Georgetown University Law Center Georgetown University Law Center
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2022
Tort Liability and Unawareness Tort Liability and Unawareness
Surajeet Chakravarty
University of Exeter
, s.chakravarty@exeter.ac.uk
David Kelsey
University of Exeter
, d.kelsey@exeter.ac.uk
Joshua C. Teitelbaum
Georgetown University Law Center
, jct48@law.georgetown.edu
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Tort Liability and Unawareness
Surajeet Chakravarty
∗
David Kelsey
†
Joshua C. Teitelbaum
‡
Draft: July 24, 2022
Abstract
We explore the implications of unawareness for tort law. We study cases where injurers
and victims initially are unaware that some acts can yield some consequences, or al-
ternatively that some acts or consequences are even possible, but later become aware.
Following Karni and Vierø (2013) we model unawareness by Reverse Bayesianism. We
compare the two basic liability rules of Anglo-American tort law, negligence and strict
liability, and argue that negligence has an important advantage over strict liability in
a world with unawareness—negligence, through the stipulation of due care standards,
spreads awareness about the updated probability of harm.
Keywords: negligence, Reverse Bayesianism, strict liability, tort law, unawareness.
JEL Codes: D83, K13.
∗
University of Exeter, Department of Economics, S.Chakravarty@exeter.ac.uk.
†
University of Nottingham, Department of Industrial Economics, David.Kelsey@nottingham.ac.uk.
‡
Georgetown University, Law Center, jct48@georgetown.edu.
1 Introduction
Background Expected utility theory (Savage, 1954) posits a space of mutually exclusive
and collectively exhaustive states of the world, representing all possible resolutions of uncer-
tainty. It assumes that when a person chooses an act, although she is uncertain about the
true state of the world and therefore about the consequences of her chosen act, she neverthe-
less has complete knowledge of the state space—she knows all the possible acts and all the
possible consequences of each and every act. In reality, of course, people often lack complete
knowledge of the state space. This is known as unawareness. People may be unaware of
some acts, some consequences, or that a known act can yield a known consequence.
Unawareness plays an important role in many economic and legal spheres. A prime
example is that people may write incomplete contracts due to unforeseen contingencies.
Another example is that a person may be unaware that an act can result in criminal liability.
A third example is that a person may not be aware of all the objections that she can raise
to a witness’s testimony in a trial. In this paper we study the implications of unawareness
for tort law, the branch of the common law that governs liability for civil wrongs.
Tort liability rules and unawareness A central question in law and economics is
whether negligence or strict liability is the more efficient tort liability rule. Under negligence
a victim can recover damages for harm caused by an injurer who failed to take reasonable
care. Under strict liability, by contrast, a victim can recover damages for harm caused by
the activity of an injurer irrespective of the injurer’s level of care. The relative efficiency of
the two rules is customarily measured by the Kaldor-Hicks criterion.
A bedrock result in the economic analysis of tort law is that, in the case of unilateral
accidents with fixed activity levels, negligence and strict liability are equally efficient, pro-
vided that, in the case of negligence, the court properly sets the due care standard (the legal
standard for what constitutes reasonable care) (Shavell, 1987).
1
This equivalence result,
however, presents something of a puzzle in light of two facts about negligence. First, negli-
gence is the dominant rule in Anglo-American law.
2
Second, negligence is the more costly
rule to administer, because the court must determine the due care standard and adjudicate
1
In unilateral accidents, the injurer, but not the victim, can take care to reduce expected harm. If the
activity level is fixed, the injurer affects expected harm only through her level of care (and not through her
level of activity). The equivalence result also holds in the case of bilateral accidents with fixed activity levels,
provided that strict liability is coupled with the defense of contributory negligence.
2
In modern Anglo-American law, strict liability applies only in a handful of accident cases, including
cases involving abnormally dangerous activities or products with manufacturing defects (Dobbs et al., 2011,
1
whether it was met. The puzzle is that if negligence and strict liability are equally efficient
but negligence is more costly to administer, why is negligence the dominant rule?
The negligence puzzle has led researchers to revisit the equivalence result by exploring de-
partures from the standard accident model, which is based on the expected utility framework
and the Bayesian paradigm. For instance, Teitelbaum (2007) and Chakravarty and Kelsey
(2017) explore ambiguity (Knightian uncertainty). They assume the relevant parties have
neo-additive preferences and find that this breaks the equivalence in favor of negligence.
