reference point, 247, 249, 259–60, 264–66, 271, 342 reliance, 254, 262–66, 268, 271 renewal, automatic, 305 restitution, 254, 262–63, 271 retaliation, 259 risk aversion for gains, 245 risk seeking for losses, 245 Robin Hood effect, 244n34 self-serving bias, 245 shrink-wrap, 255 specific performance, 263, 266–71 standard-form contracts, 239, 243–45, 258, 301–04, 310–12 status quo bias, 249 stickiness of default rules, 249–52 strict liability, 272 trade usages, 247–50 trust, excessive, 276–77 trust game, 239–40 contrast effect, 77–79, 503, 534–35, 543 priming, and, 78–79 cooling-off periods, 165, 290–92, 313 cooperation, 109–10, 426–27 See also prosocial behavior and altruism conditional cooperation, 476 incentives, and, 131 prisoner’s dilemma, 11–12, 73, 109–10, 121, 426 public goods games, 109–10, 426–27 rationality, and, 109–10 reciprocation, 110 social exchange theories, 516–18 social-value orientation, 110 tragedy of the commons, 109–10 corporate finance, behavioral, 357–58 See also corporate law ambiguity aversion, 357 anchoring, 357, 373 antitrust law, 380, 386 arbitrage, 357 equity premium puzzle, 357 fraud-on-the-market doctrine, 371 loss aversion, 357, 373 mental accounting, 357 prospect theory, 357 regret aversion, 373 representativeness heuristic, 373 corporate law, 358–70 See also corporate finance, behavioral anchoring, 361 agency problem, 358, 367 board of directors, 361, 364–70 business judgment rule, 359–60 chief executive officer (CEO), 361–66, 368 confirmation bias, 365 corporate governance, 358, 360–70 derivative lawsuits, 367–68 economic analysis of, 358–59, 367 endowment effect, 360–61 fundamental attribution error, 362 gender representation on boards, 370 groupthink, 361, 365 herd effect, and, 366 hindsight bias, 359–60 in-group bias, 366 Lehman Sisters Hypothesis, 369 loss aversion, 361 mergers, 363–64 motivational rationality, 361 nudges, 370 omission bias, 365 overconfidence, 362–64, 366, 369–70 reciprocity, 364–65 status quo bias, 365 sunk costs, 365 ultimatum game, 361 correspondence bias See fundamental attribution error criminal law, 192, 433–63, 584–85, 595–98 abandonment doctrine, 442 affective forecasting, 452–53 altruism, 455 ambiguity aversion, 448 ambiguity, legal, 457–58 605 606 In de x criminal law (Cont.) attempt, criminal, 440–43, 584–85 availability heuristic, 446–48 behavioral ethics, 455–61 burden and standard of proof, 442, 588–89, 591, 595–98 causation, 443n55 crowding out intrinsic motivation, 454–55 culpability, 436–37, 452, 552, 555 death penalty, 447, 535, 552–53 desert, 436, 438, 539, 597 deterrence, 433–37, 439, 443–56, 462–63, 539 duration neglect, 452–54 economic analysis of, 433–35, 441, 444, 450–51, 458, 462 expected sanction, 435–37, 439, 441–42, 444–51, 457–58, 555 financial deprivation, 459–60 fundamental attribution error, 443 general deterrence, 433–37, 439, 443–56, 462–63 goals, 459 hedonic adaptation, 451–53 incapacitation, 434, 438, 441, 446, 453n100, 596 loss aversion, 458–59 marginal deterrence, 442 moral judgment, 436–43, 595–98 necessity, 192 objective-list theories of human welfare, 453 outcome bias, 442 overoptimism, 446 postdiction and prediction, 448–49 preference satisfaction theory of human welfare, 453 probability matching, 462–63 probability of detection 435–37, 439, 441–42, 444–51, 457–58, 555 procedural fairness, 438n29 prospect theory, 444–45 recidivism, 438, 449–51, 461–463, 552 reference point, 445, 459 repeat offenders, 438, 449–51, 461–463, 552 retributive theory of punishment, 451–53, 462, 555, 597 risk aversion for gains, 445 risk seeking for losses, 444–45 specific deterrence, 433 sunk cost, 433 timing of enforcement, 450–51 tort law, 435 underweighting of rare events, 449–51 wrongfulness, 436–37, 452, 555 cross-cultural differences See cultural differences crowding out intrinsic motivation, 131, 176, 278, 473, 454–55 cultural differences, 69, 124–27, 424–25, 486, 560–61 collectivist versus individualistic societies, 125 endowment effect, 126 fundamental attribution error, 69, 126–27 happiness studies, 486 international law, challenge for behavioral analysis of, 424 myopia, 125, 126 risk aversion, 125 overconfidence, 126–27 overoptimism, 126 punishment, 560–61 damages, 121, 161, 165, 187, 191, 249, 262–79, 341–48, 350, 407, 534, 539–42, 554–56, 560, 579 caps, 542–43 contract law, 165, 191, 249, 262–79, 554–55 economic, 539–41, 560, 579 hedonic, 343–48 non-economic, 534, 539–42, 560 pain and suffering, 342–43, 407, 539, 541–42 punitive, 121, 161, 187, 350, 407, 540–41, 555–56, 560, 561n217 tort law, 341–48 deadlines, 88, 183, 185 self- versus externally-imposed, 88 debiasing, 127–38, 178, 338, 513–14, 584 accountability, 83, 132–34 ambiguity aversion, 42 anchoring, 81–82 anti-inference bias, 584 availability, 36 base-rate neglect, 30–31, 122–23, 133, 580 checklists, 128–29, 544, 554 cognitive strategies, 134–38 conjunction fallacy, 29 consider the opposite, 39, 66, 82 deadlines, 88, 183, 185 decision support systems, 128–29 direct versus indirect techniques, 134 drawing attention to the existence of the bias, 81, 135, 580, 584 evidence-based guidelines, 66 feedback, 66 frequentist terms, use of, 30–31, 136–37 hindsight bias, 39 incentives, 29, 81, 129–32 information problems, and, 127 insulation, and, 127 linear models, 129 loss aversion, and, 131–32 myopia and bounded willpower, 92–93, 130 nudges, and, 134, 178 order effects, 83 planning fallacy, 70 procrastination, 88, 130 repeat decisions, 136 rules learning, 136 In de x technological strategies, 128–29 training, 136 deciding for others, 117–20, 360–61, 374–75, 516 advising others, and, 120, 374–75 agency problem, 117, 358, 367, 393–99, 509–19 cognitive biases, and, 117–20 confirmation bias, and, 120 construal level theory, 119 endowment effect, and, 118, 360–61 loss aversion, and, 118 motivational rationality, and, 361 omission bias, and, 118 