Saturday, March 31, 2012
Posted by Jeff Lipshaw
I am working on an article that considers the relationship of information, like that disclosed in a securities offering, to the internal judgment of the investor who has to make a decision whether to invest based on that information. The empirical studies suggest that more information is better on a macro-basis, when all of the actors are black-box monads, and we get to think of them on the whole as rational (hence, Richard Posner's memorable dictum that in rational actor analysis the internal experience of the actor is irrelevant - "it would not be a solecism to speak of a rational frog"). On the other hand, the overwhelming thrust of behavioral economics is that human beings manage, on an individual micro basis, to have a far less rational connection between the available objective information and the individual's judgment. Nevertheless, even behavioral economics takes an objective, external analytic stance; it's proposing a theory for putatively non-rational action, not providing a protocol for someone actually making a decision. In other words, does getting a lot of information about my tendency to use heuristics and biases have an impact in reducing the impact of heuristics and biases in my decision-making? I'm a long-term skeptic on that one, and the fact that almost every book I've seen on behavioral economics and judgment in law or business ignores or punts on this issue (see Bazerman, Brest, etc.) tends to confirm my skepticism.
It's therefore not surprising to me that legal education, with its emphasis on objective after-the-fact judgmentalism, just eats up prediction seeking social science, whether of the rational actor or more nuanced variety. Why? Because that's exactly what lawyers' lawyers, whether transactional or litigative, are supposed to do: predict the legal effect of actions in terms of their likelihood of being deemed, after-the-fact, the proximate cause of something bad or good.
Imagine my delight, then, in getting the January, 2012 issue of Entrepreneurship Theory and Practice (Vol. 36, No. 1, a perk of my membership, thanks to Tony Luppino at UMKC, in the United States Association for Small Business and Entrepreneurship) devoted to "The Heart of Entrepreneurship." The second article, "Framing the Entrepreneurial Experience," by Michael H. Morris, Donald F. Kuratko, Minet Schindehutte, and April J. Spivack, highlights the affective aspects of entrepreneurship, not from the standpoint of an objective analysis of the entrepreneur, but from the standpoint of the lived experience of the entrepreneur "as actor in an unscripted temporal performance who continually encounters novelty." The authors suggest,
If entrepreneurship is fundamentally experiential, we know surprisingly little about the nature of the experience. What is it like to be "in the moment" as a venture takes form? ... As a lived experience, we highlight the critical role played by idiosyncratic events are frequently uncontrollable and unpredictable. Lichtenstein et al. (2007) make it clear that such events are at the essence of entrepreneurship, and give rise to patterns and punctuating moments.
My suspicion for a long time has been that lawyers engage in a form of attribution error when encountering dealmakers, entrepreneurs, and business people generally. If you look at your business client as a black-box monad, you are likely to attribute your own affective experience (or lack thereof) without considering that the inner experience and circumstances of the client is significantly different than your own. In other words, my job as a lawyer is to explain and blame (in retrospect) the causes of the uncontrollable and unpredictable, or to use some legal science before the fact to place myself prospectively in the after-the-fact position so as to avoid the circumstance in which my client or I might be the subject of that blame. (In the venture capital term sheet, that becomes the wrangling over the representations and warranties and the anti-dilution clause.) And when my client is wholly uninterested in any of that, it must be because she is just weird, flighty, unorganized, naive, ethereal, or whatever.
Oh, and it's not just lawyers and entrepreneurs that have this attribution problem. I'm pretty sure that the Wall Street lawyers we used to hire to help on our deals scratched their heads and wondered why I, as the general counsel of the company, had no apparent interest in the interstices of the environmental representation (as opposed, say, to the financial statement representation or the post closing price adjustment mechanism), or why in the critical moments just before we were to sign and wire funds, I would politely blow off what might otherwise be reasonably considered a helpful clarification of some of the wording.
Obviously, moot courts, trial teams, mock negotiations (like Karl Okamato's Transactional Meets), and clinical experiences offer the chance for students to live the inner experience of a real lawyer. The bigger challenge is learning to bridge the objective-subjective divide when dealing with others. Bill's words from a previous post are more profound perhaps even than Bill thought:
For those of us who accept change as the one bankable constant, change is less a threat than an opportunity. Over the next five to ten years, maybe slightly longer, a more sustainable Post-Langdellian business model for legal education will emerge. This new model will likely place a higher emphasis on communication, collaboration, and problem solving, which are the skills needed to price, allocate, manage, or engineer around legal risk or legal problems. Winning a case in court is only a sliver of the calculus. Technology and new pedagogy will pack a much better education into three years. At least some scholarship will be highly applied. And at the best schools, teaching, service and scholarship will merge, and the most valuable faculty will be less ivory tower. It will be an exciting place for students, professors and alumni.
Maybe it takes a law school pedagogy that is somewhat less rational, analytical, reductive, and behavioral, and somewhat more personal, emotional, affective, and experiential.
[Cross-posted at Legal Whiteboard.]