3
We explore unawareness. We study cases where injurers and victims initially are unaware
that some acts can yield some consequences, or alternatively that some acts or consequences
are even possible, but later become aware. The phenomenon of becoming aware is known as
growing awareness. It is the expansion of the state space when a person discovers a new act,
consequence, or act-consequence link. Examples relevant to tort law include the discovery
of a new product or technology (new act), the discovery of a new disease or injury (new
consequence), or the discovery that a known product can cause a known injury (new link).
We explore the implications of unawareness for tort law, and specifically for the negligence
versus strict liability debate. To model growing awareness, which requires a theory of how
beliefs update as the state space expands, we adopt the Reverse Bayesian approach of Karni
and Vierø (2013). Reverse Bayesianism posits that as a person becomes aware of new
possibilities, she updates her beliefs in a way that preserves the relative likelihoods of events
in the original state space. More specifically, it postulates that (i) in the case of a new act
or consequence, probability mass shifts proportionally away from the events in the original
state space to the new events in the expanded state space, and (ii) in the case of a new
link, null events in the original state space become non-null, and probability mass shifts
proportionally away from the original non-null events to these events.
4
We argue that negligence has an important advantage over strict liability in a world with
unawareness. Under either liability rule a tort litigation involving a new act, consequence,
or link makes the world aware of a new possibility of harm. Under negligence, however, the
litigation provides the world with more information. In particular, the court’s stipulation of a
§ 2). Indeed, certain accident cases that were traditionally governed by strict liability are now governed by
negligence, including cases involving products with a design or warning defect (Dobbs et al., 2011, § 450).
3
The neo-additive model was developed by Chateauneuf et al. (2007). Franzoni (2017) models ambiguity
according to the smooth model of Klibanoff et al. (2005). He finds that strict liability dominates negligence
when the injurer has lower degrees of uncertainty aversion than the victim and can formulate more precise
estimates of the probability of harm, but that negligence dominates strict liability when harm is dispersed
over a very large number of victims, irrespective of the parties’ respective degrees of uncertainty aversion.
4
A null event is an event believed to have zero probability.
2
new due care standard serves as a knowledge transmission mechanism, revealing information
about the probability of harm. This enables the injurers of the world to take efficient care.
Negligence provides this information to injurers. Under strict liability they would have to
expend additional resources to develop this information on their own.
McApline v. Bercow Our argument can be illustrated by the landmark Twitter defama-
tion case McAlpine v Bercow.
5
On November 2, 2012 the BBC broadcast an interview with
a man who alleged that as a boy he was sexually abused by an unnamed senior politician
in the Thatcher government. Two days later Sally Bercow, a journalist, tweeted “Why is
Lord McAlpine trending? *innocent face*.”
6
After McAlpine was cleared of suspicion, he
sued Bercow for libel, claiming that her tweet implied he was a pedophile who was guilty of
sexually abusing boys. The court agreed with McAlpine and held Bercow liable. Following
the decision, a legal commentator observed: “The judgment is one of great public interest
and provides a warning to and guidance for people who use social media” (Rozenberg, 2013).
Two features of the McApline case are interesting. First, there was unawareness. Sally
Bercow defamed Lord McAlpine using a new technology, social media, which is an example
of a new act. Second, the court’s decision revealed a potential harm of this new act. Future
users of social media received useful information about acceptable ways to use it.
Structure of the paper Section 2 introduces the accident model—a unilateral accident
model featuring multiple activities with fixed levels—and presents the equivalence result.
Section 3 describes the unawareness model. In Section 4 we present relevant examples of tort
cases involving unawareness. Section 5 compares and contrasts negligence and strict liability
in a world with unawareness. It considers a simple model with two acts, two consequences,
quadratic care costs, and linear expected harm reduction, and separately analyzes the cases
of a new act, a new consequence, and a new link. Section 6 extends the analysis to a more
general model with arbitrary numbers of acts and consequences, convex care costs, and
convex expected harm reduction. In Section 7 we relate our results to the existing literature.
We offer concluding remarks in Section 8. The Appendix collects the proofs of all results.
5
See [2013] EWHC 1342 (QB).
6
As a prominent journalist and the wife of the Speaker of the House of Commons, Bercow was well
known to the public and had 56,000 followers on Twitter.
3