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The Behavioural Turn in Law and Economics

How the Behavioural Turn in Law and Economics Vindicates the New Haven School

Le tournant comportemental en économie du droit confirme l'école de New Haven
Fabrizio Esposito
p. 375-406

Résumés

Cet article affirme que le tournant comportemental en économie du droit confirme l’approche antérieure de l’école de New Haven. Jusqu’à présent, les analyses du tournant comportemental ont mis au jour des aspects méthodologiques intéressants, mais peu convaincants, notamment parce qu'ils ont tendance à simplifier la littérature. S’appuyant sur ces analyses, l’article passe en revue la littérature précédant le tournant et celle le suivant. Ce faisant, on distingue trois niveaux d’analyse: normatif, descriptif et prescriptif. On montre que certaines positions précédant le tournant s’accordent davantage avec la littérature qui suit le tournant. En particulier, l’école de Chicago — qui était dominante avant le tournant — a été plus fortement influencée par celui-ci que l’école de New Haven, qui, elle, se retrouve dans une position davantage compatible avec la littérature qui suivit. Il s’en suit que le tournant comportemental confirme, à tout le moins théoriquement, l’approche de l’école de New Haven.

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Texte intégral

  • 1 Parisi and Klick (2009, 43, fn 8) and Sanchez-Graells (2018, 171, fn 4).
  • 2 Calabresi’s thrust goes much deeper than the distinction between a Chicago and a New Haven approach (...)

1The field of legal research employing economic insights—often called law and economics or economic analysis of law (hereinafter, “L&E”)—has been subject to a behavioural turn. More precisely, generally accepted L&E claims and arguments are being reconsidered in the light of behavioural insights. So far, discussions about the impact of behavioural insights have been diverse, but ultimately unsatisfactory because they tend to ignore the existence of disagreements in the pre- and post-turn literature. Interestingly, some authors have cursorily pointed out a relation between the New Haven School and the turn.1 Perhaps most importantly, Calabresi (2016, 4) has—again, cursorily—observed that the use of behavioural insights illustrates the type of attitude he recommends in his recent book The Future of Law and Economics.2

2This article is a first attempt to fill this gap in the literature. Understanding the impact of the behavioural turn in L&E requires objects and criteria of comparison. In this regard, the concepts of Chicago and New Haven Schools of L&E seem a good starting point. It is widely held that the Chicago approach dominated the pre-turn literature. The post-turn literature would vindicate the New Haven School if it turned out that this approach is much more compatible with the turn than the approach of the Chicago School.

3The article is divided roughly in three parts: gap identification (Section 1); framework building (Sections 2 and 3); and framework application (Sections 4-6). More precisely, Section 1 points out the varieties of narrative that have been offered of the turn. They range from “nothing significant changed” to “the field has irremediably lost its coherence”, through to more moderate claims. Unfortunately, these analyses move from the questionable premises that there is a single framework of pre-behavioural turn L&E and/or a single framework of post-turn literature. By rejecting these assumptions in favour of a more sophisticated framework, this article offers a new perspective on the impact of the behavioural turn in L&E. Section 2 organizes the insights gathered in Section 1 in a three-fold framework, which is used in the subsequent sections to identify relevant differences in the approaches of different scholars. The soundness of this framework is confirmed by the review of the standard account of the distinction between the Chicago and New Haven Schools of L&E (Section 3). Since the distinction between Chicago and New Haven approaches is once again a simplification, the framework developed in Section 2 is used to offer a direct (but necessarily limited) review of the L&E literature pre- and post-turn (Sections 4 and 5). Albeit limited, the analysis shows differences in L&E approaches—differences not unreasonably summarized by the distinction between Chicago and New Haven Schools. Section 6 evaluates the impact of the turn on the Chicago and the New Haven approaches and argues that the behavioural turn vindicates, at least theoretically, the New Haven approach. The last section concludes.

1. Conflicting and Simplified Accounts of the Behavioural Turn

4This section shows that conflicting accounts have been offered of the impact of the behavioural turn in L&E. Before reviewing these accounts, it is advisable to explain what is meant by “behavioural turn” and when it occurred. The behavioural turn consists in the acceptance in mainstream L&E of behavioural insights and concepts like bounded rationality, bounded self-interest, prospect theory, cognitive biases, heuristic, information overload, saliency, behavioural market failures, and—perhaps above all—nudges and libertarian/asymmetric/soft/anti-anti paternalism. More succinctly, it consists in the relaxation of the rationality assumption in mainstream L&E.

5It is hard to tell exactly when the turn took place. What can comfortably be said is that it started first in the United States. Symbolically, the 1998 debate in the Stanford Law Review between Jolls, Sunstein, and Thaler—who published the truly seminal article A Behavioral Approach to Law and Economics—on the one hand and Judge Posner and Kelman on the other hand, can be taken to mark its beginning. Several important publications followed. Particularly relevant, in my view, were the contributions by Cooter and Ulen among the more established scholars, and Korobkin and Bar-Gill among the younger ones. The characteristic of the turning period was a careful review of behavioural insights and of the evidence supporting them, followed by the application of these insights to one or more policy areas. The single most important publication in this regard is without doubt the best-seller Nudge by Sunstein and Thaler, which to its great credit brought behavioural insights to the attention of the general public (Sunstein and Thaler, 2008). In the 2011 symposium celebrating Ulen’s scholarship, Korobkin (2011) could comfortably speak of the victory of behavioural analysis. At the end of 2014, The Oxford Handbook of Behavioral Economics and The Law was printed. At that time, the academic turn in the US was arguably complete. In Europe, the discussion over behavioural insights started later, but the number and the rate of publications confirm that the European academia is catching up. The Special Issue of this journal on “Behavioural Law and Economics: History, Methodology and Philosophical Evaluations” is a confirmation of this trend.

6How has the turn been understood? Interestingly, accounts are strikingly diverse. They can be situated on a spectrum ranging from assertions of negligible change to irremediable crisis. More moderate accounts describe the turn as a theoretical improvement, ultimately in continuity with mainstream positions in the pre-turn L&E.

7As early as 1998, Lessig distinguished an “old” and a “new” Chicago School of L&E. In his understanding, the new Chicago School made “no radical break” with the old one (Lessig, 1998, 672). Lessig points out that there are four forces that shape individual choices besides preferences: law, social norms, markets, and architecture. The distinctive feature of the old school was that “[f]rom the fact that forces outside the law regulate, and regulate better, the old school concludes that law should step aside. This is not the conclusion of the new school” (Lessig, 1998, 661). In fact, the new school is interested in studying the interplay of these four forces and how law can use the other three to achieve its own ends. The focus of the old and new schools is the same; what ultimately changes is the conception of the relation between the law and the other three forces: “unlike the old school, the new school does not see these alternatives as displacing law. Rather, the new school views them each as subject to law” (Lessig, 1998, 666). For current purposes, it is particularly important that Lessig chooses the adjective “new” to emphasize that “the work [he] would include within the tent of [the new] school has gone on for some time, at many different places. The sense of “new” … here is “new” for a Chicago school” (Lessig, 1998, 672).

8Bernstein is arguably at the opposite end of the spectrum. While “[i]n past decades … the Chicago School bore distinctive characteristics”, now L&E “has diffused and disintegrated” irremediably (Bernstein, 2005, 304). Currently, the only shared tenets in L&E would be: that the approach is normative; the standard is a form of cost-benefit analysis; and the perspective is ex ante—the focus is on the aggregate result rather than on the particular dispute. However, these elements “are too diffusely held to be distinctive” (Bernstein, 2005, 125). The author also identifies three main disagreements that have led to disintegration and concern the reliability of rational choice theory, the theory of value (where efficiency and wealth maximization are challenged by a looser welfare standard) and the extent to which the market mechanism can be granted the status of a privileged normative, descriptive and analytical tool (Bernstein, 2005, 308-315).

