Tuesday, July 29, 2014

The Rational Minority?

I have recently read an interesting paper, which was just published in Psych Science called In Search of Homo Economicus. The paper takes an individual difference approach to the concept of rationality and demonstrates consistent behavioral differences among people across various behavioral and personality measures. While the classical approach to the study of rationality is aimed at finding the situations in which people deviate from what rational choice approach would predict, the described paper attempts to identify who are the people who deviate from rationality and who are the people who follow the prediction of rational choice.

The researchers have used a combination of dictator and prisoner dilemma games, as well as various personality, intelligence and demographic measures on a sample of Tokyo residents (which is not argued to be representative). They found that 7% of their sampled participants are Homo Economicus (HE) who have kept all of their endowment in the dictator game, and that 8.7% of the participants are quasi–Homo economicus (qHE) who gave away only 15% of their endowment. Moreover, the HE participants were found to be smarter, more individualistic and more likely to engage in long-term investments.

 

As suggested in some of my previous posts, this approach holds a very promising direction for the law and behavioral science movement. One example, is the idea of differential regulation regarding the usage of monetary measures vs. non-monetary measures [see for example my paper on Intrinsic and Extrinsic Compliance Motivations]. One can speculate that in some legal contexts we might expect a higher ratio of HE and qHE (e.g. corporate taxation) who might then receive a different treatment relative to regulatory contexts with lower ratio of HE and qHE (e.g. Transportation law, Labor law). Naturally, these last examples require further empirical investigation and are not part of the described paper, however, they definitely show potential advantages of an individual difference approach to bounded rationality, an approach which is definitely not common within the legal scholarship.

At the same time, a word of caution is required when moving from theory to policy in the context of individual difference. In contrast to what is sometimes being understood, even very stable differences between people do not mean that these types of people care only about money while others don’t care about it at all. We need to recognize that the differences are of magnitude and hence the policy requirements that followed are important but still relatively limited.  

July 29, 2014 in Science | Permalink | Comments (0)

Sunday, June 29, 2014

External vs. Internal Validity in Empirical Legal Studies

Last week, we have hosted in Israel a conference on Behavioral Legal Studies dealing with Cognition, Motivation and Moral Judgment. The conference was organized by Hebrew U and Bar –Ilan U and involved leading international psychology and legal scholars.

An interesting discussion that emerged in the conference, due to the mixed audience of psychologists and legal scholars was related to the interaction between psychology, behavioral economics and empirical legal studies.

This tension was demonstrated through the presentation of my longtime collaborator Doron Teichman on Anchoring legal standards. (Feldman, Schurr & Teichman, 2014).

Anchoring in short is usually defined as ”a cognitive bias that describes the common human tendency to rely too heavily on the first piece of information offered when making decision” (Shrotriya & Pandey, 2013).   

The classical studies in psychology (e.g. Tversky & Kahneman, 1974) which examined anchoring usually relied on the effect of some random 4 digits number or the number that emerged from a wheel of fortune on people’s judgment. In contrast, the studies done by legal scholars, including us, are usually related to damages asked by lawyers or numbers that emerged from a different legal source.

The mostly justified criticism of this argument is that legal usage of anchoring is not a pure anchoring effect because the original stimuli is not completely orthogonal to the target, meaning the stimuli is not clean and might carry other types of rational influence. Clearly, the number argued for by a lawyer, even in an adversarial system, does have some meaning regarding the size of the claim, relative to the wheel of fortune example in the original psychological experiment.

That being said, we ask ourselves whether empirical legal studies need to compete with psychology on the same term. If we take the example of the wheel of fortune vs. the number coming up from a legal suit, clearly the first one carries much greater internal validity – any kind of effect in the first case could not be interpreted as nothing but a cognitive bias. Admittedly, this is not the case when we look at the influence in judgment following a legal claim.

However if we see empirical legal studies as an academic community which tends to understand how cognitive biases might affect the legal system, clearly, the likelihood that someone would use a wheel of fortune to try and affect a judgment is highly unlikely.

Hence, nn my view, empirical legal studies should recognize that trade-offs do exist and that measuring pure effects is not the only measure of good science. 

June 29, 2014 in Science | Permalink | Comments (0)

Sunday, June 1, 2014

Empirical legal studies – The new law and economics of non-American legal scholars?

