Economic Theories on Behavioral Law - Dictionary of Arguments
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Behavioral Law/Economic theories/Jolls: In the discussion (...) of debiasing through law, the focus is on scenarios in which optimism bias is thought to produce an overall underestimation of the risk of educational loan default. >Cognitive bias/Economic theories, >Risk perception/Economic theories, >Optimism bias/Bibas, >Bounded rationality/Jolls, >Bounded rationality/Simon, >Availability heuristics/Economic theories, >Non-omniscience/Jolls.
Biases/legal policy: The legal debiasing strategies discussed here should be distinguished from alterations in the incentives facing decision-makers. In the conception of debiasing through law employed here, debiasing strategies do not involve providing people with improved incentives in the hope of reducing their bounded rationality. In some cases, providing incentives may in fact diminish various forms of bounded rationality, and a broad definition of debiasing might embrace the use of incentives to produce such reductions (for example, Fischhoff, 1982)(1).
Vs: A more conservative view, however, is that if boundedly rational behavior is eliminated with the provision of financial incentives, then the apparent boundedly rational behavior was not boundedly rational at all, but instead a mere result of lazy or careless decision-making by an actor who had no reason to be other than lazy or careless.
Jolls: Under the latter view, which is adopted here, debiasing occurs when bounded rationality is reduced not as a result of the provision of financial incentives, but rather as a result of intervening in and altering the situation in which the bounded rationality arose.
Influence of firms: An important remaining question about debiasing through law concerns the prospects for firms’ influence over consumer perceptions under the proposed legal debiasing strategy. As Glaeser (2004(2), p. 410) writes, “One should expect to see a proliferation of misleading signals and other cues when incorrect beliefs are complements to buying sellers’ commodities.” In the present context, this influence suggests the importance of maintaining
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legal control over the nature and format of the accounts firms are required to provide. It is possible that such firms, influenced by market pressures, would manage to subvert attempts to achieve debiasing through the >availability heuristic.
Consumer information: At the same time, with such debiasing as with any informationally oriented strategy, there are important countervailing benefits to limiting the degree of overspecification of required messaging (Beales, Craswell, and Salop, 1981)(3),(...).
1. Fischhoff, Baruch (1982). “Debiasing,” in Daniel Kahneman, Paul Slovic, and Amos Tversky, eds., Judgment Under Uncertainty: Heuristics and Biases, 422–444. New York: Cambridge University Press.
2. Glaeser, Edward (2004). “Psychology and the Market.” American Economic Review: Papers and Proceedings 94: 408–413.
3. Beales, Howard, Richard Craswell, and Steven C. Salop (1981). “The Efficient Regulation of Consumer Information.” Journal of Law and Economics 24: 491–539.
Jolls, Christine, „Bounded Rationality, Behavioral Economics, and the Law“. In: Parisi, Francesco (ed) (2017). The Oxford Handbook of Law and Economics. Vol 1: Methodology and Concepts. NY: Oxford University Press._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Author1]Vs[Author2] or [Author]Vs[term] is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.
Francesco Parisi (Ed)
The Oxford Handbook of Law and Economics: Volume 1: Methodology and Concepts New York 2017