9Between these extreme poles, it is possible to find accounts that are more moderate. Hadfield (1999) identifies a “second wave” of L&E. In Hadfield’s view, the first wave is perfectly identifiable with Posner’s approach. The main features of this approach are a conception of law as a mere deterrence system—a system that presents incentives and disincentives through sanctions—and a declared two-fold methodological commitment to objectivity and to refraining from conclusive normative judgements. Hadfield argues that this alleged objectivity turns out to be in support of politically conservative positions, while the eschewal of conclusive normative judgments is just false. For current purposes, it is important to observe that Hadfield has a broad notion of “second wave”, which encompasses (but cannot be reduced to) the incorporation of behavioural insights. The main features of the second wave are a more careful attitude regarding the descriptive assumptions of the analysis and openness to other disciplines. According to this account, behavioural insights are just one of the elements of the multidisciplinary approach characteristic of the second wave. Nonetheless, behavioural insights are a core element of Hadfield’s concept of the second wave of L&E, as they clearly consist in a critical review of the descriptive assumptions of the first wave. To characterize further the second wave, Hadfield recurs to the distinction between descriptive and normative analysis, to which she adds a third kind: prescriptive analysis. In the second wave, efficiency remains at the core of normative analyses. The descriptive level is concerned with the economic effects of legal norms. According to Hadfield, at this level there is continuity with the first wave, because the research remains driven by the application of typical economic methods—methods that are simply becoming more sophisticated. The prescriptive level, instead, uses positive analysis to assess the fitness of legal norms as means to legal ends—ends that do not necessarily consist in efficiency.

10According to Cooter (2011), the changes that have accompanied the behavioural turn have led to the establishment of the field of Empirical Legal Studies. In Cooter’s view, the diffusion of L&E counted as an “intellectual revolution in law” and the behavioural turn is the change that comes closest to an intellectual revolution within L&E. However, it ultimately resembles more “a successful insurrection that ended by granting the insurgents a prominent seat in the government” than a revolution (Cooter, 2011, 1477-1478). Cooter suggests that the main concern of L&E is on empirical questions about the effects of the law. These data are useful to practicing lawyers because they can be used in legal argumentation when the law is unclear, like in most appeal cases in the US system or in constitutional adjudication. A crucial problem of this account is that it is too narrow. Empirical Legal Studies focus—by definition—on matters of fact, but especially when the law is unclear, it is normative argumentation that becomes central. More plausibly, matters of fact are instrumental to normative argumentation. For example, they can help in building consequentialist arguments, but these arguments are not merely factual because they require the acceptance of a normative framework to evaluate the consequences. In addition, as we shall elaborate below, within L&E there are normative disagreements that would remain concealed by too much emphasis on matters of fact.

11Nourse and Shaffer (2009) have presented behavioural L&E as a new form of legal realism. A major difference with Cooter’s account is that Nourse and Shaffer consider pre-behavioural turn L&E a new form of legal formalism. Indeed, a very different representation from Cooter’s idea of L&E as the ancestor of Empirical Legal Studies. In the understanding of the two authors, before the behavioural turn, L&E was characterized by:

the use of … models that reduce the complexity of social goals to that of wealth maximization (or resource-allocation efficiency) and assume away cognitive bias, baseline inequalities, distributive implications, and all so-called “transaction costs” (albeit often with an aside that such a “frictionless” world is not the real world), and then use these models (directly or indirectly) for law and policy prescriptions. (Nourse and Shaffer, 2009, 67)

12This approach can be classified as legal formalism because “it sets forth coherent principles (efficiency and wealth maximization) that can be applied objectively and deductively to any set of facts in all areas of law.” To the contrary, the evidence-driven, bottom-up approach characterizing behavioural analysis, places the latter in the realm of (new) legal realism (Nourse and Shaffer, 2009, 90-91).

13A question that comes naturally to one’s mind is which of these accounts is more accurate, plausible, correct, or even true. This question, however, presents a problem. In fact, all these accounts share an inaccurate premise; namely, the oversimplification of the field of L&E. Some accounts identify a single pre-behavioural turn theoretical position, characterized in homogeneous terms (Hadfield, Nourse and Shaffer) or even left implicit (Cooter). Afterwards, these accounts draw their conclusions by comparing this homogeneous pre-turn L&E with a single, homogeneous behavioural approach. The reviews by Lessig and Bernstein suggest this approach is a simplification of the literature both before and after the turn. On the one hand, Lessig’s account is intentionally uncomplete because the author focuses explicitly on the changes within the Chicago School. On the other hand, Bernstein compares a dominant pre-turn Chicago approach with various contemporary trends and claims.

14This article develops the insight that L&E is not an homogenous field and argues that problematizing the homogeneity assumption is an interesting way to approach the question: “what is the impact of the behavioural turn in L&E?” A convincing account of the impact of the behavioural turn in L&E thus requires a recognition of the varieties of L&E. At the same time, some abstraction is needed to organize researches in groups, classes, or categories in order to make the material not only informative but also manageable. In other terms, assessing the impact of the behavioural turn requires not only criteria for comparison but also “objects” of comparison that, to some extent, might appear artificial to the reader. Section 2 selects as criteria of comparison claims defended at the normative, descriptive and prescriptive levels of analysis. Section 3 identifies as “objects” of comparison the Chicago and the New Haven Schools of L&E. On the grounds of this framework, Sections 4-6 discuss the impact of the behavioural turn on L&E. The construction of the framework is the task of the next section.

2. A Three-Level Framework for Identifying the Impact of the Behavioural Turn

15The previous section has shown the different views regarding the impact on L&E of the behavioural turn. Albeit conflicting and resting on a faulty premise, these accounts offer important insights on how to build an analytical framework for the task at hand. In what follows, I shall elaborate a three-level framework, which distinguishes a normative, a descriptive, and a prescriptive level of analysis.

  • 3 See Jolls, Sunstein and Thaler (1998a, 1473-1475).
  • 4 Speigh (2015, 54).

16As outlined above, the three elements of the framework I will apply are discussed explicitly by Hadfield (1999). Hadfield, however, is by no means the only scholar in the field using the distinction.3 Similar distinctions can also be found outside the field, for example in legal theory and in the philosophy of mind. In legal theory, Schauer, for example, identifies three elements of general norms: an aim; a generalization; and a prescription or general norm (Schauer, 1991, 17-37). The aim is the end to be achieved by the norm. The generalization identifies the conditions for achieving the end. The prescription requires a certain behaviour when the conditions set by the generalization are met. In the philosophy of mind, a common approach is to distinguish three types of mental states: desires, beliefs and intentions. Desires are mental states about what one wants, beliefs are about how the world is, and intentions are representations of actions that are considered capable of satisfying one’s desires consistent with the beliefs one holds.4 The distinction between the normative, descriptive, and prescriptive level is thus a solid one, and it can also be plausibly used for current purposes.