status quo bias, and, 118 decision support systems, 128–29 underuse by professionals, 129 default effect, 93, 179–82, 427–28, 508–09, 591–92 default rules, 179–82, 184–85, 247–52, 256–57, 277, 427–28, 591 contract law, 181, 185, 238, 247–52, 256–57, 277 penalty default rules, 249 personalized, 182 stickiness of, 179–82, 249–52 suppliers’ reaction, 185 deontology See moral judgments; normative (moral) theories dictator game, 102–03, 231, 240–41 diminishing sensitivity, 34, 42, 85–86 marketing, 86 price discounts, and, 296 prospect theory, in, 34, 42 reflection effect, and the, 85–86 spatial distances, 86 disclosure duties, 171–77, 239, 287, 314–18, 317, 351–54, 373, 375–77 conflict of interest, 176 customer needs and behavior, regarding, 172, 315 effectiveness, limited, 173–77, 316 food labeling, 317 graphic, 173, 317 market intermediaries, 173 political economy of, 177, 315–16 price, multidimensional, 172, 315 securities regulation, in, 373, 375–77 simplification, 173, 315 timing, 173–74, 316–17 discount rate See myopia; bounded willpower disjunction fallacy, 30 disposition effect, 116 distributive justice, 17, 101, 103, 159, 181, 216, 237, 250, 252, 258, 265, 312, 478, 480–89 drawing attention to the existence of the bias, 81, 135 anchoring, and, 135 framing effect, and, 135, 137 hindsight bias, and, 135 dual-process theories, 21–22, 112, 353, 544, 562, 589–91 607 behavioral ethics, 72–76, 455–61 emotions, and, 21–22, 44–45 individual differences, 21–22, 112 motivated reasoning, 58–59 economic analysis See economic analysis of law economic analysis of law, 7–18 See also rationality, economic burden of proof, 588 contract law, 238–40, 247–49, 253, 256, 258, 260, 263, 267–68, 270, 273–74, 278, 380–85 corporate law, 358–59, 367 cost-benefit analysis, 16–17 criminal law, 433–35, 441, 444, 450–51, 458, 462 judicial decision-making, 526–27, 538, 554–55 Kaldor-Hicks efficiency, 16–17, 237 litigation, 496–97, 500, 509–11, 516, 519–20 models, use of, 9–11 monetization, 16–17 normative economics, 13–18 Pareto efficiency, 15–16, 237, 491, 496 positive economics, 8–13 social welfare function, 15–16 tort law, 325–30, 334–35, 347–48, 350 willingness to accept (WTA), 17, 50–56 willingness to pay (WTP), 16–17, 50–56 efficient market hypothesis (EMH), 356–57 See also securities regulation arbitrage, 356–57 corporate finance, behavioral, 357 fraud–on–the–market doctrine, 371 overoptimism, 356 elimination-by-aspect method, 246, 287, 303 Ellsberg paradox, 40–42 See also ambiguity aversion emotions, 21–22, 44–45, 408, 413, 414–15, 423, 571 citizens’ judgment-and-decision-making, 408 foreign policy, in, 423 information gathering and processing, and, 415 terrorism, and the fight against, 414–15 empirical legal studies, 145–50 See also methodology experimental studies, 147–49 false positive and false negative, 147 field experiments, 149–50 natural experiments, 149–50 observational studies, 146–47 randomized field experiments, 149–50 replicability, 149 vignettes, 148, 151 employment law, endowment effect, 43, 50–56, 118, 126, 181, 209–13, 250, 291, 360–61, 404, 469, 516, 523 causes and explanations, 53–56 creativity effect, and, 52, 226–27 cultural differences, 126 deciding for others, 118 608 In de x endowment effect (Cont.) decreasing marginal utility, and, 54 experimental findings, 210–11 goods held for exchange, inapplicability to, 52 group decision-making, 123 herd effect, and, 55 income and substitute effects, and, 54 intangible entitlements, in, 51, 210 intellectual property law, and, 226–27 loss aversion, and, 53 money, inapplicability to, 52, 53 property law, and, 209–13 rationality, and, 227 remedies, and, 232–34 return policies, 290–92 source of object, 52 temporary legislation, and, 404 trading experience, and, 52–53 transaction costs, and, 55 energy consumption, 175, 181, 184, 286–87, 317, 428, 472 environmental protection, 181, 184, 232–33, 406–07, 428, 469, 475 equity premium puzzle, 43–44, 357 equity theory, 102–04 escalation of commitment See sunk costs European Union law, 165, 179, 289–90, 314, 323 antirust law, 380n156, 382, 384n178 Directive on Consumer Rights, 313n181, 316n201 Directive on Unfair Commercial Practices, 165, 289–90, 314 Directive on Unfair Terms in Consumer Contracts, 305n147, 320n227, 323 evidence law, 567–600 See also burden and standard of proof anti-inference bias, 582–85 base-rate neglect, 579–80 bounded rationality facilitating truth finding, 598–99 burden and standard of proof in civil proceedings, 587–89, 592, 593–95 burden and standard of proof in criminal proceedings, 442, 588–91, 595–98 circumstantial evidence, 582–85 confirmation bias of police investigators, 571, 575 consistency of testimony, 574, 598–99 cross-examination, 586, 598–99 demeanor, 572–74, 576 detail of testimonies, level of, 574, 598–99 expert testimonies, 585–87 eyewitness testimonies, assessment of, 572–74, 576 eyewitness testimony, 568–72, 574–76, 582–83, 598–99 false positive and false negative, 575, 588, 594–95, 596–97 forensic evidence, 583, 585–86 gatecrasher scenario, 579 hearsay, 546, 547n134, 549 illegally obtained evidence, 545–46 inadmissible evidence, 545–50, 562–63 inevitable discovery doctrine, 547–48 Innocence Project, 568–69 inverse fallacy, 581 lies detection, 572–76 lineups, 569–70, 575–76, 586 loss aversion, and, 584 misidentification, 568–71 past convictions, 545–48 police investigations, 569–72, 574–75 presumptions, 584, 588, 592 privileged information, 547 probabilistic evidence, 576–81, 582 probable cause determination, 536, 547, 562–63 simulation heuristic, 577–78, 583 statistical evidence, naked, 577–79 story model of fact-finding, 257, 528–33, 583, 589–91 subjective probability assessments, 577, 582, 583–84 tunnel vision of police investigators, 571, 575 weight of evidence, 578–79 Wells effect, 577–79, 580 witness confidence, 570, 572, 575 evolutionary theories of law, 