Monday, March 24, 2014

Some thoughts on the interplay between psychology and economics in law and behavioral economics

Recently, I attended a fascinating conference at the University of Liège named Nudging in Europe co-organized by Anne-lise Sibony and Alberto Armano.

The conference raised some interesting issues related to behavioral economics and its use for policymaking, I might write about in future posts.  

One classic, but still unanswered question raised in the discussion – which I'm not sure a blog about law and economics is the right place to raise, but I will do it any way -  is do we need economists to "baby-sit" the relationship between law and psychology. While this phrase might seem a little harsh, it does raise a few important puzzles; why is it that when most legal scholars think about law and psychology, they would think first about the mediation by behavioral economics, which at least originally, was narrower in comparison to psychology (this aspect is definitely changing in recent years). See for example Kahneman's (2003) paper.

Indeed, since the late 90' when the behavioral approach to law came to its own, many have criticized the relatively narrower scope of psychology in this “new” movement. At the same time, one might argue that it is hard to ignore the higher visibility of the triangle relationship of psychology, economics and law over the dual relationship of law and psychology, at least in the legal scholarship.

While the original approach of law and psychology focused on well-defined populations (i.e. the mentally ill, criminals, children and jury/judge (the law and behavioral economics literature has indeed lead to a dramatic increase in the areas of law researched, the type of populations analyzed and the variety of normative solutions offered. Along these lines, it has been argued that psychology will always need economics because it lacked the normative coherence and the dominant founding fathers, economics have.

In an important paper, Norton and Ariely (2007) document the differences between the methodological assumptions of psychology and those of behavioral economics. Based on these distinctions, they further describe the effect of their experimental techniques as well as the generalizability of the findings. From a legal perspective, it seems clear that the contextual sensitivity of psychology, put then in an inferior position relatively to the greater abstraction allowed in experimental economics.

In my view, no good answer is available to this dilemma. Nonetheless, those of us who do write in these areas should be aware of this tension and recognize the pros and cons of each approach. Whatever the benefits of the triangle model, it is crucial to be aware of the price being paid in the current state of affairs.

References

Ariely, D., & Norton, M. I. (2007). Psychology and Experimental Economics A Gap in Abstraction. Current Directions in Psychological Science16(6), 336-339.

Kahneman, D. (2003). Maps of bounded rationality: Psychology for behavioral economics. American economic review, 1449-1475.

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