As reflected in the amount of controversy, few areas in psychology have undergone such dramatic conceptual changes in the past decade as the emerging science of heuristics. Heuristics are efficient cognitive processes, conscious or unconscious, that ignore part of the information. Because using heuristics saves effort, the classical view has been that heuristic decisions imply greater errors than do “rational” decisions as defined by logic or statistical models. However, for many decisions, the assumptions of rational models are not met, and it is an empirical rather than an a priori issue how well cognitive heuristics function in an uncertain world. To answer both the descriptive question (“Which heuristics do people use in which situations?”) and the prescriptive question (“When should people rely on a given heuristic rather than a complex strategy to make better judgments?”), formal models are indispensable. We review research that tests formal models of heuristic inference, including in business organizations, health care, and legal institutions. This research indicates that (a) individuals and organizations often rely on simple heuristics in an adaptive way, and (b) ignoring part of the information can lead to more accurate judgments than weighting and adding all information, for instance for low predictability and small samples. The big future challenge is to develop a systematic theory of the building blocks of heuristics as well as the core capacities and environmental structures these exploit.

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Heuristic Decision Making

American Bankruptcy Institute Law Review 17 Am. Bankr. Inst. L. Rev., No. 1, Spring, 2009. Boston College Law Review 50 B.C. L. Rev., No. 3, May, 2009. Boston University Public Interest Law Journal 18 B.U. Pub. Int. L.J., No. 2, Spring, 2009. Cardozo Journal of Conflict Resolution 10 Cardozo J. Conflict Resol., No. 2, Spring, 2009. Cardozo Public Law, Policy, & Ethics Journal 7 Cardozo Pub. L. Pol’y & Ethics J., No. 3, Summer, 2009. Chicago Journal of International Law 10 Chi. J. Int’l L., No. 1, Summer, 2009. Colorado Journal of International Environmental Law and Policy 20 Colo. J. Int’l Envtl. L. & Pol’y, No. 2, Winter, 2009. Columbia Journal of Law & the Arts 32 Colum. J.L. & Arts, No. 3, Spring, 2009. Connecticut Public Interest Law Journal 8 Conn. Pub. Int. L.J., No. 2, Spring-Summer, 2009. Cornell Journal of Law and Public Policy 18 Cornell J.L. & Pub. Pol’y, No. 1, Fall, 2008. Cornell Law Review 94 Cornell L. Rev., No. 5, July, 2009. Creighton Law Review 42 Creighton L. Rev., No. 3, April, 2009. Criminal Law Forum 20 Crim. L. Forum, Nos. 2-3, Pp. 173-394, 2009. Delaware Journal of Corporate Law 34 Del. J. Corp. L., No. 2, Pp. 433-754, 2009. Environmental Law Reporter News & Analysis 39 Envtl. L. Rep. News & Analysis, No. 7, July, 2009. European Journal of International Law 20 Eur. J. Int’l L., No. 2, April, 2009. Family Law Quarterly 43 Fam. L.Q., No. 1, Spring, 2009. Georgetown Journal of International Law 40 Geo. J. Int’l L., No. 3, Spring, 2009. Georgetown Journal of Legal Ethics 22 Geo. J. Legal Ethics, No. 2, Spring, 2009. Golden Gate University Law Review 39 Golden Gate U. L. Rev., No. 2, Winter, 2009. Harvard Environmental Law Review 33 Harv. Envtl. L. Rev., No. 2, Pp. 297-608, 2009. International Review of Law and Economics 29 Int’l Rev. L. & Econ., No. 1, March, 2009. Journal of Environmental Law and Litigation 24 J. Envtl. L. & Litig., No. 1, Pp. 1-201, 2009. Journal of Legislation 34 J. Legis., No. 1, Pp. 1-98, 2008. Journal of Technology Law & Policy 14 J. Tech. L. & Pol’y, No. 1, June, 2009. Labor Lawyer 24 Lab. Law., No. 3, Winter/Spring, 2009. Michigan Journal of International Law 30 Mich. J. Int’l L., No. 3, Spring, 2009. New Criminal Law Review 12 New Crim. L. Rev., No. 2, Spring, 2009. Northern Kentucky Law Review 36 N. Ky. L. Rev., No. 4, Pp. 445-654, 2009. Ohio Northern University Law Review 35 Ohio N.U. L. Rev., No. 2, Pp. 445-886, 2009. Pace Law Review 29 Pace L. Rev., No. 3, Spring, 2009. Quinnipiac Health Law Journal 12 Quinnipiac Health L.J., No. 2, Pp. 209-332, 2008-2009. Real Property, Trust and Estate Law Journal 44 Real Prop. Tr. & Est. L.J., No. 1, Spring, 2009. Rutgers Race and the Law Review 10 Rutgers Race & L. Rev., No. 2, Pp. 441-629, 2009. San Diego Law Review 46 San Diego L. Rev., No. 2, Spring, 2009. Seton Hall Law Review 39 Seton Hall L. Rev., No. 3, Pp. 725-1102, 2009. Southern California Interdisciplinary Law Journal 18 S. Cal. Interdisc. L.J., No. 3, Spring, 2009. Stanford Environmental Law Journal 28 Stan. Envtl. L.J., No. 3, July, 2009. Tulsa Law Review 44 Tulsa L. Rev., No. 2, Winter, 2008. UMKC Law Review 77 UMKC L. Rev., No. 4, Summer, 2009. Washburn Law Journal 48 Washburn L.J., No. 3, Spring, 2009. Washington University Global Studies Law Review 8 Wash. U. Global Stud. L. Rev., No. 3, Pp.451-617, 2009. Washington University Journal of Law & Policy 29 Wash. U. J.L. & Pol’y, Pp. 1-401, 2009. Washington University Law Review 86 Wash. U. L. Rev., No. 6, Pp. 1273-1521, 2009. William Mitchell Law Review 35 Wm. Mitchell L. Rev., No. 4, Pp. 1235-1609, 2009. Yale Journal of International Law 34 Yale J. Int’l L., No. 2, Summer, 2009. Yale Journal on Regulation 26 Yale J. on Reg., No. 2, Summer, 2009.