  • 5 For a collection of examples of this kind of approach, see Cooter and Ulen (2012) and Posner (2011)

17Before moving to the determination of the content of the framework, two considerations are in order. First, in my opinion Hadfield was not charitable in holding that the prescriptive level is a novelty of the second wave of L&E (Hadfield, 1999, 57-58). Prescriptive analysis is actually the main feature of what is generally understood as normative L&E. Questions like “when is it better to use (i.) a property rule or a liability rule, (ii.) negligence or strict liability, (iii.) accession or occupation” are generally answered by moving from the assumption of a normative goal and then looking at what legal norm is the best means to that end under particular conditions.5 Second, there is a different sense of descriptive L&E, which is not discussed in this article. This sense is related to the “efficiency hypothesis of common law” first introduced by Posner:

The positive branch of the [efficiency theory of the common law] hypothesizes that common law rules and decisions are best explained on the “as if” assumption, not intended to be realistic, that judges are consciously trying to promote efficient resource allocation, where efficiency is defined as wealth maximization. (Posner, 1981, 775)

  • 6 See, for example, Dworkin (1980, 219-223).

18This standpoint is excluded from the current analysis for two main reasons. First, it faces serious conceptual critiques regarding the relevance of non-realistic “as if” assumptions about the behaviour of legal practitioners.6 Second, this sub-level is of little relevance for current purposes because it is basically inexistent in post-turn L&E.

19Moving to the content of the framework, Bernstein (2005) offers a rich and valuable starting point. At the normative level, focusing on the theory of value adopted by scholars is particularly instructive. Contrary to Bernstein, Hadfield, Nourse and Shaffer saw continuity within the field. At the descriptive level, it is straightforward to focus on the theory of individual choice. Here the analysis can be simple: the higher the scepticism on the accuracy of rational choice theory, the lower the impact of the behavioural turn. At the prescriptive level, Lessig’s distinction between different external forces affecting individual behaviour is useful. In this regard, Bernstein stresses (in particular) the importance of the market mechanism. The task will be to identify to what extent, after the turn, scholars have come upon a richer understanding of the dynamics of the different external drivers of behaviour.

20Now that the framework is established, I move to the next step of the inquiry, namely reconstructing the concepts of Chicago and New Haven Schools of L&E. This reconstruction will also be an occasion to test the soundness of the framework.

3. The Chicago and New Haven Schools of L&E

  • 7 Rose-Ackerman (1989, 253).

21As anticipated in the Introduction, this article compares the impact of the behavioural turn on two central meanings of “L&E”, the Chicago and the New Haven Schools. At this point, a caveat is in order. Doubts have been advanced as to whether the New Haven approach is representative of the leading style of L&E at the Yale Law School before the turn.7 However, “New Haven School” as used here is best understood as a label that groups a set of claims for analytical purposes. Indeed, over time the importance of geographical origins is sometimes lost in geographically-inspired labels—this is the case for example with “Austrian” economics. Actually, the idea that even the Yale Law School was “conquered” by the Chicago approach confirms that it makes sense to investigate if the behavioural turn has actually vindicated the New Haven approach.

  • 8 See Maackay (2000, 404-407) for further references.

22Comparing the Chicago and New Haven approaches is not the only possible criterion. For example, Cooter (2011) suggests applying Kuhn’s theory of paradigm shifts. Others have suggested applying Lakatos’s theory of research programs.8 These suggestions are not accepted here because it is doubtful that epistemic theories can be a useful framework for the task at hand. As L&E is not only an empirical project, but also a normative (as well as a prescriptive) one, epistemic theories do not seem particularly fit for the purpose. A second criterion would be to distinguish the point of view of the economist qua scientist from the point of view of the lawyer qua institutional regulator of behaviour. This criterion has some attractiveness. For example, it partially explains the divergence between the accounts discussed in Section 1. In particular, while Cooter (2011) takes the point of view of the economist and focuses on issues related to the scientific method, Hadfield (1999) and Nourse and Shaffer (2009) take the lawyer’s point of view. They are interested in questions related to scientific method only secondarily and instrumentally to their relevance for the institutional regulation of behaviour. The limitation of this criterion is that for both the economist and the lawyer the changes have been deep, as we shall see, but they focus on different aspects. The economist is (or should be) more interested in the normative downgrading of preferences, which opens the way to the contribution of other disciplines at the normative level, as well as the methodological and descriptive questions raised by the relaxation of the rationality assumption. The lawyer is interested primarily in the changes at the prescriptive and normative levels and only instrumentally in those at the descriptive level. Arguably then, all the levels of the framework need to be considered for a comprehensive understanding of the impact of the behavioural turn on L&E to emerge.

  • 9 Finnis (2011, 9-11).

23In comparison to epistemic theories and the distinction between the point of view of the economist and the lawyer, analysing the impact on central meanings of “L&E” is a preferable method precisely because of its comprehensiveness. Focusing on central meanings is a technique for the analysis of social concepts widely used in mainstream jurisprudence. This technique rejects the assumption that all the meanings of a theoretical term must share the same features or have the same importance. The “central” meaning of a theoretical term refers to a central case of use of that term.9 Starting from central cases, it is then possible to identify and analyse peripheral cases. According to this approach, the deeper the change in the central meanings of “L&E” in the pre-turn literature, the deeper the impact of behavioural insights.

  • 10 Fried (2002), for example, presents the first L&E movement in the United States as operating from t (...)
  • 11 Advanced research on the relation between law and economics in the German-speaking world started so (...)
  • 12 In line with the spirit of the present paper, reflecting on the insights that can be gathered from (...)

24A common account distinguishes two central meanings of “L&E”—the Chicago and the New Haven Schools. According to this account, L&E gained momentum in the US, in the 1960s and 1970s due in particular to research undertaken at the Chicago and Yale Law Schools. The historical accuracy of this account is questionable: did L&E really start in the 1960s and 1970s10 in the US?11 Be that as it may, it would be fair to say that the current trend of diffusion of L&E started with the research referred to in this common account.12

25It is also quite uncontroversial that the Chicago approach ultimately proved more successful than the New Haven one. For example, Marciano and Ramello cite assertively Kalman’s observation that the latter amounts to “a niche in the field” (respectively Marciano and Ramello, 2014a, ii; Kalman, 2005, 243). Consider also the essays reviewed in Section 1. Hadfield (1999) associated the pre-turn literature entirely with Posner’s scholarship, while Bernstein (2005) and Nourse and Shaffer (2009) linked it with the Chicago approach more generally. As also seen, Rose-Ackerman (1989, 253) suggests the Yale Law School was “invaded” by the Chicago approach. Further evidence is provided by the fact that Medema and Mercuro, two authors with a great sensibility for the history of economic thought, treat the two approaches very differently. In Law and Economics, the five-volume collection of essays edited by Mercuro, the entire first volume is dedicated to the Chicago approach, while the New Haven approach is relegated to just part of the last volume. A similar structure can be found in their co-authored book Economics and the Law, where the chapter “Chicago Law and Economics” (61 pages) is preceded only by the introductory chapter and the New Haven School is discussed in six pages of a chapter dedicated to other approaches. Mackaay even wonders if the positions of the New Haven School “are insufficiently distinct from the mainstream view to constitute a separate school” (Mackaay, 2000, 412).

  • 13 Mackaay (2000, 412); Medema and Mercuro (2007, 105-107, 287); Salzberger (2007, 220-221); Parisi an (...)
  • 14 Salzberger (2007, 220-221); Parisi and Klick (2009, 43, fn 8). Note that this is the only claim Mac (...)
  • 15 Mackaay (2000, 412); Medema and Mercuro (2007, 285, 288); Salzberger (2007, 220-221); Parisi and Kl (...)

