A Behavioral Approach to Law and Economics

TLDR

Economic analysis of law usually proceeds under neoclassical assumptions, yet empirical evidence points to bounded rationality, bounded self‑interest, and bounded willpower. This article proposes a broad vision for improving law and economics by incorporating insights about actual human behavior. The authors organize their analysis into three categories—positive, prescriptive, and normative—to examine how agents respond to legal rules, what rules should be adopted, and whether the system should respect people’s choices. By highlighting cognitive and motivational problems of both citizens and government, behavioral law and economics delivers answers distinct from those offered by the standard analysis.

Abstract

Economic analysis of law usually proceeds under the assumptions of neoclassical economics. But empirical evidence gives much reason to doubt these assumptions; people exhibit bounded rationality, bounded self-interest, and bounded willpower. This article offers a broad vision of how law and economics analysis may be improved by increased attention to insights about actual human behavior. It considers specific topics in the economic analysis of law and proposes new models and approaches for addressing these topics. The analysis of the article is organized into three categories: positive, prescriptive, and normative. Positive analysis of law concerns how agents behave in response to legal rules and how legal rules are shaped. Prescriptive analysis concerns what rules should be adopted to advance specified ends. Normative analysis attempts to assess more broadly the ends of the legal system: Should the system always respect people's choices? By drawing attention to cognitive and motivational problems of both citizens and government, behavioral law and economics offers answers distinct from those offered by the standard analysis.