192–93 loss aversion, and, 192–93 expected utility theory, 19, 34, 41, 56–57, 89, 168, 188, 196, 296, 457–58 experimental legal studies See empirical legal studies expert decision-making, 29, 65–66, 114–17, 239, 396–99, 513–15, 522–23, 585–87 See also judicial decision-making anchoring, 81–82 asymmetric feedback, 115 attorneys, 513–15, 522–23 confirmation bias, 586 conjunction fallacy, 29 decision support systems, use of, 115, 129 definition of expertise, 114 dual-process reasoning and expertise, 114 evidence-based decision-making, 66, 129, 587 feedback, importance of, 114–15 inverse fallacy, 581 judges, 544, 561–64, 581 overconfidence, 65–66, 115, 585 public officials, 396–99 schematic thinking, 115 susceptibility of cognitive biases, 116 expertise See expert decision-making exploitation of bounded rationality, 163–65, 283–306, 402–04, 408–09 externalities, 11, 163, 189–90, 214, 225, 238, 301–02, 309, 326–29, 490 In de x fairness, judgments of, 101–06, 476, 481, 500–01, 512, 520 See also moral judgments bargaining, in, 230–31 corrective and distributive justice, 101–02, 237 division fairness, 512 equality, 103–04, 481 equity theory, 102–04 exchange, of, 237, 512 experimental game theory, 102–03 fairness constraint on profit maximization, 103 gender differences, 103–04 needs, 103–04 procedural fairness, 101, 104–06, 438n29, 476, 501 self-interest, and, 102, 105 social comparison, 104, 105, 481 family law, fast-and-frugal heuristics, 25–26, 29 financial investments, 33, 36, 43, 49, 116, 373–80 disposition effect, 116 equity premium puzzle, 43–44, 357 loss aversion, 116 financial literacy, 320 See also illiteracy; innumeracy Fixed-pie bias, 245, 502 forced choices, 182–83, 185 framing, 46–48, 116, 130, 245, 421, 465, 472–74, 482, 504, 515, 543, 562, 594 See also default effect Asian disease experiment, 46–47 attribute framing, 47 citizens’ judgment-and-decision-making, 407, 421, 482 debiasing, 130 drawing attention to the existence of the bias, 135, 137 expertise, and, 116 goal framing, 47 incentives, 130 intertemporal choices, 90 judicial decision-making, 543, 562 law, by the, 179–82, 196, 207–09, 223 marketing, in, 48, 286–87 meta-analyses, 47–48 prices, 164, 294–96 prospect theory, and, 46–48 real-world studies, 48 risky choice framing, 46–47 taxes, of, 465, 472–74, 482 tax expenditure budgets, 473–74 freedom of speech, 409, 410–14 commercial speech, 411–12 content-based versus content-neutral restrictions, 411, 413–14 instrumental justifications and behavioral findings, 412 normative and doctrinal background, 410–11 functional magnetic resonance imaging (fMRI), 20, 44 fundamental attribution error, 63, 67, 68–69, 362, 372, 386, 443, 571 cultural differences, 69, 125–27 explanations for, 68–69 mood, and, 69 planning fallacy, and, 70 gambler’s fallacy, 33 game theory, 11–12, 73, 102–03, 109–10, 239–41, 426–27 dictator game, 102–03, 231, 240–41 prisoner’s dilemma, 11–12, 73, 109–10, 121, 426 public goods games, 109–10, 426–27 trust game, 239–40 ultimatum game, 102–03, 230–31, 361 gender differences, 76, 99–100, 103–04, 112–13, 369–70, 486 Germany and German law, 266, 306n150, 320–21, 399n28, 486, 563 goals, 46, 47, 86, 90, 370, 459 See also reference points group decision-making, 41, 120–24, 559–61 ambiguity aversion, 41 base-rate neglect, 122–23 common knowledge effect, 122 composition of group, 120 conjunction fallacy, 122–23 decision procedures, 120 endowment effect, 123 group polarization, 122, 123, 416 groupthink, 361, 365, 396, 416, 571 individual decision-making, compared to, 120–121 information sharing, 121–22 intellective versus judgmental tasks, 121 loss aversion, 123 planning fallacy, 123 social comparison, and, 122 group polarization, 122, 123, 416, 559–60 gym membership, 130, 164–65, 315, 319–20 halo effect, 286 happiness studies, 160, 485–87 See also hedonic adaptation financial satisfaction, 486 gender differences, 486 reported versus actual happiness, 487 wealth and happiness, 485–87 hedonic adaptation, 45, 344–47, 451–53, 486, 504 lottery winning, 486 herd effect, 55, 219n101, 304, 366 See also conformity effect heterogeneity See individual differences heuristics and biases, 21–28 See also specific phenomena adaptive advantages, 26 609 610 In de x heuristics and biases (Cont.) attribute substitution, 23–24 complexity, 27 ecological validity, 25–26, 31, 59 effort-reduction mechanisms, 24 fast-and-frugal heuristics, and, 25–26, 29 isolation effect, 24, 135–36, 172, 284–85, 465, 470, 475 overgeneralization, 24–25, 41, 584 typology, 27–28 hindsight bias, 38–39, 111, 135, 228–29, 277, 336–39, 354, 359–60, 372, 401, 408, 535–36, 543, 549, 562–63 cognitive ability, and, 111 consider the opposite, and, 135 debiasing, 39, 130, 135, 338 drawing attention to the existence of the bias, 135 incentives, 130 intellectual property law, 228–29 judicial decision-making, 401, 418, 535–36, 543, 549, 562–63 tort law, 336–39, 354 history of behavioral law and economics, 141–45 homo economicus See rationality, economic human rights law, 190–92, 409–14, 417–22, 429–30, 480 affirmative action, 191–92, 419–22 freedom of speech, 410–14 human rights impact assessments, 417–18 refugee law, 192, 429–30 social and economic rights, 190–91, 480 terrorism, fight against, 414–19 identifiability effect, 97, 101, 221, 400–01, 419–22, 429–30, 468 affirmative action, and, 419–22 refugee law, 429–30 illiteracy, 174–75, 351, 373, 376 illusion of control, 71–72, 351–52, 385–86, 520 prediction versus control, 71 Implicit Association Test (IAT), 551–53 incentives, 29, 81, 129–32, 433–37, 439, 443–56, 462–63, 489, 490–92, 588 See also debiasing bounded willpower, and, 130 calibration, 131 cognitive biases, and, 130–32 crowding out intrinsic motivation, 131 effort, and, 130 framing effect, 130 hindsight bias, 130 preference reversals, and, 131 procrastination, 130 prosocial behavior, and, 131 taxes, through, 