Posted by The Situationist Staff on May 7, 2010
Below the jump you can watch an outstanding and fascinating video episode, “Mind over Money,” by PBS’s NOVA, that asks the question “Can markets be rational when humans aren’t?” and that includes significant segments describing some of the work by Situationist friend Jennifer Lerner.
(We’ve placed the (52 minute) video after the jump because it plays automatically.)
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Read the rest of this entry »
Posted in Behavioral Economics, Choice Myth, Emotions, Ideology, Neuroeconomics, Neuroscience, Video | Tagged: Behavioral Economics, economics, emotion, Gary Becker, heuristics and biases, irrationality, Jennifer Lerner, law and behavioralism, markets, rational economics, rationality, Richard Thaler | Leave a Comment »
Posted by The Situationist Staff on January 8, 2009
In Part I of his 2007 Hitchcock Lectures (titled “Explorations of the Mind – Intuition: The Marvels and the Flaws“), Daniel Kahneman explores the idea of intuition:
For a sample of other Situationist posts related to Kahneman’s work, see “Dan Kahneman’s Situation,” “The Situation of Financial Risk-Taking,” “Some (Interior) Situational Sources War – Part I,” and “Some (Interior) Situational Sources War – Part II.”
Posted in Behavioral Economics, Video | Tagged: behavior, behavioralism, Daniel Kahneman, economics, intuition, psychology, well-being | 1 Comment »
Posted by The Situationist Staff on January 6, 2009
Doug Kysar and Situationist contributor Jon Hanson recently posted on SSRN their important 1999 article, Taking Behavioralism Seriously: The Problem of Market Manipulation (74 N.Y.U.L. Rev. 363) on SSRN. Here is the article’s abstract.
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For the past few decades, cognitive psychologists and behavioral researchers have been steadily uncovering evidence that human decisionmaking processes are prone to nonrational, yet systematic, tendencies. These researchers claim not merely that we sometimes fail to abide by rules of logic, but that we fail to do so in predictable ways.
With a few notable exceptions, implications of this research for legal institutions were slow in reaching the academic literature. Within the last few years, however, we have seen an outpouring of scholarship addressing the impact of behavioral research over a wide range of legal topics. Indeed, one might predict that the current behavioral movement eventually will have an influence on legal scholarship matched only by its predecessor, the law and economics movement. Ultimately, any legal concept that relies in some sense on a notion of reasonableness or that is premised on the existence of a reasonable or rational decisionmaker will need to be reassessed in light of the mounting evidence that humans are “a reasoning rather than a reasonable animal.”
This Article contributes to that reassessment by focusing on the problem of manipulability. Our central contention is that the presence of unyielding cognitive biases makes individual decisionmakers susceptible to manipulation by those able to influence the context in which decisions are made. More particularly, we believe that market outcomes frequently will be heavily influenced, if not determined, by the ability of one actor to control the format of information, the presentation of choices, and, in general, the setting within which market transactions occur. Once one accepts that individuals systematically behave in nonrational ways, it follows from an economic perspective that others will exploit those tendencies for gain.
That possibility of manipulation has a variety of implications for legal policy analysis that have heretofore gone unrecognized. This article highlights some of those implications and makes several predictions that are tested in other work.
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SSRN has just announced its Journal of Behavioral & Experimental Economics and Journal of Behavioral Economics Top Ten lists for papers posted in the last 60 days. Taking Behavioralism Seriously made both lists.
To download the paper for free click here. That link will direct you to the abstract and various download options. To download the companion article, Taking Behavioralism Seriously: Som Evidence of Market Manipulation (112 Harvard L. Rev. 1420) click here. For a sample of related Situationist posts, see “Promoting Smoking through Situation” and “The Situation of Subprime Mortgage Contracts – Abstract.”
Posted in Abstracts, Behavioral Economics, Choice Myth, Legal Theory | Tagged: abstract, behavioralism, biases, Doug Kysar, economic behavioralism, economics, heuristic, Jon Hanson, law and behavioralism, law and economics, manipulation, market manipulation, products liability, top ten | Leave a Comment »
Posted by The Situationist Staff on June 26, 2008
John Bronsteen, Christopher Buccafusco, and Jonathan Masur recently posted their fascinating article, “Hedonic Adaptation and the Settlement of Civil Lawsuits” (forthcoming in the Columbia Law Review) on SSRN. Here’s the abstract.
