Thursday, March 6, 2008
It's high noon in L’etoile du Nord, and the big guns are out and firing. In its "Exchange" forum, the Minnesota Law Review is featuring lively contributions by NYU's Oren Bar-Gill (left) and the University of Chicago's Richard Epstein (below left).
Bar-Gill's essay, The Behavioral Economics of Consumer Contracts, addresses the question of whether the fact that individuals make mistakes merits legal intervention. In order to answer this question, Bar-Gill answers four sub-questions: (1) Do consumers suffer from systematic misperception of the costs and benefits associated with certain products? (2) Do sophisticated sellers respond strategically to consumer misperception? (3) Is consumer misperception and sellers' response thereto welfare-reducing? (4) Is legal intervention warranted and if so what type of legal internvetion is desirable?
In his response, The Neoclasical Economics of Consumer Contracts, Richard Epstein contends that "Bar-Gill overstates the level of consumer error by underestimating the corrective powers already at work." Epstein further argues that both Bar-Gill and the behavioral economists on whom he relies "ignore more traditional explanations that better account for the apparently irrational behavior that they observe." Finally, Epstein suggets that credit markets themelves, especially as aided by the introduction of new technologies such as the Internet, provide "the most powerful way to combat all sorts of consumer misperceptions."