26In the literature, there is substantial agreement not only with regard to the comparative success of the two schools, but also with regard to the conceptual differences between the two. These differences can be easily grasped with the aid of the framework outlined in Section 2. At the normative level, it is uncontroversial that while the Chicago School focuses on wealth maximization, the New Haven School endorses a more inclusive set of normative considerations, including distribution, fairness and equity.13 At the descriptive level, the Chicago School is associated with a stricter use of rational choice assumptions.14 Finally, at the prescriptive level there is again consensus on the claim that the Chicago School trusts the market system more than the New Haven School.15

27These differences confirm the two premises of the analysis offered in the following pages. First, to study the impact of the behavioural turn on L&E it makes sense to divide the analysis in three levels: normative, descriptive, and prescriptive. Second, it is interesting to compare the positions associated with the Chicago and New Haven Schools in the pre-turn literature with the trends in the post-turn literature.

28At this point, one might move directly to the post-turn literature. However, it seems advisable to offer first an independent review of the pre-turn literature. In fact, the framework introduced in Section 2 is not used explicitly in the consulted accounts of the differences between Chicago and New Haven approaches. Moreover, a review of the literature checks to what extent the distinction between Chicago and New Haven approaches is granular enough to account for the varieties of L&E in the pre-turn literature.

29To sum up the content of this article so far, the analyses of the impact of the behavioural turn on L&E tend to oversimply the issue. To contribute to this line of inquiry, this article looks at the relation between two central meanings of “L&E” in the pre-turn literature—the Chicago (mainstream) and the New Haven (subjacent) Schools—with the post-turn claims made at the normative, descriptive and prescriptive level. Applying this framework, the harder the impact of the behavioural turn for the Chicago approach in comparison to the New Haven one, the stronger the claim that the turn vindicates the New Haven approach.

4. Applying the Framework to the Pre-Turn Literature

30This section offers a reconstruction of the varieties of L&E before the behavioural turn. Albeit necessarily limited, this reconstruction is valuable in as much as it helps to identify distinctions that can be used to generate observations on the impact of the behavioural turn on L&E. In particular, this review will confirm that the distinction between the Chicago and New Haven Schools of L&E is granular enough for current purposes. A similar process is then applied in the next section for the post-behavioural turn literature.

31At the outset, it is important to clarify that the classification of a claim as pre- or post-behavioural turn is made on on historical grounds. As explained in the Introduction, I consider the turn to have happened between the end of the 20th Century and the last few years.

4.1 The Normative Level

32At the normative level, it is possible to distinguish four main approaches: wealth maximization, maximizing formalism, social welfarism, and mixed theories.

  • 16 Posner (1985, 88).

33Wealth maximizers want to maximize the aggregate value of resources, as measured by the difference between willingness to pay and to be paid—that is, they want to maximize surplus. Two pivotal examples of this approach can be found in the textbooks by Posner (2011) and Cooter and Ulen (2012). Distributive concerns can be either delegated to “other branches” of the legal system—mainly, taxation—or be disregarded altogether. Notably, only when they are disregarded is the approach purely wealth maximizing. For example, the monopolistic redistribution of surplus is normatively irrelevant because gains and losses cancel each other out.16

  • 17 For an account of the different defenses, see Kraus (2001, 428-431) and, in more details, Mathis (2 (...)
  • 18 Posner (2015, 13).

34The normative plausibility of wealth maximization as conclusive normative criterion for the law is heavily questioned. In this regard, it is instructive to look at Posner’s scholarship, as—without doubt—he has made the biggest efforts to give a normative justification to wealth maximization.17 It is thus important to point out that his current justification of the criterion is ultimately based on its promotion of “certain scholarly virtues” namely the “rigor and objectivity of the natural sciences”.18 This defence leads to a quite different normative approach, which can be labelled maximizing formalism. In fact, wealth maximization is defended primarily as a source of clarity and certainty, the core values of modern legal formalism—as pointed out by Nourse and Shaffer.

  • 19 See also Kaplow (2008) and Zerbe (2001, 14-33).
  • 20 Kaplow and Shavell (2002, 35-37).

35Social welfarists reject the identification of value with wealth and advocate a richer, albeit vaguer, notion of welfare. Kaplow and Shavell have proposed the most articulate version of this approach in Fairness Versus Welfare (Kaplow and Shavell, 2002).19 They reject wealth maximization because they consider it an implausible normative criterion.20 According to social welfarism, distributive concerns are instrumental to the maximization of social welfare in two ways. First, the members of society can value distribution directly, as an end to be pursued among others. Second, social welfare can be increased by redistributing income, especially on the grounds of the decreasing margin of welfare (Kaplow and Shavell, 2002, 30-31). In this regard, it should also be noted that Kaplow and Shavell (1994) have developed a widely cited model showing that redistribution of income is always superior if undertaken through the tax system. Accepting this result implies that the practical difference between wealth and social welfare maximization as standards in the analysis of branches of the legal system unrelated to the tax system is greatly reduced.

  • 21 Calabresi (1970, 24-25; 1980, 556-559; 1991), Rose-Ackerman (1988, 1989), Coleman (2002), Adler and (...)

36In stark contrast, mixed theories have complex theories of value. According to this position, welfare maximization and its distribution are important components of a collective choice along lines similar to those of the social welfarist, but they have to be compatible with moral considerations about deserving, blameworthiness, fairness, and justice.21

4.2 The Descriptive Level

  • 22 Notably, this account casts doubts on Lessig’s reconstruction of the old Chicago School. In his vie (...)

37At the descriptive level, three main positions regarding the use of rational choice theory can be distinguished: committed, analytical and weak rationalism. Committed rationalism uses rational choice theory as a founding premise of conclusive analyses. For example, to elaborate policy recommendations. This position is widely held in the pre-turn literature. Optimal deterrence theory is very illustrative in this regard. All the branches of optimal deterrence theory (criminal sanction, penalty damages, strict liability vs negligence, etc.) build on the assumptions that individuals will respond perfectly to sanctions and their behaviour is motivated only by self-interested preferences. The role of heuristics and biases but also of social norms and bounded self-interest is simply ignored.22 For example, in his seminal article on tort law, Brown (1973, 340) assumes that agents are perfectly responsive to liability rules and motivated only by the minimization of their own expected costs. A similar analysis is offered by Landes (1983) with regard to the optimal fine in antitrust cases. To be optimal, a fine “should equal the net harm to persons other than the offender” (Landes, 1983, 656). This rule is proposed by Landes in order to deter all and only the conducts that reduce total wealth. For current purposes, it is important to note that this goal can be reached only if undertakings are perfectly informed and rational both in terms of cognitive abilities and self-interest.

38The second position might be called analytical rationalism because rational choice is used to derive normative conclusions, with the caveat that the conclusion holds as long as rational choice offers an adequate description of real behaviour. For example, in an early L&E inquiry of the unconscionability doctrine, Schwartz (1977, 1076-1079) criticizes as unfounded many concerns about unconscionable contracts on the grounds of rational choice theory, but he calls for empirical inquires confirming the reliability of the theory.

39The last position can be called weak rationalism because it relaxes the rationality assumption. Calabresi’s The Cost of Accidents offers an early illustration of the position. Calabresi (1970, 55-58) explains that a suboptimal quantity of insurance is likely to be bought not only because of lack of information about the risk, but also because agents would be “psychologically unable to” assess the information properly because they are overoptimistic and “tend to choose the immediate “good life” and regret it later”. Similarly, Eisenberg (1982), Kronman (1983) and Trebilcock (1980) allow for deviations from rational choice in the field of contract law.

