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A behavioral economics literature identifies how behaviorally-derived assumptions affect the economic analysis of criminal law and public law enforcement. We review and extend that literature. Specifically, we consider the effect of cognitive biases, prospect theory, hedonic adaptation, hyperbolic discounting, fairness preferences, and other deviations from standard economic assumptions on the optimal rules for deterring potential offenders and for regulating (or motivating) potential crime victims, legislators, police, prosecutors, judges, and juries.
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For those interested in a more detailed summary, we have excerpted portions of the paper’s introduction below.
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The standard theoretical law‐and‐economics account of criminal behavior begins from the observation that potential criminals are rational decisionmakers. Becker (1969). The theory assumes that potential criminals compare the expected costs and benefits of criminal activity, where the expected benefits include the anticipated monetary and nonmonetary returns to the crime, discounted by their probabilities of realization, and the expected costs of the crime, which include formal and informal sanctions (the latter including loss of lawful employment opportunities, social stigma, and guilt), discounted by the probabilities of detection. If the expected benefits exceed the expected costs, then the rational potential criminal commits the crime; otherwise, he or she does not. Moreover, the rational potential criminal compares the expected costs and benefits of criminal activity with those of legitimate activity and rationally allocates her time and other resources between those alternatives so that the marginal net benefit is equated.
Similarly, the standard law‐and‐economics account of other participants in the criminal justice system—police, judges, prosecutors, defense attorneys, juries, and legislators—also presumes rational decisionmaking. So, the police—both individually and collectively—may choose to allocate their limited resources according to rational calculations about costs and benefits, choosing, for example, between the investigation of detected crimes and prevention of crimes so that the marginal productivity of additional resources devoted to either activity is equal. Not only has this account received theoretical elaboration and extension, it has also been tested empirically. For a review, see Levitt & Miles (2007). The early empirical literature—that of the 1970s—was often done in alternating turns by those favorably disposed toward the rational‐choice‐theory account and those critical of that theory. In the late 1970s a panel of the National Academy of Sciences surveyed the empirical literature and reached the conclusion that “deterrence works”—that is, that the predictions of the rational‐choice‐theory explain observed patterns of criminal behavior.
These theoretical accounts of decisionmaking by criminals and other participants in the criminal justice system have had a profound influence on legal scholarship over the past 40 years and an equally important impact on criminal justice policy. For example, the United States Sentencing Commission, created by Congress in the early 1980s, was charged to rationalize federal criminal sentencing by, among other things, reducing the variability of sentences on the ground that indeterminate sentencing was not as deterring as determinate sentencing. And in the debates to explain the remarkable decline in crime that began in the early 1990s, some have argued that that decline is partly attributable to the deterrence‐based policies of the 1980s and 1990s, such as the remarkable increase in the frequency with which criminals have been incarcerated. Levitt (2004).
But at the same time as these rational‐choice‐theory‐based arguments have become so important, a significant and broad criticism of rational choice theory and of its application to issues of criminal law has been made. That criticism is called “behavioralism.” Importantly, behavioralism is not a theoretical criticism of rational choice theory. Rather, it is a criticism based almost entirely on experimental and other empirical studies that find the predictions of rational choice theory to be inaccurate. To illustrate with one example, rational choice theory predicts that in making decisions under uncertainty, decisionmakers accurately ascertain the probabilities of the various alternatives open to them, apply those probabilities to payoffs of the alternatives, and choose that alternative that maximizes their expected subjective utility. But psychologists and economists have discovered that most decisionmakers facing an uncertain set of options use far simpler heuristics to make a decision, such as choosing that alternative that is most “salient.”
The findings of behavioralism have become so thorough and well‐established as to make it difficult to begin any analysis of decisionmaking from the position of rational choice theory. This, of course, has profound implications for many areas of law and public policy, including criminal law. Many of the policy changes championed or implemented after the impact of Becker’s revolutionary insight stand or should stand on less firm foundations than had been previously thought to be the case. The central purpose of this chapter is to indicate how some of the central findings of the behavioral literature erode the rational‐choice‐theoretic foundations of criminal law and policy and to show how a recognition of the behavioral literature might lead to a rethinking of the legal and policy conclusions of the past 30 or so years.
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