490–92 individual differences in judgment and decisionmaking, 75, 111–14, 151, 173, 182 behavioral ethics, 75 cognitive ability and, 111–13 personality traits, and, 113 policymaking, as a challenge to, 111, 170–71 information overload, 173–74, 246, 285, 316 information problems, 127, 154, 163–64, 171–77, 238, 243, 249, 282, 306–07, 496, 506, 520 in-group and out-group identity, 68, 76, 78, 110, 366, 416, 418 terrorism, and the fight against, 416 innumeracy, 174–75, 351 intellectual property, 222–29 attribution, right of, 224 creativity effect, 226–27 endowment effect, 226–27 hindsight bias, 228–29 innovation lottery, 224–26 patents, 224–26, 227–29 pervasive infringements, 222–23 plagiarism, 222–23 self-serving biases, and, 225 sequential innovations, 227–28 interdisciplinary research, 152 international law, 192, 393–94, 423–30 asylum seekers, 192, 429–30 behavioral analysis, relative paucity of, 393–94, 423 challenges facing behavioral analysis of, 423–25 customary law, 426 emotions, 423 fundamental attribution error, 423 global climate change, 428 group and institutional decision-making, 394, 424 international conflicts, 423 international relations, behavioral analysis of, 393–94, 423 international tribunals, 425–26 judicial decision-making, 541, 547, 562 loss aversion, 423, 429–30 overconfidence, 323 public choice theory, 394–97, 404–05 refugee law, 192, 429–30 sunk costs, 423 treaty law, 424, 425, 427–30 intertemporal preferences See myopia and bounded willpower inverse fallacy, 32, 543, 581 isolation effect, 24, 135–36, 172, 284–85, 470, 475 Israel and Israeli law, 165, 208, 378 Auto Accident Compensation Act, 328n10 bank fees, 298 Consumer Protection Law, 165, 305n147, 313n181, 319–20 cooling-off periods, 313n181 day-care, 278, 455 disgorgement remedy, 270 dollarization, 251 In de x fundamental breach, 273 housing loans, 320 long-term lease, 208–09 low-ball fees, 378 odd pricing, 293, 300–01 parole boards, 544nn120–121 renewal of contracts, automatic, 305 Standard Contracts Law, 306n150, 320n227, 321n234 withdrawal, right of, 319–20 joint versus separate evaluations, 400 judgment-and-decision-making studies (JDM), 19–28 interdisciplinary impact, 19–20 judicial decision-making, 397–402, 418, 525–600 See also evidence law, judicial lawmaking; judicial review accountability, 554 American Legal Realism, 532, 556 anchoring, 540–44, 562 attitudinal model of, 525 Bayesian reasoning, 528, 531 better-than-average effect, 543 bias toward leniency, 559, 561 burden and standard of proof, 527, 537, 548, 560 checklists, 544, 554 Cognitive Reflection Test, 562 coherence-based reasoning, 257, 528–33, 558, 583, 589–91 coherence shift, 530–31, 558 compromise effect, 533–34, 543 confirmation bias, 549 conjunction fallacy, 543 context dependence, 532–35 contrast effect, 534–35, 543 Critical Legal Studies, 556 cultural cognition, 544 cultural differences, 560–61 damages, 533–34, 539–43, 554–56, 560, 561n217 death penalty, 535, 552–553 debiasing, 544 dual-process theories, 544, 562 economic analysis of, 526–27, 538, 554–55 escalation of commitment, 538 expert decision making and judges, 544, 561–64, 581 forensic psychology, 525 framing effect, 543, 562 group decision-making, 559–61 group polarization, 559–60 guidelines, 534, 539, 543 heuristics and biases, 527, 532–44, 544, 559, 562 hindsight bias, 535–36, 543, 549, 562–63 identity-protection cognition, 544 Implicit Association Test (IAT), 551–53 implicit bias, 551–54 inadmissible evidence, 545–50, 562–63 intention + anchor model, 540 inverse fallacy, 543 judges versus laypersons, 544, 561–64, 581 jurors and judges compared, 535–36, 539, 543, 546–48, 555, 563–65 jury instructions, 530–32, 543, 548–50, 576, 584, 591 lawmaking, judicial, 399–402 mental depletion, 544 mootness doctrine, 538 moral judgements, 554–56 motivated reasoning, 544, 547, 557 naïve realism, 544 neo-institutional model of, 525 omission bias, 418, 537–38, 543, 594 order effect, 532–33 outrage model, 540 overcorrection, 547n134 parole board, 544nn120–21 primacy effect, 533 priming, 550–54 probable cause determination, 536, 547, 562–63 punishment, 539–40, 543, 552–53, 555, 561 qualitative and quantitative judgments, 538–44, 560 rational choice model of, 525 reactance theory, 549 recency effect, 533 rules versus standards, 556–59, 564 stare decisis, 538 status quo bias, 537–38 story model, 257, 528–33, 589–91 sunk costs, 538 judicial lawmaking, 399–402 accountability, and, 401 anchoring, 400 availability heuristic, 400 emotions, and, 402 hindsight bias, and, 401 identifiability effect, 400–01 joint versus separate evaluations, 400 legislation, compared to, 399–402 judicial review, 190–91, 398–99, 418 hindsight bias, and, 418 jury instructions, 530–32, 543, 548–50, 576, 584, 591 just world, belief in a See belief in a just world justice See fairness, judgments of Kahneman, Daniel, 20, 21, 24, 25, 27–37, 42–57, 69–70, 79–82, 116, 144, 153, 265, 342–43, 437, 453, 540, 560, 577 See also prospect theory Kaldor-Hicks efficiency, 16–17, 237 land-use regulation, 207, 215–17 See also property law law of small numbers, 32–34, 116 611 612 In de x lawyer fees, 164, 496–97, 509–12, 516–17 contingent fees, 43, 164, 510–12 legislative decision-making, 396–402 judicial lawmaking, compared to, 399–402 temporary legislation, 402–04 liability rules See property rules versus liability rules libertarian paternalism See nudges Litigants’ behavior, 495–523 agency problem, 509–19 alternative dispute resolution (ADR), 496, 507–09, 523 altruism, 518 ambiguity aversion, 508 anchoring, 515 apology, 501, 509 assortative matching, 512 asymmetric information, 496, 506, 520 attitude polarization, 498, 523 attorneys and, 499–500, 502, 504, 506–07, 509–19, 521–22 attorneys’ fees, 496–97, 509–12, 516–17 bargaining power, 496–97 behavioral ethics, 518 bilateral monopoly, 496 compromise effect, 503 confirmation bias, 