4.3 The Prescriptive Level

  • 23 At the prescriptive level, the analysis could be expanded to consider the degree of trust in legal (...)

40At the prescriptive level, it is possible to distinguish at least23 two broad families of approaches—market and non-market—in the pre-turn literature.

  • 24 See Posner (1999).
  • 25 A limited exception is Hammond (1982, 1499-1500).
  • 26 See Posner (1981, 82; 2015, 9).

41Market approaches show an institutional preference for the market over the law.24 This trust in the superiority of markets has two manifestations. First, the market is considered inherently capable of self-regulation. Second, legal norms are instrumentalized to the specific goals of supporting and, if necessary, mimicking market allocations. The claim that distribution should not matter is typical of the market approach. Importantly, those who are wealth maximizers at the normative level tend to be marketists at the prescriptive level. In fact, market allocation is usually praised because under ideal conditions it is wealth maximizing. Notably, the emphasis on market allocation marks an important difference between wealth maximization and a Kaldor–Hicks test based on surplus, hardly ever recognized in the literature.25 In fact, wealth maximization is an agreement based criterion,26 whereas the Kaldor–Hicks test is not. In fact, a Kaldor–Hicks test can be applied by third parties, like a legislator or a judge. This is the reason why the test is also referred to as Pareto-potential. Therefore, wealth maximization incorporates an institutional preference for the market that is entrenched in the prescriptive framework adopted by marketists.

  • 27 Komesar (1994). Compare, for example, Joskow (2007) and Posner (1999) with regard to natural monopo (...)
  • 28 Calabresi and Melamed (1972)

42Non-marketists, instead, search for the best institutional design to address a policy concern. In their analyses, they are aware of the fact that the choice is always—to use Komesar’s one-liner—between imperfect alternatives.27 In this regard, it is important to stress that Calabresi has criticized the marketist reading of the distinction between injunctions (or property rules) and liability rules—introduced in his “Cathedral” article28—as giving an inaccurate account of the role played by these two kinds of remedies in legal systems. These rules can, and often are, used as means to ends different from smoothing or mimicking market allocations (Calabresi, 2014; Calabresi, 2016, 117-130).

5. Applying the Framework to the Post-Turn Literature

43The previous section has shown that, in the pre-behavioural turn literature, pluralism exists at all the levels of analysis. In particular, at the normative level four positions can be distinguished: wealth maximization, maximizing formalism, social welfarism, and mixed theories. At the descriptive level, the spectrum extends from committed rationalism to weak rationalism, passing through analytical rationalism. Finally, at the prescriptive level the distinction has been between market and non-market approaches. These findings confirm the soundness of the distinction between Chicago and New Haven approaches. At the normative level, it is indeed possible to distinguish positions endorsing and rejecting wealth maximization. At the descriptive level, the use of rational choice theory can be more or less pervasive. Finally, at the prescriptive level, it is indeed the case that the reliance in the market mechanism can be remarkably different. For the purposes of this article, it is important to note that the labels “Chicago School” and “New Haven School” as used in Section 2 capture these differences. The aim of this section is to assess the extent to which the theoretical landscape after the behavioural turn is different. On these grounds, Section 6 discusses whether the behavioural turn vindicates the approach of the New Haven School.

5.1 The Normative Level

44There are multiple trends in the post-turn literature. First, there is the discussion about the normativity of individual preferences. Second, there is an increased focus on the single individual. Third, there is a shift from overall value to consumer value in market analyses. Moreover, the literature is more open to consideration of distribution and other normative concerns. Finally, a new version of maximization formalism—agnostic formalism—characterized by an extremely flexible theory of value, has emerged.

  • 29 Lunn (2014, 52), White (2016), Esposito (2017, 202-203).
  • 30 Marciano and Ramello (2014b, 101-115).
  • 31 More precisely, an intersubjective or non-strictly-subjective theory of value.
  • 32 See Bubb and Pildes (2014) and Marciano (2015). For an attempt of reconciliation, see Esposito (201 (...)
  • 33 “We elaborate a form of paternalism, libertarian in spirit, that should be acceptable to those who (...)

45The main thrust at the normative level is the downgrading of the normative status of preferences. Certainly, they still matter, but they are no longer a conclusive argument.29 In other terms, consent can no longer be automatically inferred from choice.30 What is needed is an objective or external31 theory of value. Notably, there is a certain reluctance in the post-turn literature to openly discuss this point. Sunstein and Thaler, for example, held an objective welfarist position in Libertarian Paternalism, but then retreated to subjective welfarism in Nudge (Sunstein and Thaler, 2003, 173; Sunstein and Thaler, 2008, 5). This reluctance has been heavily criticized32 and it appears to be a rhetorical attempt to offer a framework palatable to libertarians—as well expressed already in Libertarian Paternalism.33

  • 34 Bar-Gill (2014, 477); Sunstein (2014, 38).
  • 35 Sunstein (2014, 7).

46Another distinctive feature of the behavioural literature is its primary focus on the single individual. This individualism is apparent in the idea that contractually mandated disclosure is a form of soft paternalism.34 In fact, disclosure might not reduce the freedom of choice of the informed agent, but if it is mandated then it certainly reduces the freedom of the informer. In its most extreme claims, individualism proposes the design of personalized rules, namely “rules that fit (the) particular situation” of the individual.35

  • 36 Korobkin (2003, 1255). At 1275 the goal for courts is again “to use the unconscionability doctrine (...)
  • 37 Korobkin (2003, 1252).
  • 38 Bar-Gill (2014, 475).
  • 39 Bar-Gill (2014, 476).

47The focus on the individual characterizes also another interesting development in normative analysis, namely, the tendency to shift the maximand, albeit with some uneasiness, from overall value (either in the form of wealth maximization or societal welfare) to consumer value—labelled here consumerism. Korobkin’s seminal discussion of unconscionability and Bar-Gill’s chapter on consumer transactions in The Oxford Handbook of Behavioral Economics and the Law highlight this trend well. Korobkin cannot explicitly choose a standard between “promoting social efficiency or buyer well-being”.36 However, he observers that “terms efficient for most buyers” could be inefficient for a particular buyer and be therefore unenforceable.37 Notably, in the second use of “efficiency” the word relates only and unambiguously to the interests of buyers. Bar-Gill shows a similar attitude. In discussing the “welfare implications” of behavioural insights, Bar-Gill asserts an interest in two different things, “the consequences … for consumers and for efficiency”.38 However, he highlights two “types of efficiency costs. First, product-use decisions will be distorted … Second, salience-based pricing distorts product choice”. Bar-Gill concludes that “[s]ince the perceived total price will be lower than the actual total price, biased consumers may well choose a product that costs more than it is worth to them. The result is inefficient allocation”.39 Even if Bar-Gill initially disarticulates the consumer interest from efficiency, he ultimately sees efficiency costs and consumer harm as coincident. Notably, Collins, in his review of Bar-Gill’s Seduction by Contract, reaches a similar conclusion (Collins, 2014, 1031).

  • 40 An early example is Jolls (1998).
  • 41 See, for example, Bar-Gill (2014, 478) and Ben-Shahar and Schneider (2014, 178-180 and 194). This a (...)