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This paper examines the burgeoning psychological literature on happiness and hedonic adaptation (a person’s capacity to preserve or recapture her level of happiness by adjusting to changed circumstances), bringing this literature to bear on a previously overlooked aspect of the civil litigation process: the probability of pre-trial settlement. The glacial pace of civil litigation is commonly thought of as a regrettable source of costs to the relevant parties. Even relatively straightforward personal injury lawsuits can last for as long as two years, delaying the arrival of necessary redress to the tort victim and forcing the litigants to expend ever greater quantities of resources. Yet these procedural delays are likely to have salutary effects on the litigation system as well. When an individual first suffers a serious injury, she will likely predict that the injury will greatly diminish her future happiness. However, during the time that it takes her case to reach trial the aggrieved plaintiff is likely to adapt hedonically to her injury – even if that injury is permanent – and within two years will report levels of happiness very close to her pre-injury state. Consequently, the amount of money that the plaintiff believes will fairly compensate her for her injury – will make her whole, in the typical parlance of tort damages – will decrease appreciably. The sum that the plaintiff is willing to accept in settlement will decline accordingly, and the chances of settlement increase – perhaps dramatically. The high costs of prolonged civil litigation are thus likely to be offset substantially by the resources saved as adaptive litigants succeed in settling before trial.
Posted in Uncategorized | Tagged: adaptation, Add new tag, behavioral, civil, cost-benefit, economics, Happiness, hedonic, lawsuits, litigation, process, settlement, trial | 1 Comment »
Posted by The Situationist Staff on May 14, 2008
Sarah F. Brosnan, Owen D. Jones, Susan P. Lambeth, Mary Catherine Mareno, Amanda S. Richardson, and Steven Schapiro, posted their article, “Endowment Effects in Chimpanzees” 17 Current Biology, 1704-1707 (October 9, 2007) on SSRN. Here’s the abstract.
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Human behavior is not always consistent with standard rational choice predictions. The much-investigated variety of apparent deviations from rational choice predictions provides a promising arena for the merger of economics and biology. Although little is known about the extent to which other species also exhibit these seemingly irrational patterns of human decision-making and choice behavior, similarities across species would suggest a common evolutionary root to the phenomena.
The present study investigated whether chimpanzees exhibit an endowment effect, a seemingly paradoxical behavior in which humans tend to value a good they have just come to possess more than they would have only a moment before. We show the first evidence that chimpanzees do exhibit an endowment effect, favoring items they just received more than items they prefer that could be acquired through exchange. Moreover, we demonstrate that – as predicted – the effect is far stronger for food than for less evolutionarily salient objects, perhaps due to historically greater risks associated with keeping a valuable item versus attempting to exchange it for another. These findings suggest that the larger set of seeming deviations from rational choice predictions may be common to humans and chimpanzees, and that the evaluation of these through a lens of evolutionary relevance may yield further insights in both humans and other species.
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To read about a related paper, see “A New Theory of the Endowment Effect.”
Posted in Abstracts, Behavioral Economics, Choice Myth, Uncategorized | Tagged: behavioral biology, Behavioral Economics, chimpanzees, economics, endowment effect, evolutionary analysis in law, evolutionary biology, irrationality, Law, property, prospect theory, rationality | 1 Comment »
Posted by The Situationist Staff on April 26, 2008
Owen Jones and Sarah Brosnan have posted their article, “Law, Biology, and Property: A New Theory of the Endowment Effect” 48 William & Mary Law Review (2008) on SSRN. We’ve included the abstract below.
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Recent work at the intersection of law and behavioral biology has suggested numerous contexts in which legal thinking could benefit by integrating knowledge from behavioral biology. In one of those contexts, behavioral biology may help to provide theoretical foundation for, and potentially increased predictive power concerning, various psychological traits relevant to law. This Article describes an experiment that explores that context.
The paradoxical psychological bias known as the endowment effect puzzles economists, skews market behavior, impedes efficient exchange of goods and rights, and thereby poses important problems for law. Although the effect is known to vary widely, there are at present no satisfying explanations for why it manifests when and how it does. Drawing on evolutionary biology, this Article provides a new theory of the endowment effect. Briefly, we hypothesize that the endowment effect is an evolved propensity of humans and, further, that the degree to which an item is evolutionarily relevant will affect the strength of the endowment effect. The theory generates a novel combination of three predictions. These are: (1) the effect is likely to be observable in many other species, including close primate relatives; (2) the prevalence of the effect in other species is likely to vary across items; and (3) the prevalence of the endowment effect will increase or decrease, respectively, with the increasing or decreasing evolutionary salience of the item in question.
The authors tested these predictions in a chimpanzee (Pan troglodytes) experiment, recently published in Current Biology. The data, further explored here, are consistent with each of the three predictions. Consequently, this theory may explain why the endowment effect exists in humans and other species. It may also help both to predict and to explain some of the variability in the effect when it does manifest. And, more broadly, the results of the experiment suggest that combining life science and social science perspectives could lead to a more coherent framework for understanding the wider variety of other cognitive heuristics and biases relevant to law.
Posted in Abstracts, Behavioral Economics | Tagged: behavioral biology, Behavioral Economics, chimpanzees, economics, endowment effect, evolutionary analysis in law, evolutionary biology, Law, property, prospect theory | Leave a Comment »