Next week, I will be participating in a conference in London organized by Cornell law school (Dawn Chutkow, Valerie Haies and Michael Haise, who have stepped up to replace the late Ted Eisenberg). The conference attempts to establish the global society of Empirical Legal Studies. I will further elaborate my description about the conference itself, however one item of the report I prepared about Israel, is the trigger for this blog. A while ago, few papers have been written about the dominance of Israelis in law and economics (e.g., Oren Gazal-Ayal 2007). An argument raised in these papers claims that Israelis who want to participate in the global market of ideas, with special emphasis on the U.S academic market, has focused on law and economics, which tends to be a more universal area, relative to more doctrinal areas of research. Indeed, intuitively everyone who sees the amount of Hebrew speaking participants in ALEA, could relate to this argument, and I am guessing it is also true for other countries. This is not yet the situation in the annual conference of empirical legal studies. However, when making the report for the above mentioned conference, I could not have helped noticing that something like 10-15 percent of the legal academics in Israel, have empirical legal studies as their main methodological community, number that seems to outnumber that of the law and economics community (there is an obvious overlap between the two communities).

              There are some preliminary questions that one should ask, if interested in evaluating whether empirical legal studies could have similar “universal” effect to that of the law and economics method. In principle, one can identify many similarities; in both approaches the necessary knowledge of the doctrine is minimal, the knowledge of math and or statistics, respectively, could replace knowledge of U.S law, and both partly rely on disciplinary fields which argue to be universal (e.g. economic or psychology). However, there are also some notable differences between these two communities of knowledge. First, in many strands of empirical legal studies, much of an argument's development process is related to collecting data about legally relevant institutions. In much of these institutions, the variation among countries is such that when brought as evidence, it could never influence American legal policy, without further “local” findings. Another strand of empirical legal studies, is based upon experimental methods. Admittedly, in most aspects of experimental psychology, the country where the experiment was conducted in, is secondary to the question of interval validity. However, in the experimental legal analysis, question of external validity seems to play a much larger role, as in any other applied science. Nonetheless, scholarship wise, it seems that being non-American will be less of an advantage.

Next week I hope to come back with some answers to the potential contribution of empirical legal studies to the emergence of a truly global legal academic. 

June 1, 2014 in Science | Permalink | Comments (0) | TrackBack (0)

Sunday, May 25, 2014

The Neglected role of Behavioral Ethics in Behavioral Law and Economics

There seem to be three main potential pillars for the criticism on rationality and consequently to Behavioral Law and Economics Literature; The biases and heuristics literature which focuses on limited cognition, the limitations of self-interest motivation which focuses on fairness and morality, and finally behavioral ethics which focuses on the motivational forces that limit people’s ability to recognize the wrong-doing of their own behavior. Yet, while the first two are considered as classical areas criticizing rationality with thousands of papers and dozens of books, the third- behavioral ethics- still lacks a stand, in my view, for no good reason.

Behavioral ethics focuses on people’s inability to recognize their wrongdoing. This process is explained as either the higher involvement of automatic reasoning through an unaware self-deception, or as post hoc rationalization justifying oneself unethical behavior. The emerging focus on “good people” in the psychology and management literature represents the growing recognition that many unethical decisions are not done by deliberate intention to act wrong, and are rather consequential to the situation.

Behavioral ethics is a huge and growing aspect of the management literature. It study topics such as implicit discrimination and is far less researched than the two mentioned above, especially from a legal perspective, leaving highly important questions completely unanswered, while its potential impact on legal theory is much more important. If, for example, the biases and heuristics literature challenges people’s ability to commit to long term decisions, research of behavioral ethics literature challenges people recognition that something is wrong with their behavior –the core question of the law. This is highly important because it challenges the ability of the law to change people's behavior. Supposedly, few people will change their behavior if they fail to see the wrongdoing of their own behavior.

The main intellectual history rationale behind this omission might be the fact that behavioral ethics emerged from management rather than economics. If this is the case, it is yet another reason to focus the behavioral analysis of law, to law rather than to economics.(See previous blog)

References:

Banaji, M. R., & A. G. Greenwald. (2013). Blindspot: Hidden Biases of Good People.

Bersoff, D. M. (1999). Why Good People Sometimes Do Bad Things: Motivated Reasoning and Unethical Behavior. Personality and Social Psychology Bulletin, 25(1), 28–39.

Mazar, N., O. Amir, & D. Ariely. (2008). The Dishonesty of Honest People: A Theory of Self-Concept Maintenance. Journal of marketing research, 45(6), 633-644.

Feldman, Yuval, Behavioral Ethics Meets Behavioral Law and Economics Handbook of Behavioral Law and Economics, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2226711

May 25, 2014 in Science | Permalink | Comments (0) | TrackBack (0)

Sunday, April 27, 2014

Order of Authors: The Problem with Vague Norms.