497, 515, 523 consider the opposite and attorneys, 513–14 contingent fees, 510–12 contrast effect, 503 debiasing, 513–14 deciding for others, 516 decision affect theory, 506 default effect, 508–09 discovery, 497 division fairness, 512 economic analysis of, 496–97, 500, 509–11, 516, 519–20 endowment effect, 516, 523 expert decision-making and attorneys, 513–15, 522–23 fairness of exchange, 512 fee shifting, 497 fixed-pie bias, 502 focal point, 512 framing effect, 504, 515 frivolous suits, 504 hedonic adaptation, 504 illusion of control, 520 loss aversion, 506–07, 509, 511, 521–22, 593–95 omission bias, 516 overconfidence, 499, 508, 513–14, 520 overoptimism, 499, 508, 513–14, 520 Pareto efficiency, 496 plea bargains, 519–23 precedent, 497, 500, 513 procedural fairness, 501 prospect theory, 504 reactive devaluation, 502, 508, 523 reciprocity, 516 reference point, 502–03, 521, 593–94 regret aversion, 505–07, 509, 522 reputation, 496 reservation value, 496, 503 retribution, 500–01, 508 risk aversion for gains, 503–04, 509, 515–16 risk seeking for losses, 503–04, 508–09, 512, 515–16, 520–21, 523 self-serving biases, 498–501, 518–20, 523 social exchange theories, 516–18 status quo bias, 508–09, 523 subadditivity, 514–15 substantive fairness, 500–01, 520 sunk costs, 509, 515, 523 loss aversion, 49, 114, 118, 123, 128, 131, 164, 187–97, 213–15, 217, 271–72, 288–89, 343, 357, 361, 373, 378, 388, 407, 419–22, 429, 444–45, 458–59, 469, 473–74, 477, 482, 490, 506–07, 509, 511, 521–22, 584, 593–95 See also prospect theory; omission bias, reference points age, and, 114 affirmative action, 191–92, 419–22 behavioral ethics, and, 77, 477 circumstantial evidence, and, 584 citizens’ judgment-and-decision-making, 407 civil and political rights versus social an economic rights, 190–91 contract remedies, 191, 271–72 deciding for others, 118 education, and level of education, 114 emotions, and, 44–45 endowment effect, and, 53, 56 gender differences, 114 group decision-making, 123 incentives, and designing, 131–32 individual differences, 114 legal institutions, reflection in basic, 187–97, 213–15, 217, 429 limited availability, and, 287–90 litigation, and, 506–07, 509, 511, 521–22 moral judgments, and, 194–96, 419–20, 482 omission bias, 49 rationality, and, 128, 195–96 takings versus givings, 213–15 tax law, and, 469, 473, 482, 490 tort law versus unjust enrichment, 189–90 mandatory rules, 252, 305, 318–23 market failures, 11–12, 73, 109–10, 121, 127, 154, 163–64, 171–77, 189–90, 214, 218, 222, 225, 228, 230, 238, 243, 249, 267, 282, 298, 301–02, 306–07, 309, 312, 318–20, 326–29, 380, 426, 490, 496, 506, 520 In de x behavioral market failure, 163, 282, 298, 306, 312, 318–20 bilateral monopoly, 230, 267, 496 externalities, 11, 163, 189–90, 214, 225, 238, 282, 301–02, 306, 309, 326–29, 490 free-rider problem, 110, 222, 309 holdout, 218 information as a public good, 222, 309 information problems, 127, 154, 163–64, 171–77, 238, 243, 249, 282, 306–07, 496, 506, 520 monopolies and cartels, 163, 222, 228, 282, 380 prisoner’s dilemma, 11–12, 73, 109–10, 121, 426 public goods, 73, 109, 163, 222, 426 marketing, 48, 85, 86, 92–93, 164, 283–301 See also consumer contracts; pricing advertisements, 93, 172, 284, 288, 290, 295, 300, 309, 317, 375–76 framing, 48, 85, 286–87 gifts, 86, 296 myopia, consumers’, and, 92–93, 320–32 odd pricing, 293, 299–301 pricing, 292–301 rebates, 296, 305, 382–83 market, perfectly competitive, 11, 356–57 medical sphere, judgment and decision-making in the, 32, 39, 60, 66, 116–19, 125, 129n754, 135, 137n812, 174, 335n48, 442n51, 585n115, 565 mental accounting, 57, 219n101, 234n192, 357, 488–89, 491 methodology of behavioral law and economics, 145–50 difference in differences, 474 experimental economics, 148 replicability, 149 moral judgments, 93–110, 161–62, 187–88, 194–96, 413–14, 419–20, 436–43 See also normative (moral) theories behavior, and human, 93–94, 104 contract law, in, 244, 258, 272–73, 277, 279 criminal law, and, 436–43 deontology versus consequentialism, 94–101, 554–56 doing/allowing distinction, 98, 194–96 “do the right thing,” 104 dual-process theories, and, 100 emotions, and, 100 identifiability effect, 101 intending/foreseeing distinction, 95–100, 194–95, 413–14 law, and, 94, 101, 161–62, 187, 244, 258, 272–73, 277, 279, 436–43, 554–56, 584, 595–98 law obedience, and, 94, 101, 162, 438–40, 587 loss aversion, and, 194–96, 419–20 lying, 97 moderate deontology, 97–98 protected values, 97–98, 350, 595–98 retribution, 451–53, 500–01, 508, 597 taboo trade-offs, 97–98, 595–98 thresholds, 98 trolley problem, 96, 98–100 motivated reasoning and egocentrism, 58–76, 124, 136, 243, 257, 399n25, 412n102, 458–59, 498–501, 518–20, 523, 544, 547, 557, 585 See also specific phenomena attitude polarization, 59–60 behavioral ethics, 72–76, 455–61 belief perseverance, 59 better-than-average effect, 61–64 confirmation bias, 58–61 consider the opposite, and, 136 defensive confidence, 60 egocentric advice discounting, 124 false consensus effect, 67–68 fundamental attribution error, 63, 67, 68–69 illusion of control, 71–72 naïve realism, 66–68 overconfidence, 64–66 overoptimism, 61–64 planning fallacy, 69–71 primacy effect, 59–60, 82–83 System reasoning, 58–59 myopia and bounded willpower, 88–93, 113, 125, 154, 304, 311, 316, 320–21, 351, 378, 382, 416, 428 affluence, and, 113, 483–85 age, and, 113 construal level theory, and, 91–92 cultural differences, 125 debiasing, 130 decreasing marginal utility, and, 89 deferred payments in consumer transactions, 299 demographic variables, and, 113 education, and level of, 113 framing effects, 90 gains versus losses, 90 global climate change, and, 428 goals, and, 90 hyperbolic discount rate, 89 marshmallow experiments, 90–91 poverty, and, 483–85 precommitment devices, 93 prospect theory, and, 90 rationality, and, 92 self-control, and, 89–93 uncertainty of