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Chicago Man, K-T Man, and the Future of Behavioral Law and Economics Vanderbilt Law Review Volume 56 Issue 6 Issue 6 - November 2003 Article 2 11-2003 Chicago Man, K-T Man, and the Future of Behavioral Law and Economics Robert A. Prentice Follow this and additional works at: https://scholarship.law.vanderbilt.edu/vlr Part of the Law and Economics Commons, and the Law and Society Commons Recommended Citation Robert A. Prentice, Chicago Man, K-T Man, and the Future of Behavioral Law and Economics, 56 Vanderbilt Law Review 1663 (2003) Available at: https://scholarship.law.vanderbilt.edu/vlr/vol56/iss6/2 This Article is brought to you for free and open access by Scholarship@Vanderbilt Law. It has been accepted for inclusion in Vanderbilt Law Review by an authorized editor of Scholarship@Vanderbilt Law. For more information, please contact [email protected]. CHICAGO MAN, K-T MAN, AND THE FUTURE OF BEHAVIORAL LAW AND ECONOMICS Robert A. Prentice* I. INTRODU CTION ................................................................... 1664 II. A BRIEF OVERVIEW OF LEGAL DECISION THEORY .............. 1671 III. LIMITATIONS ON BEHAVIORAL DECISION THEORY: ARE SOCIAL SCIENTISTS SCIENTIFIC? ................. 1677 A. Does Behavioral Decision Theory Mask Individual and SituationalDifferences in Rational Behavior and Distort Perceptions of the Prevalence of IrrationalBehavior? ..................... .... .... .... .... .... .. 1679 1. Between- Subjects Designs .......................... 1679 2. Null Hypothesis Significance Testing ......... 1686 3. The File Drawer Problem ............................ 1693 B. Does Behavioral Decision Theory Have Features That Increase the Likelihood of IrrationalBehavior in Experimental Settings? ................. ... .... ..... .... ....1696 1. Experiments Designed To Elicit Non-normative Responses ........................... 1696 2. Lack of Feedback and Learning O pportunities ............................................... 1702 3. Conversational Cues and Demand Characteristics ............................................ 1705 a. Conversational Cues ......................... 1706 b. Demand Characteristics................... 1707 4. Use of Ecologically Suspect Formats .......... 1710 5. Deprivation of Decision Tools ..................... 1711 University Distinguished Teaching Professor and Ed & Molly Smith Centennial Professor of Business Law, McCombs School of Business, University of Texas at Austin. The author thanks Jonathan J. Koehler, Jeffrey Rachlinksi, and Frank Cross for their helpful comments. All views expressed herein are mine alone. 1663 1664 VANDERBILT LAW REVIEW [Vol. 56:1663 C. Does Behavioral Decision Theory Have Features That Limit the Importance of the Research for the Legal System ? ........................... ........................1711 1. Real World Success Versus Normative C oherence .................................................... 1712 2. Individual Decision Making Versus Group D ecision M aking .......................................... 1714 3. Framing Research Confounds and C on fu ses ....................................................... 1715 4. Neglect of Systematic Information-Processing Modes .................... 1717 D . F inal Insights........................................................... 1718 IV. How MUCH INDIVIDUAL VARIATION EXISTS IN HUMAN REASONING AND WHAT ARE ITS IMPLICATIONS? ................1722 A. Individual Differences in Rational Behavior........... 1726 1. Differences Across Individuals .................... 1726 a. E ducation ......................................... 1726 i. Deductive Reasoning ............. 1729 ii. Inductive Reasoning .............. 1731 b. Cognitive Capacity............................ 1735 2. Differences Within Individuals ................... 1738 B. Situational Differences ............................................ 1744 1. A ccountability .............................................. 1745 2. Hypothetical Consequences ......................... 1748 C. Implications for Legal Theory .................................. 1755 1. The Realism Versus Parsimony Trade-O ff ..................................................... 1755 2. Mitchell's Suggestions ................................. 1761 3. First, Do No H arm ....................................... 1762 D . F inal Insights........................................................... 1764 V. LEGAL DECISION THEORY: AN ASSESSMENT ...................... 1765 V I. C ON CLU SION ....................................................................... 