48Connected to this point, it is important to emphasize that after the behavioural turn, redistribution of income is taken into account, especially in contract law analyses. To see why this is an important change, recall Kaplow and Shavell’s mainstream position: “when legal rules do have distributive effects, the effects usually should not be counted” (Kaplow and Shavell, 2002, 32). After the turn, distribution counts in at least two ways. Some analyses use behavioural insights to challenge the argument in support of the irrelevance of distribution outside tax law.40 Others, and they are the majority, simply use behavioural insights to point out the existence of heterogeneity problems. For example, the redistributive effects of contractual terms from the economically worse-offs to the better-offs and from the more to the less bounded agents are usually taken into account by post-turn scholars as reasons for not regulating.41

  • 42 See, for example, Baldwin (2014), Cserne (2015) and for a defense, Sunstein (2014, 123-162).

49In the field of mixed theories, two main developments can be found. First, the use of nudges is defended and criticized on the grounds of a variety of non-welfarist arguments relating to the political legitimacy of nudges and their intrusion in individual autonomy.42 Second, welfare analysis is integrated with concepts coming from other moral theories. As illustrations, consider the books by Zamir and Medina, Law, Economics, and Morals and by Adler, Well-Being and Fair Distribution. Zamir and Medina (2010) propose a wealth of insights on how to model deontological concerns (for example, the idea that it is wrong to kill one person to save two). This is indeed an important contribution, especially because it shows that also non-welfarist insights can be operationalized and expressed mathematically. Adler (2012), along similar lines, makes important steps towards a “responsibility–sensitive welfarism”, based on an objective notion of welfare. For current purposes, the importance of these books lies in the contribution to the development of mixed theories meeting the standards of formal sophistication normally expected in welfare economics.

  • 43 De Geest (2015).

50Finally, a novel position of the post-turn literature can be identified, namely agnostic maximization. The agnostic maximizer is satisfied by the minimal decisional constraint that a state of affairs, S1, is superior to a state of affairs, S2, iff the benefits of moving to S2 exceed the costs. In this regard, any theory of benefits and costs is deemed acceptable.43 It is a very thin normative theory, ultimately useful as a compromise between approaches with different theories of value.

5.2 The Descriptive Level

51The very idea of a behavioural turn implies that at the descriptive level there have been important changes, which can arguably be summarized by saying that the rationality assumption has been relaxed. However, also in this context, it is still possible to identify different trends.

52The expression “heuristics and biases” captures two of them because, at least roughly, it can be said that some research focuses more on biases and other on heuristics. For example, Gigerenzer (2006, 2008) points out that behavioural studies tend to focus on decisional biases and the identification of ways to correct them. Sunstein and Jolls’s 2006 article Debiasing through Law is illustrative of this trend. However, it might well be that the differences between our actual behaviour and the decisional-processes described by rational choice theory can also be beneficial to us, at least in some contexts. In order to draw our attention to this possibility, Gigerenzer has coined the expressions “ecological rationality” to rival the concept of bounded rationality and “heuristics and the law” as subfield of behavioural research in L&E. From a different angle, these two approaches tend to have different attitudes with regard to the use of rational choice theory as a benchmark. In fact, research on biases and debiasing tends to focus on elements of decision-making that are in need of correction vis-á-vis the decision of a rational agent. To the contrary, works on heuristics tend to focus more on how people really decide, and then on how these decisional patterns can be improved.

  • 44 The “compensation paradox” stems from the consideration that “when precaution is bilateral, the pri (...)

53Another trend to be mentioned in this context is the choice of ignoring behavioural insights. Indeed, if properly supported, this attitude is perfectly legitimate. One way to do that is to prove that for the task at hand rational choice theory is accurate enough. As an alternative, one may want to inquire how rational agents would behave in a certain context, how they would react to an incentive, what the effects of a law would be, etc. However, when rationality is assumed not for its accuracy, but for other reasons (perhaps for its superior tractability or simplicity) and, furthermore, prescriptions are derived from the analysis, there is reason to be dissatisfied. An illustrative example of why this approach is dissatisfactory is given by Cooter and Porat’s Getting Incentives Right as well as Perry’s review thereof. Writing in 2014, Cooter and Porat claim for example that “if the rule is no liability, the injurer has no economic incentive to take precaution and so will minimize expenditure on precaution by taking none” (Cooter and Porat, 2014, 94). Building on this and similar premises, Cooter and Porat identify an incentive problem, which they call “compensation paradox”.44 On these grounds, the authors propose the introduction of what they call an anti-insurance contract, because it “could solve [the compensation paradox] perfectly” (Cooter and Porat, 2014, 104).

  • 45 Considering false beliefs as part of the problem is, for example, the starting point of the behavio (...)
  • 46 See also Cooter and Ulen (2012, 51) discussed below, Section 6.2.

54The limitation, for current purposes, of the analysis by Cooter and Porat is that, in order for the notion that the outcome of no liability is no precaution to hold, there has to be no driver of behaviour beside economic incentives. In fact, if social norms and/or bounded self-interest are at play, the actual level of precaution is indeterminate without an estimation of the effect of these forces. Interestingly, Perry (2015) criticizes the authors for their very limited consideration of heuristics and biases. To this observation, Cooter and Porat (2015, 249) simply reply that “[i]t is indeed true that our book offers a rational, rather than a behavioural analysis of private law”. This approach is then cursorily claimed to be in line with what courts do. The reply is clearly unsatisfactory. And it is so especially from the perspective of the Empirical Legal Studies that Cooter (2011) foresees as the future of the behavioural turn. In fact, possibly false beliefs held by judges cannot count as a methodological justification for a policy reform because they are actually part of the problem.45 From the point of view of an empirical approach, empirical assumptions should be chosen primarily for empirical reasons, as Cooter (2011) argues.46 Interestingly, Perry’s review is actually even more illustrative of the entrenchment of rational choice in L&E. After criticizing the lack of behavioural considerations by Cooter and Porat, Perry (2015, 220-221) observes that an agent will not consider the external effects of his level of precaution, leading to sub-optimal behaviour. The problem is that, again, this is true only if social norms and/or other regarding preferences leading to their internalization are not sufficiently strong to lead to optimal behaviour.

5.3 The Prescriptive Level

55The behavioural prescriptive theory starts from the descriptive premise that the individual response to material incentives is more complex than rational choice theory would predict. This premise requires rethinking how individuals interact and are influenced by legal norms and other drivers of behaviour. The great promise of the behavioural prescriptive theory is that legal norms can become more effective. The insights can be divided in two broad categories, in light of the type of behavioural insights they are based upon. A first line of analysis—that so far appears to be more developed—focuses on heurists and biases, while the second line of analysis focuses on bounded self-interest. Generally speaking, the weakening of the marketist position is witnessed by the identification of a new class of market failures—behavioural market failures—based primarily, but not only, on considerations of heuristics and biases.

  • 47 Compare Bar-Gill (2014, 467) and Alemanno and Sibony (2015, 18) with Sunstein (2014, 16-17). For a (...)
  • 48 See Korobkin (2003), Bar-Gill (2012, 2014).

56The diffusion of behavioural market failures shows that the market is considered a less reliable institution for the allocation of resources. Interestingly, two different notions of behavioural market failures can be identified in the literature. In the first case, the market fails to protect consumers from themselves while in the second it produces incentives for firms to exploit consumers.47 The single most important problem relates to saliency: the market mechanism provides incentives to exploit non-salient attributes to make the deal appear more attractive to consumers in ways that information disclosure can hardly contrast.48

57The same set of considerations is also used to call for an increased reliance on the market. For example, in More Than You Wanted to Know, Ben-Shahar and Schneider use behavioural insights to discredit the reliance on information disclosure. While, on these grounds the majority of scholars try to optimize information disclosure and consider more intrusive regulation as the alternative, Ben-Shahar and Schneider take a different path. Having analysed at length the limits of disclosure throughout the book, in a short final chapter, the authors present a laundry list of possible market solutions to the information problem that would allegedly justify the repeal of mandatory disclosure (Ben-Shahar and Schneider, 2014, 183-195).