future events, and, 89–90 naïve realism, 66–68, 544 blind spots, and, 67 need for cognition scale, 23, 112 negativity bias, 44–45 neuropsychology, 20, 44–45, 100, 330 no-reading problem, 173–76, 239, 243, 301–04 normative implications, 157–97 613 614 In de x normative (moral) theories, 13–18, 94–101, 158–61, 187–88, 194–96, 480–81, 584 See also distributive justice; moral judgments agent-relativity, 95 consequentialism, 13–14, 93–101 constraints, moral, 13, 94–97 deontology, 13, 94–101, 161–62, 194–96 doing/allowing distinction, 95–100, 194–95 excluding costs and benefits, 96–97 idealized versus realistic, 17–18 identifiability effect, and, 97 intending/foreseeing distinction, 95–100, 194–95, 413–14 lexical priority of values, 96 moderate deontology, 96–97 normative economics, 13–18 options, moral, 13, 94–96 over-demandingness of consequentialism, 13–14 preference-satisfaction theory, 15 retributive justice, 451–53, 462, 500–01, 597 rule consequentialism, 97 threshold deontology, 96–97 trolley problem, 96, 98–100 universal consequentialism, 14 welfare economics, 13–18 welfare, human, 14, 158–60, 166–67, 195–96 nudges, 85, 155, 177–85, 318, 370, 377 default effect, 93, 179–82 deadlines, 88, 183, 185 forced choices, 182–83, 185 goals, 46, 47, 86, 90, 370, 459 libertarian critique, 184–85 social norms, 183–84 Office of Information and Regulatory Affairs (OIRA), 178–79 omission bias, 48–50, 118, 132, 180, 249–50, 291–92, 305–06, 322, 365, 378, 428, 516, 537–38, 543, 594 See also status quo bias citizens’ judgment-and-decision-making, 407 deciding for others, 117–18 loss aversion, and, 49 moral responsibility, and, 50 return policies, 291 status quo bias, and, 48–50 temporary legislation, and, 403 order effects, 82–83, 116, 133, 532–33 accountability, and, 133 belief-adjustment model, 83 debiasing, 83 expertise, and, 116 primacy effect, 59–60, 82–83, 533 recency effect, 83, 533 organ donation, postmortem, 49, 180–81, 250 outcome bias, 336, 442 overconfidence, 64–66, 111, 126, 130–31, 133, 136, 351–52, 362–64, 366, 369–70, 372–73, 384, 386–87, 499, 508, 513–14, 520, 573 accountability, and, 133 adaptive advantages, 66 age, and, 114 cognitive ability, and, 111 confidence interval paradigm, 65 consider the opposite, and, 136 debiasing, 130–31 education, and, 126 expertise, and, 65–66 external validity of experimental findings, 65 incentives, 130–31 litigation, and, 499, 508, 513–14, 520 overcorrection, 547n134 overoptimism, 61–64, 87, 126, 257, 276, 298, 304, 311, 313, 330, 332–33, 335, 351, 356, 378, 385–86, 446, 499, 508, 513–14, 520 adaptive advantages, 64 cultural differences, 126 depressive realism, and, 64 divorce rate, 62 justifications, regarding ability to provide, 63 intellectual property law, and, 224–26 litigation, and, 499, 508, 513–14, 520 motivated reasoning, and, 63 planning fallacy, and, 69–71 procrastination, and, 64, 87 projection bias, 63 updating estimates, 62 Pareto efficiency, 15–16, 237, 491, 496 patent law, 224–26, 227–29 paternalism, 165–71, 178, 318, 490–92 consequentialist objections, 165–67, 319 cooling-off periods, 165 deontological objections, 167 impure paternalism, 318 learning, adverse effect on, 169, 319 libertarian, 171 mandatory rules, 318–23 normative debate, 165–71, 318 sin taxes, 165, 490–92 pension See saving personality traits, 75 behavioral ethics, and, 75 susceptibility to cognitive biases, and, 113 procrastination, and, 87 prosocial behavior, 107–08 planning fallacy, 69–71, 123, 276 adaptive advantages, 70–71 debiasing, 70 distributional information, 69–70 fundamental attribution error, and, 70 group decision-making, 123 past experience, 70 singular information, 69–70 sunk costs, and, 71 police investigations See evidence law poverty, 298, 480, 483–87, 489 judgment and decision-making, effect on, 483–85 In de x preferences, 127, 131, 166 See also welfare, human law’s impact on, 127, 166 preference reversals, 131 present bias See myopia and bounded willpower pricing, 164, 292–301, 309, 315, 374, 376–78, 383–85, 388 See also marketing acquisition value versus transaction value, 293 anchoring, and, 294 bank fees, 298, 374, 376–78 complex pricing, 297–98, 315 coupons, 287, 289, 293 deferred payments, 299 disclosure duties, 172, 315 discounts versus surcharges, 295–96 framing, 164, 294–96 internal reference price, 294 multidimensional pricing, 297–98, 315 odd pricing, 293, 299–301, 471 perceived versus actual price, 292–301, 309 predatory pricing, 383–85, 388 price acceptability, 293 quality, and, 293 reference prices, 294–96 priming, 78–79, 125–27, 284, 409, 550–54 contrast and assimilation effect, 78–79 prejudice, and, 550–54 prisoner’s dilemma, 11–12, 73, 109–10, 121, 426 probability assessments, 28–42, 111, 576–81, 582–85 ambiguity aversion, 39–42 availability heuristic, 34–36 base-rate neglect, 30–31, 122–23, 133, 579–80 Bayesian reasoning, 25n41, 31, 32, 137, 528, 531, 576nn60–61, 580–81, 591 certainty effect, 34, 43, 57 cognitive ability, and, 111 conjunction fallacy, 28–29, 122–23 disjunction fallacy, 30 expertise, and, 116, 585–87 frequentist terms, 30–31 gambler’s fallacy, 33 hindsight bias, 38–39 inverse fallacy, 32, 581 regression to the mean, 33–34 representativeness heuristic, 29–30, 373 sample size, insensitivity to, 32–34, 116, 133 simulation heuristic, 577–78 subadditivity, 37–38, 514–15 subjective, 31, 577, 582, 583–84 superadditivity, 38 probability matching, 462–63 procrastination, 64, 87–88, 119, 130, 182, 305 debiasing, 88, 130 myopia, and, 88 overoptimism, and, 64, 87 personality traits, and, 87 projection bias, 63 overoptimism, and, 63 property law, 201–36 See also intellectual property adverse possession, 212–13 bundle of sticks, 207–09, 217 constitutional property law, 213–22 determination of ownership, 204–07 endowment effect, 209–13 homes, 203, 219–22 labor theory, 204–07 land-use regulation, 207, 215–17 long-term lease, 