Tuesday, June 5, 2007

More on the Process of Legal Reasoning & Gold on the Business Judgment Rule

In a post a few days ago, still hung over from grading, I made an off-hand and slightly, I think, inscrutable reference to more to come on analogical reasoning.  It's in part what I am spending time reading this summer (going back and forth with very preliminary class prep for Securities Regulation) when I am not packing boxes, trying to do the Cesar Millan thing with our dog (Prozac is not a complete solution), or running unused household chemicals to the Indianapolis Tox Drop.

GoldMy reading and writing is iterative.  If I think I will lose a thought, I will write a page or a paragraph, even though it may not link well or at all to the general thrust, and many times I figure out later that there was a connection.  So it happened that I saw an article by Andrew Gold (DePaul, left) that attempts a deep dive into the process of reasoning from law to decision in a corner of the real world with which I have a more than passing familiarity, and I've decided to excerpt (edited and rearranged for the blog format) my little squibbet of writing about it.

* * *

One of my recurrent themes is that all forms of judgmental or decision-making reasoning, other than the purely deductive, have a moment in which there is an indeterminate or intuitive or mysterious leap.  To the extent we see ourselves as scientists, it is difficult to let go of the hope of explaining that leap in scientific (read: predictive) terms, yet we soldier on, looking for, analogically, a way to square the circle.

An interesting and readable example of the “soldiering on” is A Decision Theory Approach to the Business Judgment Rule: Reflections on Disney, Good Faith, and Judicial Uncertainty by Professor Andrew Gold, the thesis of which is that the rational basis test is still the best standard of review under the corporate business judgment rule.*  As he observes, boards make decisions in the context of “intractable empirical uncertainty."  He thus turns to Professor Adrian Vermeule’s discussion of institutional choice and decision theory as a means, it seems to me, not of supplying a scientifically predictive means of decision-making, but of choosing which institution’s intuition will be given presumptive deference.  I read the analysis to suggest that, given enough time, the decision-making could be scientifically predictive, but in the ex ante time frames decisions must be made, the issue is “trans-scientific.” (I am not sure how that differs from being “trans-cendental.”)  In the decision theory model proposed here, uncertainty means that decision-makers know the payoffs of decisions but do not know the probability of those payoffs; ignorance means that they do not even know what the payoff will be.  The purported value of decision theory is that it “permits decisions to be made without resorting to random guesses or raw intuition.”

If we cut through the jargon, the upshot is that there are analytical and reasoning tools – deductive, inductive, abductive, analogical – to approach or isolate the factors in a decision, or to weigh or quantify or anticipate or calculate, but ultimately the decision is a leap from what we know to what we do not, and in the moment of that leap all forms of reason (short of formal deduction) lead back to something that we seem only to account for empirically as something like “intuition.” In a 1996 Harvard Law Review article, Professor Scott Brewer said the following about analogical reasoning: “The mystics [referring to a particular group of scholars] are correct that there is inevitably an uncodifiable imaginative moment in exemplary, analogical reasoning.”  We know the same to be true for rule-following.  Has decision theory, a creation of economic models of behavior, really shed any light on the process?  I'm not sure the theoretical solution is any more satisfying.  And I would love to see, in follow-up perhaps, how Professor Gold's interesting dive into theory would work as a board of directors actually pondered a merger, or a sale, or the firing of a CEO.

* Professor Gold's abstract follows the fold.

Here is the abstract:

This Article presents an institutional choice perspective on the judicial role in enforcing corporate law, in light of the Delaware Supreme Court's recent formulation of a fiduciary duty of good faith. The Court's Disney decision allows for the possibility that director decisions will be reviewed under a more stringent standard of review than the traditional business judgment rule. This Article argues that shifting the standard of review could dramatically alter the courts' role in policing board misconduct. Furthermore, it suggests that courts do not have access to sufficient empirical data to calculate an ideal balance between board accountability and board authority. It is impossible to reliably weigh the complex variables that are relevant to this balance. Given this uncertainty, this Article then uses decision theory to suggest that the business judgment rule standard – a rational basis test – is the most reasonable means for courts to review unconflicted director conduct.


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There's intuition and there's intuition: see, for instance, Robin Hogarth's Educating Intuition (2001). As it says on the inside front jacket: 'Environment, attention, experience, and the success of the scientific method all form part of Hogarth's perspective on intution....' Hogarth proffers seven guidlines/strategies for educating intuition. It's a wonderful read.

Posted by: Patrick S. O'Donnell | Jun 5, 2007 2:49:33 PM

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