  • 49 See, for an insightful discussion, Gillette (2004, 708-712).
  • 50 On these issues, see respectively Langevoort (1996) and Hoeppner (2014).

58Also at the level of bounded self-interest it is possible to identify arguments calling for more or less reliance on the market. On the one hand, legal intervention in market relations faces the risk of generating crowding-out effects. The risk, more precisely, is that regulation reduces non-legal incentives to behave fairly.49 On the other hand, prosocial behaviour leads to more serious threats in the market place. For example, consumers are likely to trust counterparties in conflict of interest or to be dragged into a transaction because of social pressure.50

59The evaluation of the variety of post-turn positions is discussed in the next section and used to assess the impact of the turn on the thesis associated with the Chicago and New Haven Schools.

6. Looking for the Impact Structures of the Behavioural Turn

60This section highlights the main differences between the pre- and post-turn literature. More precisely, it identifies the main collisions and describes the resulting impact structures of behavioural insights. The outcome of this analysis, joined to the distinction between the Chicago and New Haven Schools will allow the drawing of some conclusions about the impact of the behavioural turn.

6.1 The Normative Level

61What is the current outlook of the pre-turn normative approaches? The first question to ask at the normative level is how objective welfarism interacts with the various pre-turn positions available. Also very relevant is the interest in distribution and in consumer instead of total value. Moreover, the connection between maximizing formalism and agnostic maximization further weakens the wealth maximization criterion. Finally, individualism is best understood as a prescriptive position (in disguise) aimed at challenging the institutional preference for the market mechanism.

62Objective welfarism is compatible with the positions of both social welfarists and mixed theorists. The same cannot be said for wealth maximizers. Subjective welfarism is a constitutive element of their normative criterion. Wealth maximization uses willingness to pay and to be paid to infer the intensity of preferences. Indeed, it is true that wealth maximization is not justified only as a means for the quantification of preference intensity. However, the normative unreliability of preferences adds another critique to the list of reasons against wealth maximization. In this regard, it is quite telling that Posner has retreated to a weak normative defence of the criterion, such as maximizing formalism.

63Taking distribution into account both as a matter of income distribution and of distribution between market agents (also in the form of consumerism) has effects similar to objective welfarism on the various pre-turn normative positions. Social welfarists, agnostic maximizers, and mixed theorists can accommodate these perspectives. Indeed, especially income distribution has always been taken into account by social welfarists and mixed theorists. At most, especially for social welfarists like Kaplow and Shavell, the tension is at the prescriptive level, in the sense that the post-behavioural turn questions the institutional architecture (tax system vs other legal norms) that most authors believed would best fit in any normative agenda. Wealth maximizers, instead, cannot readily accommodate this concern for distribution.

64The wealth maximization position is further weakened because the attempt to save it as a means to reach clarity in legal scholarship—the position identified as maximizing formalism—is questioned by agnostic maximizers. As seen, De Geest (2015) suggests that agnostic maximization is sufficient to be consistent with maximizing formalism. If De Geest’s analysis is accepted, it follows that maximizing formalism does not necessarily require wealth maximization.

65Individualism requires a separate discussion. In fact, this position shows that the boundaries between the different levels are not as clear-cut as one may think. As mentioned above, individualism is arguably best understood as a (brilliant) move to challenge anti-paternalists while accepting as many of their assumptions as possible. Anti-paternalism calls for a limited intervention in private interactions and it is thus a prescriptive approach belonging to marketism. It follows that individualism is better understood as a challenge to marketist positions than to any normative position.

66To sum up, social welfarism and mixed theories are the positions more in accord with the behavioural turn. In stark contrast, wealth maximizers are in difficulty. The normative critique to this approach is almost comprehensive: distribution matters, wealth does not measure welfare accurately and formalism does not necessarily require its use. Indeed, they can still try to argue that wealth maximization fosters formal values far better than any other approach, and that these values are so important that wealth maximization is still a plausible normative approach. However, the case for this claim has yet to be made.

6.2 The Descriptive Level

  • 51 See also Bar-Gill (2012, 7).

67At the descriptive level, the discussion focuses on how weak, analytical, and committed rationalists can accommodate behavioural insights. Indeed, weak rationalists can do so quite well. To see why, recall Calabresi’s analysis of sub-optimal insurance. In post-turn language, Calabresi identified a behavioural market failure. It is therefore unsurprising that Calabresi (2016, 4) welcomes the behavioural turn as compatible with his approach. Analytical rationalists can choose whether to commit to behavioural theory on empirical grounds. As Cooter and Ulen put it in their textbook, choosing between rational and behavioural theories “depends on which one predicts the law’s effects on the behavior more accurately” (Cooter and Ulen, 2012, 51).51 Consistent with Cooter (2011), the authors take the view that the turn is merely an empirical matter.

  • 52 See, for example, Posner (1998).

68Only committed rationalists have problems with the behavioural turn. Indeed, they can question the reliability of the findings or argue against their relevance for legal practice, but in so doing they have already moved to the position of analytical rationalists.52

  • 53 For an important contribution to the integration of behavioural insights regarding information, see (...)

69From the point of view of the research question this article is intended to address, the differences between researches focusing on biases or heuristics is not particularly telling. In fact, both lines of inquiry have already gone beyond the rationality assumption. What is more concerning is the use of rational choice theory as the standpoint for the formulation of prescriptions in the lack of empirical support, like in the case of Cooter and Porat (2014). This is not a problem per se. At the descriptive level, behavioural insights ask to relax rather than remove the rationality assumption. However, the lesson seems to be that analytical rationalists bear the risk of pushing the analysis beyond the formulation of hypothesis to be tested empirically, as in the case of Cooter and Porat (2014). Ultimately, this approach boils down to committed rationalism and in the denial of the behavioural turn. The fact that also Cooter—who, as seen, is a promoter of the behavioural turn—can be ‘seduced’ by rational choice theory is illustrative of the power of this framework. Notably, an excessive focus on rational choice is problematic not only at the normative and prescriptive levels, but also at the descriptive one. Here, the problem is diverting the attention from the integration of behavioural insights in economic modelling.53

6.3 The Prescriptive Level

70The image of the market in post-turn L&E is generally more dismal than in comparison to the pre-turn literature. However, also new ‘marketist’ claims have emerged. Finally, the relevance of prosocial behaviour and bounded self-interest has to be considered.

71The main danger for the market approach is to succumb to the “sufficiency bias” discussed by Jolls, Sunstein and Thaler (1998b, 1595) in their reply to Posner and Kelman, which consists in formulating a rebuttal to an empirical or consequentialist critique to a claim based on rational choice without discussing the theoretical plausibility nor attempting to warrant empirically the proposed rebuttal. The reviews by Bubb (2015) and Marotta-Wrangler (2014) of Ben-Shahar and Schneider (2014) arguably suggest that their conclusions against mandated disclosure are affected by this bias.

72More fundamentally, pre-turn market approaches focuses on the use of monetary incentives as the key driver of behaviour. In other terms, legal norms are reduced to monetary incentives. The post-turn literature shows that monetary incentives are just one of the relevant drivers of behaviour. Including social norms and bounded self-interest in the toolkit of the market approach would stretch significantly the concept of market approach. In fact, since Adam Smith’s invisible hand, the market approach relies on the idea that with the right choice architecture, even self-interested motivation leads to prosocial behaviour. It is thus more plausible to include the role of social norms and bounded self-interest in the non-market approach.