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Current index to legal periodicals

The purpose of Plott and Zeiler (2005)—henceforth, PZ—was to investigate whether previously published experiments using consumption goods such as mugs and candy bars to measure gaps between willingness to pay (WTP) and willingnessto-accept (WTA) support endowment effect theory (EET). Our results demonstrate that the gap for commodities can be turned on and off by implementing procedures designed to control for subject misconceptions about the value elicitation procedures. Following experiments traditionally used to demonstrate the endowment effect, we used mug valuations to test EET. We used lottery rounds only to provide our subjects with paid practice using the value elicitation device prior to employing that device to elicit subjects’ mug valuations. In a footnote, we report evidence of contamination in the lottery data that rendered it inappropriate for our purposes (PZ 2005, fn. 15). Our footnote summarized the details of misconceptions reported in a data supplement provided to all who request our lottery data. The supplement was not referenced in our paper, so we make it available as an online Appendix to our Reply. 1 Andrea Isoni, Graham Loomes, and Robert Sugden (2011)—henceforth, ILS—use experimental procedures similar to ours and observe, just as we did, no gap in mug valuations. ILS claim that our 2005 paper is misleading and has misled researchers. They are concerned that our paper produces, and has been interpreted as producing, a set of procedures sufficient to remove all gaps, including gaps in lotteries. To justify their concern they focus on the wording of our abstract and overlook the context of paragraphs from which they quote sentences to support their thesis. The result is what we consider to be a misleading picture of the content of our paper and the facts that we report, namely that mug gaps disappear after we implement controls for misconceptions and that none of our data provides support for EET. We want to emphasize that our focus was on EET and not on more general theories of prefer ence formation, reference effects and decision processes that have emerged in the literature more recently and might explain our results. 2 In Section I, we demonstrate

The Willingness to Pay-Willingness to Accept Gap, the "Endowment Effect," Subject Misconceptions, and Experimental Procedures for Eliciting Valuations

This article explains how consensus decision making has operated in practice in the General Agreement on Tariffs and Trade/World Trade Organization (GATT/WTO). When GATT/WTO bargaining is law-based, consensus outcomes are Pareto-improving and roughly symmetrical. When bargaining is power-based, states bring to bear instruments of power that are extrinsic to rules, invisibly weighting the process and generating consensus outcomes that are asymmetrical and may not be Pareto-improving. Empirical analysis shows that although trade rounds have been launched through law-based bargaining, hard law is generated when a round is closed, and rounds have been closed through power-based bargaining. Agenda setting has taken place in the shadow of that power and has been dominated by the European Community and the United States. The decision making rules have been maintained because they help generate information used by powerful states in the agenda-setting process. Consensus decision making at the GATT/WTO is organized hypocrisy, allowing adherence to the instrumental reality of asymmetrical power and the sovereign equality principle upon which consensus decision making is purportedly based.