208–09 occupation theory, 204–07 ownership, 202–13 personhood theory, 220 possession, 202–17 psychological ownership, 203–04, 209, 211–13 self-help, 213 takings, 196, 213–22 See also takings property rules versus liability rules, 229–34 prosocial behavior and altruism, 75, 106–10, 259–60, 278, 455, 518 See also cooperation bystander effect, 107 contract law, and, 259–60, 278 cooperation, 109–10 emotions, and, 107–08 helping others, 106–09 mood, and, 108 motivation and action, 106, 108–09 personality traits, and, 107–08 reciprocity and cooperation, 107, 109 situational variables, 107 social exchange theories, 516–18 social norms, 109 prospect theory, 34, 42–57, 90, 187–97, 273, 342, 357, 477, 504 See also loss aversion; reference-dependence; reference points certainty effect, 34, 43, 57 contract law, and, 273 diminishing sensitivity, 34, 42 equity premium puzzle, 43–44, 357 expertise, and, 116 framing, 46–48, 116 individual differences, 112–14 loss aversion, 42–57, 187–97 low-probability gains, 43, 224–26, 445, 504 low-probability losses, 43, 445 mixed gambles, 164, 511–12 real-world observational support, 43–44 reference-dependence, 42–57 reflection effect, 42, 85–86, 112 risk aversion for gains, 42, 112, 245, 445, 503–04, 509, 515–16 risk seeking for losses, 42, 57, 112, 245, 384, 415, 428, 444–45, 503–04, 508–09, 512, 515–16, 520–21, 523 sunk costs, and, 57 value function, 42 protected values, 97–98, 350, 595–98 psychic numbing, 86, 316, 424 public choice theory, 394–97, 404–05, 469, 471 collective action problem, 395, 214–15 public goods, 73, 109–10, 163, 222, 426 615 616 In de x Rachlinski, Jeffrey, 232–34, 336, 395–97, 428, 503, 515, 535, 546–47, 553, 561–63 rationality, economic, 9–10 ambiguity aversion, and, 41 cognitive (thin), 9–11, 20, 87, 121, 168, 527 completeness, 10 dominance, 10 economic analysis of law, 9–12 expected utility theory, 19, 34, 41, 56–57, 89, 168, 188, 196, 296, 457–58 invariance, 10 motivational (thick), 9–11, 21, 117, 168, 361, 454–55, 481, 500–01 myopia and bounded willpower, and, 92 transitivity, 10 rational choice theory See rationality, economic reciprocity and cooperation, 73, 121, 284, 364–65, 469–70, 516 group behavior, 121 redistribution policies, 480–89 See also tax law double distortion, 488 happiness studies, and, 485–87 in-kind benefits, 489 objects of redistribution, 488–489 overoptimism, and, 488 poverty, 483–87 private law, through, 488–489 progressivity, judgments of, 481–83 scarcity, 483–87 subjective well–being, wealth and, 485–87 well-being, wealth and subjective, 485–87 reference dependence, 42–57, 76–86, 104, 187–97, 247, 285–86, 482 See also specific phenomena anchoring, 79–82 assimilation effect, 77–79 attraction effect, 84–85, 134 compromise effect, 83–85 contrast effect, 77–79 diminishing sensitivity, 85–86 fairness, in judgments of, 104, 482 marketing, in, 285–86 order effects, 82–83 perceptions, 76 primacy effect, 59–60, 82–83, 533 prospect theory, in, 42–57, 76–77 recency effect, 83, 533 reference points, 45–46, 104, 210, 247, 249, 294–95, 382, 420, 502–03, 521, 591–92 adaptation, 45, 57 burden of proof as, 591–92 changes in, 45 contract law, 247, 249, 259–60, 264–66, 271 expectations, 45, 210, 420 fairness, in judgments of, 77, 104 goals, 46, 86, 459 litigation, and, 502–03, 521 multiple, 45 pricing, in, 294–95 prospect theory, in, 42–48 social comparison, 45, 104, 420, 481 refugee law, 192, 429–30 identifiability effect, and, 429–30 loss aversion, and, 429 regression to the mean, 33–34 regret aversion, 54, 373, 505–07, 509, 522 expected regret, 54 regulatory capture, 177 remedies, legal, 229–34 contract law, in, 262–73 in-kind versus monetary, 218–19, 229–34, 470 property rules versus liability rules, 229–34 tort law, in, 341–48 representativeness heuristic, 24, 29–30, 373 retirement, saving for See savings risk, attitude to, 34–40, 46–47, 57, 112, 125, 170, 245, 303–04, 324, 384, 415, 428, 476 See also prospect theory rules versus standards, 321–22, 457–58, 556–59, 564 predictability, 322, 557–59 sample size, insensitivity to, 32–34, 116, 133 accountability, and, 133 savings, 49, 63, 92–93, 125, 180, 184, 301, 379–80, 480, 490 bounded willpower, and, 92 default effect, 49, 180, 184 projection bias, and, 63 save more tomorrow, 93, 180 scarcity See poverty securities regulation, 370–80 See also corporate law 401(k) retirement saving plan, 379–80 advice giving and retail investors, 374–75 anchoring, 373 complexity of fees, 374, 376–78 confirmation bias, 372 default investment tools, 373, 377, 380 disclosure, 373, 375–77 efficient market hypothesis (EMH), 356–57 escalation of commitment, 372 financial literacy, 373, 376 fraud-on-the-market doctrine, 371 fundamental attribution error, 372 hindsight bias, 372 Israel, 378 loss aversion, 373 low-balling and mutual fund fees, 378 myopia, 378 mutual funds, 373–80 naïve diversification, 379 nudges, 377 omission bias, 378 overconfidence, 372–73 In de x overoptimism, 378 regret aversion, 373 representativeness heuristic, 373 scienter, 372–73 securities fraud, 371–73 self-control, 89–93, 518 See also myopia and bounded willpower self-serving biases See motivated reasoning and egocentrism simulation heuristic, 577–78, 583 social and economic rights, 190–91, 480 social comparison, 45, 104, 420, 481 group decision-making, and, 122 social dilemmas See cooperation social norms, 76, 109, 183–84 ethicality, and, 76 nudges, as, 183–84 prosocial behavior, and, 109 smoking, 89–93, 130, 286, 351, 465, 484, 490–92 standard of proof See burden and standard of proof status quo bias, 48–50, 118, 132, 180, 249–50, 291–92, 305–06, 365, 388, 407, 428, 469, 482, 508–09, 523, 537–38 See also omission bias story model, the, 257, 528–33, 589–91 See also judicial decision-making subadditivity, 37–38, 514–15 subjective well-being (SWB) See happiness studies; welfare, human sunk costs, 56–57, 113, 123, 132, 