1773 I. INTRODUCTION Most law is aimed at shaping human behavior, encouraging that which is good for society and discouraging that which is bad.' 1. See Jeremy A. Blumenthal, Law and Social Science in the Twenty-First Century, 12 S. CAL. INTERDISC. L.J. 1, 52 (2002) ("[T]he legal system is fundamentally based on assumptions about human behavior."); Chris Guthrie, Prospect Theory, Risk Preference, & the Law, 97 NW. U. L. REV. 1115, 1115 (2003) ("Only with an understanding of how people are likely to respond to legal rules can legal scholars, judges, legislators, and regulators craft rules that encourage 2003] BEHAVIORAL LAW AND ECONOMICS 1665 Nonetheless, for most of the history of our legal system, laws were passed, cases were decided, and academics pontificated about the law based on nothing more than common sense assumptions about how people make decisions. 2 A quarter century or more ago, the law and economics movement 3 replaced these common sense assumptions with a well-considered and expressly stated assumption-that man is a rational maximizer of his expected utilities.4 Based on this premise, desirable behavior and discourage undesirable behavior."); Donald C. Langevoort, Behavioral Theories of Judgment and Decision Making in Legal Scholarship:A Literature Review, 51 VAND. L. REV. 1499, 1499 (1998) ("Nearly all interesting legal issues require accurate predictions about human behavior to be resolved satisfactorily."). 2. See HUGO MUNSTERBERG, ON THE WITNESS STAND 10-11 (1908) (complaining that "[tihe lawyer and the judge and the juryman are sure that they do not need the experimental psychologist.... They go on thinking that their legal instinct and their common sense supplies [sic] them with all that is needed and somewhat more."). 3. The importance of economic analysis to law is usually traced to two seminal articles by Calabresi and Coase. See Guido Calabresi, Some Thoughts on Risk Distribution and the Law of Torts, 70 YALE L.J. 499 (1961) (analyzing the economic logic of tort law); Ronald Coase, The Problem of Social Cost, 3 J.L. & ECON. 1 (1960) (using economic principles to analyze nuisance law). However, the true founder of the law and economics movement is Judge Richard Posner. See RICHARD A. POSNER, ECONOMIC ANALYSIS OF LAW (1st ed. 1973). 4. POSNER, supra note 3, at 2-6; see also PAUL HEYNE, THE ECONOMIC WAY OF THINKING 2 (2d ed. 1976) (noting that the rational man model is "basically a way of thinking" and that economics assumes that everyone "acts in accordance with that rule: miser or spendthrift, saint or sinner, consumer or seller, politician or business executive, cautious calculator or spontaneous improviser"); Gregory S. Crespi, Does the Chicago School Need to Expand Its Curriculum?, 22 LAW & SOC. INQUIRY 149, 150-51 (1997) (observing that the two core assumptions of law and economics are that decision makers are rational actors and that the appropriate goal of policy is wealth maximization); Roger G. Noll & James E. Krier, Some Implications of Cognitive Psychology for Risk Regulation, 19 J. LEGAL STUD. 747, 750-51 (1990) (summarizing core assumptions of the standard model); Richard A. Posner, Values and Consequences: An Introduction to Economic Analysis of Law, in CHICAGO LECTURES IN LAW AND ECONOMICS 189, 191 (Eric A. Posner ed., 2000) ("Most economic analysis consists of tracing out the consequences of assuming that people are more or less rational in their social interactions."); W. Kip Viscusi, Individual Rationality, Hazard Warnings, and the Foundationsof Tort Law, 48 RUTGERS L. REV. 625, 636 (1996) (noting that the "foundation of economic analysis of choice is based on the rationality of individual decision making"). According to this viewpoint: Individuals are assumed to act as if they maximize expected utility. That is, an individual's preferences are taken as given, consistent, and representable in the form of a utility function. An individual knows a priori the set of alternative actions and chooses the action with the highest utility or expectation thereof. When uncertainty exists as to the actions' consequences, an individual can assess the probability distribution corresponding to his or her knowledge. When new information may be collected from the environment, an individual knows the information's possible content and can assess, in accord with Bayes' theorem, the probability distribution conditioned on the conjunction of such content and his or her prior knowledge. William S. Waller, Decision-Making Research in Managerial Accounting: Return to Behavioral- Economics Foundations, in JUDGMENT AND DECISION-MAKING RESEARCH IN ACCOUNTING AND AUDITING 29, 32 (Robert H. Ashton & Alison H. Ashton eds., 1995); see also Thomas S. Ulen, Cognitive Imperfections and the Economic Analysis of Law, 12 HAMLINE L. REV. 385, 386 (1989) (providing a similar summary). 1666 VANDERBILT LAW REVIEW [Vol. 56:1663 law and economics has dominated interdisciplinary thought in the legal academy for the past thirty years.5 In the past decade it has become clear, however, that people simply
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