Wednesday, July 24, 2013

The $1,000,000 Law Degree Kerfuffle: Getting in Touch With My Inner Kahneman

Posted by Jeff Lipshaw 

ValuefunUntil the phrase "$1,000,000 law degree" started filling my RSS feeds, I had paid about as much attention to the issue as I did to the Royal Baby (which, by the way, a new study will show shortly has a .00000000112% chance of being named "Jeff" but is twice as likely as that to be named "Geoff").

Something Brian Tamahana wrote in his most recent post caught my attention, however, so I went back and skimmed Mike Simkovic's paper just to confirm what I'm about to observe.  Brian asked in so many words, knowing this data, even if accurate, would you advise somebody to go to law school?

Funny, because I have two children in their mid- to late twenties, both of whom are in the midst of making a job or career change.  I occasionally joke about their going to law school.  (The older one had any desire to be a lawyer whipped out of her by way of the year she spent as the typical "just out of Ivy League school - going to go to law school next" litigation paralegal in a mega-mega NYC based firm that will remain unnamed.)  I think I said, "Only go if you go to Harvard, Stanford, or Yale."  That reflects mostly elitism and arrogance on my part, and not my inner Kahneman, which I've gotten in touch with, but unless I've missed something (let me know if I have) I don't see in the discussion that anybody has gotten in touch with theirs.

 The point is that even if we take all of Mike's data as saying what he purports it to say, it still doesn't say anything about how people look at the prospects of gain (income) and debt (loss).   I'm a skeptic about whether understanding prospect theory actually helps you make a decision (i.e., if I understand my own heuristics, will that counter the bias and cause me to calculate my expected utility - I don't think so), but I don't think you can debate this issue with at least acknowledging that people don't make decisions involving prospective risk or loss by stepping back and viewing the final outcome - the expected utility - over their entire lives.

I will let others, if they want, spend more time explaining the relevance of the above graph to the issue, but it has to do with how being risk-adverse or risk-seeking affects your decision depending on whether you are faced with high probabilities of losses relative to gains, or high probabilities of gains relative to losses.  (The exercise I do every year with my students is take a secret ballot vote on whether they would prefer $1,000 in cash or a one in ten chance of $10,000 at the end of class - risk aversion being such that invariably close to 100% chose the former even though the expected utility is exactly the same.)

I've been noodling around with my update to How Not to "Retire and Teach," and have been thinking the odd hybrid of explanation and advocacy that arises when lawyers argue either about what is or what should be.  The fancy phrase is that all knowledge beyond pure perception is theory-laden; the equivalent is "lies, damned lies, and statistics."

July 24, 2013 | Permalink | Comments (3)

Tuesday, July 23, 2013

Me on Gilson and Ribstein

Posted by Jeff Lipshaw

Images-1Earlier this summer, I posted elsewhere about two of my summer projects, writing essays for symposia this coming academic year (1) at Illinois in October honoring the memory of Larry Ribstein (left), and (2) at AALS in January commemorating the 30th anniversary of Ron Gilson's (right) publication of his iconic Value Creation by Business Lawyers article in the Yale Unknown Law Journal. I've finished readable (I think) drafts of both, and have posted them on SSRN.  What inspired my particular spin in both essays was physicist Lee Smolin's new book, Time Reborn, in which he criticizes the aspect of timelessness in the mathematical models that physicists use.  Both Gilson and Ribstein based much of their work on transaction cost economics.  I perceived similar issues of timelessness both in what transactional lawyers see themselves doing, and how law professors go about describing it in economic models. 

The piece about Value Creation is entitled What Is It Like to Be a Beetle?:  The Timelessness Problem in Gilson's Value Creation Thesis.  Here is the abstract:

This is a contribution to the 2014 mini-symposium honoring the thirtieth anniversary of the publication of Ronald Gilson’s seminal article Value Creation by Business Lawyers. In it, he coined two powerful metaphors: that of lawyers as "transaction cost engineers" and as beetles studied by their entomologist brethren in the legal academy. As a former lawyer-beetle and a current academic-entomologist, I am quite sure that the transaction cost economics he used to explain why business lawyers stay in business missed something important about the subjective and real world experience of being a lawyer-beetle. In this essay, I (a) summarize two different but significantly related critiques of theory, (i) the physicist Lee Smolin’s powerful argument for the unreality and therefore timelessness of algorithmic models of the universe – i.e., why physics as generally practiced is "physics in a box," and (ii) the philosopher Alasdair MacIntyre’s controversial argument for the unreality of modern conceptions of utility, rights, and efficiency, (b) borrow from both critiques in order to understand the difficulties in transposing timeless economic and legal conceptions ("utility" and "rights," respectively) to real transactions that occur in real time, (c) criticize the tendency of the legal profession, in both the academic and practicing arms, to teach and practice a scientific "law in a box," and (d) suggest a vision of what it means for a wise business lawyer not to be so constrained.

The piece for the Ribstein conference is entitled Trust and Law (In a Box):  Do Organizational Forms Make a Difference?  Here is the abstract:

In this contribution to the University of Illinois College of Law’s 2013 Larry Ribstein Memorial Symposium, I assess Professor Ribstein’s approach to both to trust and the “uncorporation.” My thesis is that his disciplinary commitment to a transaction cost economics model resulted in an overstatement of the extent to which business association forms matter in the real world. In contrast to Professor Ribstein’s view that mandatory law (which includes corporate law) “crowds out” trust (implicitly making uncorporations more amenable to trust), I see the orderliness of modern and abstract business structures (of any kind) as distinct from, yet operating at the same time and in the same space as, the usual gamut, for better or worse, of human emotions. Even if, as a matter of economic theory, uncorporations do a better job of corporations in permitting owners to control manager agency costs, the theory leaves out (for otherwise good reasons inherent in doing any kind of rigorous science) virtues like trust and vices like greed, fear, panic, all of which seem just as likely to operate in the uncorporate as the corporate setting.

July 23, 2013 | Permalink | Comments (0)