137, 304, 316, 365, 372, 423, 433, 509, 515, 523, 538, 571–72 accountability, and, 132 advice taking, and, 123 confirmation bias, and, 57 de-escalation of commitment, and, 57 drawing attention to the existence of the bias, 137 group decision-making, 123 individual differences, 113 planning fallacy, and, 71 professional decision-makers, 56 prospect theory, and, 57 self-justification, 56–57 sure losses, avoidance of, 56–57 temporary legislation, and, 403 sunset clauses See temporary legislation Sunstein, Cass, 36, 142–43, 178, 181, 339, 437, 447, 540, 560 superadditivity, 38 System and System See dual-process theories takings, 196, 213–22 compensation, 218–19 physical versus nonphysical, 215–17 tax law, 465–92 See also administrative law; redistribution policies aversion to the label “tax,” 466, 470–71 benefits, tax, 472–74, 475 budget balance, 468–70 challenging tax liability, 478 citizens’ judgment-and-decision-making, 465–66 compliance, 437, 448–50, 458–59, 466–67, 476–78 corporate income tax, 470 couple neutrality, 482–83 credits, tax, 472–74 cuts, tax, 468–70 deadweight loss, 466, 479–80 decision-making, impact on people’s economic, 474–80 deduction at source, 470–71, 477 deductions, tax, 472–74, 475, 482 design of, 467–74 earmarked taxes, 469–70 economic decision-making, and, 474–76 exemptions versus spending, tax, 472–74 framing, 465, 472–74, 482 hidden taxes, 465–66 incentives created by, 465–66, 490–92 income effect, 479 income tax, 470, 472, 475, 477 isolation effect, 470, 475, 483 loss aversion, 469, 473, 482, 490 marginal versus average rates, 465–66 market behavior, and, 474–76, 478–80, 491 market salience, 467, 471, 474–76, 478–80, 491 marriage neutrality, 482–83 mental accounting, and, 488–89, 491 metric effect, 465–66, 483 modifying behavior through taxes, 490–92 odd pricing, 471 paternalism, and, 490–92 Pigovian taxes, 490 political salience, 470–74 political versus economic/market salience, 467, 480 progressivity, judgments of, 481–83 property tax, 471, 472, 478 redistribution, and, 480–89 sales tax, 465–66, 474–75, 479–80 salience of taxes, 465–67, 470–74, 477, 478–80, 491 sin taxes, 165, 490–92 substitution effect, 479 tax evasion, 476–78 taxpayers’ behavior, 465–66, 474–80 toll roads, 471, 475 value added tax (VAT), 467, 470, 472 withholding, tax, 470–71, 477–78 temporary legislation, 402–04 endowment effect, and, 404 framing effect of, 404 sunk costs, and, 403 617 618 In de x terrorism, fight against, 414–19 See also constitutional law; human rights law action bias, 416–17 availability, and, 415 bounded ethicality, and, 416 confirmation bias, 416 emotions, and, 414–15 group polarization, 416 in-group bias, 416, 418 overconfidence, 416 risk-seeking, and, 415 Thaler, Richard, 51, 142, 143, 180, 339 tort law, 189–90, 253, 325–54, 435, 579, 581 activity level, 329 affective forecasting, 345–47 ambiguity aversion, 333 anchoring, 336, 340–41 availability, and, 407 bifurcation, 339–40 bilateral care, 329 care, level of, 327–29, 332–33, 337–40, 588 Coase theorem, 325 commodification, 342–43 common law, 340 comparative negligence, 340–41 compliance with regulation defense, 338–39 confirmation bias, 351 contributory negligence, 340–41 custom defense, 338–39 damages, 341–48, 579 defective product design, 349–50 disclosure duties, 351 dual-process theories, 353 economic analysis of, 325–30, 334–35, 347–48, 350 externalities, 326–29 hedonic adaptation, 344–47 hedonic damages, 343–48 hindsight bias, 336–39, 354 illiteracy, 351 illusion of control, 351–52 immune neglect, 346 innumeracy, 351 intentional tort, 325 inverse fallacy, and, 581 Learned Hand formula, 328n11 loss aversion, 343 mass torts, 579 myopia, 351 negligence, 327–29, 332–33, 336–40 no-liability regime, 327–29 objective-list theories of human welfare, 348 outcome bias, 336 overconfidence, 351–52 overoptimism, 330, 332–33, 335, 351 pain and suffering damages, 342–43, 354 preference satisfaction theory of human welfare, 348 product liability, 326, 339, 348–54, 539, 546, 555–556 product warnings, 351–54 prospect theory, 342 protected values, 350 punitive damages, 350 reference point, 342 risk aversion, 327 safe harbor, 339 safety regulation, compared with, 334–36 strict liability, 327–30, 332–33, 336, 338, 349 transaction costs, 326 underweighting of rare events, 331–33, 335, 352 willingness-to-accept (WTA) criterion and damages, 342–43, 348 willingness-to-pay (WTP) criterion and damages, 342–43, 348 trolley problem, 96, 98–100 See also moral judgments; normative (moral) theories trust game, 239–40 tunnel vision, 571 Tversky, Amos, 25, 28–37, 41, 42–57, 69–70, 79–82, 87, 116, 246, 265, 577 ultimatum game, 102–03, 230–31, 361 unjust enrichment, 189–90, 196, 253, 421 affirmative action, and, 421 warnings See drawing attention to the existence of the bias well-being See welfare, human welfare, human, 14–15, 158–60, 166–67, 348, 405, 453, 485–87 See also happiness studies focal point (actions, rules), 160–61 hedonic theories, 14, 158–60, 166, 485–87 ideal preferences, 14–15, 158–60, 166–67, 405 objective-list theories, 14, 158–60, 166, 348, 453, 485 preference satisfaction, 14–15, 158–60, 166–67, 348, 405, 453 second-order preferences, 166 WTA-WTP disparity See endowment effect WYSIATI (what you see is all there is), 24, 135–36, 172, 284–85, 310, 470, 475 .. .Behavioral Law and Economics Behavioral Law and Economics Eyal Zamir Doron Teichman Behavioral Law and Economics Eyal Zamir and Doron Teichman © Oxford University... of law Economic analysis compels one to consider the interrelationships 1. See infra pp 19–21, 25, 27 2. Guido Calabresi, The Future of Law and Economics 17–21 (2016) Behavioral Law and Economics. .. tenets of positive and normative economics; Chapter then reviews the psychological findings that form the basis of behavioral law and economics While focusing on studies of judgment and decision-making,