 Having written a few papers on legal uncertainty, I want to raise some concerns regarding the apparent vagueness of the order of authors’ norm in legal scholarship. With various modifications related to student vs. instructor and the like, there are two main approaches to order of authors, alphabetical norm and contribution based norm. Economics is a classic example of alphabetical order, while psychology in an example of contribution based order. Each of these approaches have a history and one can easily think of the advantages of each norm. One might argue that given the fact that both norms are well-known, there is no importance to the norm you choose to apply and people will simply adjust their views of each author based on the chosen norm. However, a paper I thought is an urban legend, but actually exists (L Einav, L Yariv - The Journal of Economic Perspectives, 2006) suggests that even within economics, where the norm is alphabetical and relatively clear, there is a significant effect to one’s surname both on their collaboration practices and on their academic success measured by tenure, fellowships etc. Some even account for the various psychological effects of names on preference (e.g. Nelson and Simons, 2007), these effect are very surprising and to some extent disturbing. The difficulty raised by the findings above is exacerbated when one deals with disciplines that don’t have a clear norm, where people might mistakenly attribute a relative contribution rule to a case, where the authors were under the impression that their order is alphabetical. In my understanding the norm in law used to be strictly alphabetical, but is increasingly changing, and therefore examples of the use of contribution based norm in law can also be seen. It seems that the law, as an evolving field where collaborations are on the rise, should create some more explicit norm of either, having one agreed upon order strictly followed, or at the least having some mandatory comment of what was the chosen norm. With all the advantages of uncertainty in law (e.g. Feldman and Smith, 2014 --order was alphabetic) the order of authors is not the right case to implement such principle.

April 27, 2014 in Science | Permalink | Comments (0) | TrackBack (0)

Sunday, April 6, 2014

The Promise and Perils of Individual Differences in Law

A while ago, in the beginning of the previous decade, as a doctoral student of law and behavioral economics, I was looking for a topic for my PhD dissertation and I had suggested my advisor to write on whether individual differences could be a factor in legal policy making.

 Having studied the huge importance of individual differences and personality theories in psychology, I felt it has been a huge omission of the newly emerged law and behavioral economics[1]. At the time, my advisor thought the idea is too premature and hence risky, and I have decided to study the interaction between law and social norms. A decade later I am pleased to see that the interest in individual differences seems to be on the rise. This interest appears to be developing from various directions.

Firstly, research on big data has led some to suggest the potential for a more fine-tuned approach to default rules. See for example, Porat and Strahilevitz (2013). Secondly the rising nudge approach obviously raises the importance of individual differences to a higher level, given the areas of life it attempts to regulate Sunstein’s (2013).

Thirdly, newly acquired knowledge about individual differences in areas such as risk or intuition are disseminating into legal theories. My wonderful colleague, Avishalom Tor is organizing a terrific conference on individual differences in law that will be held in London in June, and I hope to report more on the topic following the conference.

Naturally, adopting individual differences in law is not a dichotomist decision, as it could be adopted only in areas where the theory is strong and the impact is significant. Furthermore, while I think we should be excited with the development of these lines of reasoning and the dramatic potential to its impact on both private law and public law[2], a few words of caution are necessary:

First, how much of the individual differences can we identify ex-ante?  This is obviously highly important for most private law contexts. Second, is the categorization offered by the different personality theories reliable and stable enough? Third, how substantial are the differences and whether the benefit from being sensitive to them, outweighs the cost of acquiring the information and the uncertainty associated with incorporating it into law. Fourth, how to relate between psychological based individual differences and demographic based differences. The latter might be more identifiable and reliable but more controversial from a normative standpoint.

The last point, emphasizes an obvious fact. The more we will care about individual differences in law, there will be a need not just to improve the social science aspect of it but also the jurisprudential infrastructure, in terms of concepts such as equality, fairness and welfare.

 

Reference

 

Strahilevitz, L., & Porat, A. (2013). Personalizing Default Rules and Disclosure with Big Data.

 

Sunstein, C. R. (2012). Impersonal default rules vs. active choices vs. personalized default rules: A triptych.

 

Sunstein, C. R. (2013). Deciding By Default. University of Pennsylvania Law Review, 162(1).



[1] This omission, might have been related to the dominance of economics to which I have referred to in my previous blog.

[2] To some extent, it is already widely used in criminal law, especially, when it comes to theories of punishment.

April 6, 2014 in Science | Permalink | Comments (0) | TrackBack (0)

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.

March 24, 2014 in Science | Permalink | Comments (0) | TrackBack (0)