http://disciplinas.stoa.usp.br/pluginfile.php/161149/mod_resource/content/1/Steinberg%202002.pdf

In the Shadow of Law or Power? Consensus-Based Bargaining and Outcomes in the GATT/WTO

Law backed by non-deterrent sanctions (mild law) has been hypothesized to achieve compliance because of norm activation. We experimentally investigate the effects of mild law in the provision of public goods by comparing it to severe law (deterrent sanctions) and no law. The results show that exogenously imposing mild law does not achieve compliance, but compliance is much improved if mild law is endogenously chosen, i.e. self-imposed. We show that voting for mild law induces expectations of cooperation, and that people tend to comply with the law if they expect many others to do so.

Achieving Compliance when Legal Sanctions are Non-Deterrent

As law and economics turns forty years old, its continued vitality is threatened by its unrealistic core behavioral assumption: that people subject to the law act rationally. Professors Korobkin and Ulen argue that law and economics can reinvigorate itself by replacing the rationality assumption with a more nuanced understanding of human behavior that draws on cognitive psychology, sociology, and other behavioral sciences, thus creating a new scholarly paradigm called "law and behavioral science." This article provides an early blueprint for research in this paradigm. The authors first explain the various ways the rationality assumption is used in legal scholarship and why it leads to unsatisfying policy prescriptions. They then systematically examine the empirical evidence inconsistent with the rationality assumption and, drawing on a wide range of substantive areas of law, explain how normative policy conclusions of law and economics will change and improve under the law-and-behavioral-science approach.

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Law and Behavioral Science: Removing the Rationality Assumption from Law and Economics

The rich law and economics literature on contract default rules - that is, terms that govern relationships between contracting parties only if those parties do not explicitly agree to other terms - presumes that the legal system's choice of default rules will not affect individual negotiators' underlying preferences for contract terms. Judgment and decision making literature on the "status quo bias" suggests that if bargainers perceive default terms as part of the status quo they will prefer the substantive content of those terms more than they would if other terms were the legal defaults. This paper presents a study designed to test this hypothesis. 151 law students were asked to provide advice to a client in a number of hypothetical contract negotiation scenarios with the content of the default terms manipulated between experimental groups. The results suggest that the choice of legal default terms affects not only what terms contracting parties will agree upon but also what terms they actually prefer. The paper presents the experimental results, considers various theoretical explanations for the results, and suggests how the results should impact legal scholars' analysis of what contract default rules are optimally efficient.

The Status Quo Bias and Contract Default Rules

Economic theory suggests that, in most circumstances, market forces will ensure that stan-dard form contracts contain terms that are not only socially efficient but also beneficial to non-drafting parties as a class compared to other possible combinations of price and terms. This analy-sis in turn suggests that courts should enforce all form terms or, at a minimum, all form terms that non-drafting parties read and understand. Relying on social science research on decisionmaking, this Article argues that non-drafting parties (usually buyers) are boundedly rational decisionmak-ers who will normally price only a limited number of product attributes as part of their purchase decision. When contract terms are not among these attributes, drafting parties will have a market incentive to include terms in their standard forms that favor themselves, whether or not such terms are efficient. Thus, there is no a priori reason to assume form contract terms will be efficient. The Article then argues that the proper policy response to this conclusion is greater use of mandatory contract terms and judicial modification of the unconscionability doctrine to better respond to the primary cause of contractual inefficiency.

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Bounded Rationality, Standard Form Contracts, and Unconscionability

/pdf/status-quo-bias-and-contract-default-rules-4850a0i7tp.pdf

Status Quo Bias and Contract Default Rules

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Russell Korobkin

Papers

Law and Behavioral Science: Removing the Rationality Assumption from Law and Economics

The Status Quo Bias and Contract Default Rules

Bounded Rationality, Standard Form Contracts, and Unconscionability

Status Quo Bias and Contract Default Rules

Bounded Rationality, Standard Form Contracts, and Unconscionability