73On balance, it seems that at the prescriptive level the position of the market approach has become weaker vis-á-vis the non-market approach.

74With the conclusion of the comparative analysis, it is now possible to consider the impact of the behavioural turn on the two central meanings of “L&E” identified in Section 3, namely the Chicago and New Haven Schools.

6.4 The Depth of the Impact: A Crater in Chicago, Stardust Over New Haven

75The analysis offered so far allows the drawing of some conclusions about the impact of the behavioural turn in L&E. More precisely, it seems appropriate to conclude that the turn vindicates, at least theoretically, the pre-turn approach of the New Haven School vis-á-vis the one of the Chicago School. To see this, let us consider the impact of the turn on the central claims associated to the two schools.

76Let us begin by recalling the differences between these claims. At the normative level, while the pre-turn Chicago School focuses on wealth maximization, the New Haven School accepts a broader set of normative considerations. At the descriptive level, the Chicago approach is committed to rational choice theory, while the New Haven approach can be understood as compatible with both weak and analytical rationalism. Finally, at the prescriptive level the division between the two schools matches the distinction between market and non-market approaches.

77The impact on the Chicago approach has been profound. Behavioural insights powerfully question both its normative and descriptive features. Wealth maximization has suffered greatly as a normative foundation and its defence as a means to maximizing formalism is asserted rather than argued. The relevance of distribution, especially in market contexts is incompatible with this approach. At the descriptive level, instead, it was seen that admitting the possibility of relaxing the rationality assumption is incompatible with committed rationalism. At the prescriptive level, the Chicago School remains on the forefront of the market approach. As this approach is not as dominant as before the turn, also at the prescriptive level the impact for the Chicago School is remarkable.

78The turn has been much smoother for the New Haven School. This approach was never committed to rational choice theory and always considered distribution important. As seen, mixed normative theories can comfortably account for the post-turn debates at the normative level. Also at the prescriptive level, the strengthening of non-marketism is compatible with the approach of the pre-turn New Haven School.

79In light of the above, the turn has indeed had a deep impact on the Chicago School—the “crater” there is massive. For the New Haven School, the turn has not posed significant challenges at any level. Flying over New Haven—direction Chicago—the mass of behavioural insights looks more like stardust than an ominous asteroid.

7. Conclusion: The New Haven School Vindicated

80The results of the analysis suggest that the approach of the New Haven School—subjacent before the behavioural turn—is much more compatible with the post-turn, mainstream literature than the approach of the Chicago School—which was the incumbant before the turn. Hence, this article reaches the following conclusion: the behavioural turn vindicates the New Haven approach.

  • 54 See, for example, Hylton (2005) and Marciano and Ramello (2014b) and the many conferences and speci (...)

81Regarding this conclusion, three considerations seem appropriate. First, the vindication of the New Haven School is advocated here from a theoretical point of view. Recognition of this vindication by the mainstream literature is yet to come. Indeed, there is some movement in this direction, centred especially on Guido Calabresi’s scholarship.54 This article contributes to this movement by looking at the issue in a more systematic and explicit way. Second, while this article focuses on the impact of the behavioural turn on two central cases of L&E, it was also pointed out that the accuracy of the account according to which the L&E movement started in the US in the 1960s-70s is controversial. From this perspective, it would be indeed valuable to see if the behavioural turn makes it easier to revaluate the insights of other cases of L&E. Third and connected point, it is hard to tell what the future holds for L&E. Maybe it will be Empirical Legal Studies, as suggested by Cooter. Maybe it will be a New Legal Realism, as argued by Nourse and Shaffer. Maybe both. In any case, it is submitted in light of the finding that the behavioural turn vindicates the approach of the New Haven School, this school should be taken more seriously this time. A careful consideration of the advice formulated by Calabresi in his recent book, The Future of Law and Economics, seems a good starting point in that direction.

I am grateful to Alain Marciano and Magdalena Malecka and two anonymous referees for many helpful and constructive suggestions; the article is much better thanks to their efforts. The responsibility for any mistake rests with me.

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Notes

1 Parisi and Klick (2009, 43, fn 8) and Sanchez-Graells (2018, 171, fn 4).

2 Calabresi’s thrust goes much deeper than the distinction between a Chicago and a New Haven approach and is thus unfit for current purposes. In fact, Calabresi’s main concern in The Future of Law and Economics is not about the specific economic school of thought one adheres to, but rather whether the direction of knowledge between economics and law is unilateral or bilateral (Calabresi, 2016, 5-8). See also Chiassoni (2016), Zamir (forthcoming).

3 See Jolls, Sunstein and Thaler (1998a, 1473-1475).

4 Speigh (2015, 54).

5 For a collection of examples of this kind of approach, see Cooter and Ulen (2012) and Posner (2011).

6 See, for example, Dworkin (1980, 219-223).

7 Rose-Ackerman (1989, 253).

8 See Maackay (2000, 404-407) for further references.

9 Finnis (2011, 9-11).

10 Fried (2002), for example, presents the first L&E movement in the United States as operating from the 1880s through the 1930s. Harnay and Marciano (2009) argue that in the 1970s Posner’s scholarship turned from being part of the L&E tradition represented in Chicago by Director and Coase, to become an innovative economic analysis of law, which finds in Becker’s work its main source of inspiration. In their view, Posner’s “approach changed in the early 1970s, shifting from a law and economics perspective in which the focus is on the workings of the economic system to an economic analysis of law in which the emphasis is put on the functioning of the legal system. … Posner is the first to transpose Becker’s definition of economics in law and economics” (2009, 216-217). Similarly, Medema (2011) traces the origins of L&E in Chicago as back as the 1930s and the origin of economic analysis of law in the 1970s, with Posner as most prominent figure and “Chicago price theory in its Stigler-Becker version” as source of inspiration. Moreover, Medema (1998) basically bridges these two lines of inquiry by connecting Chicago L&E to the even older L&E Fried refers to.

11 Advanced research on the relation between law and economics in the German-speaking world started some decade before (the ordoliberal or Freiburg and the Austrian Schools; see Mackaay (2000) for a short discussion and references).

12 In line with the spirit of the present paper, reflecting on the insights that can be gathered from the older branches of L&E could offer important insights for the further development of L&E. However, these broader studies have to be postponed to another occasion.

13 Mackaay (2000, 412); Medema and Mercuro (2007, 105-107, 287); Salzberger (2007, 220-221); Parisi and Klick (2009, 42).

14 Salzberger (2007, 220-221); Parisi and Klick (2009, 43, fn 8). Note that this is the only claim Mackaay, Medema and Mercuro reject, but see Medema (1998, 11).

15 Mackaay (2000, 412); Medema and Mercuro (2007, 285, 288); Salzberger (2007, 220-221); Parisi and Klick (2009, 42).

16 Posner (1985, 88).

17 For an account of the different defenses, see Kraus (2001, 428-431) and, in more details, Mathis (2009, 145-184).

18 Posner (2015, 13).

19 See also Kaplow (2008) and Zerbe (2001, 14-33).

20 Kaplow and Shavell (2002, 35-37).

21 Calabresi (1970, 24-25; 1980, 556-559; 1991), Rose-Ackerman (1988, 1989), Coleman (2002), Adler and E. Posner (2006). In this journal, White (2015) claims that judgments of this kind are necessary for the normative analysis of externality problems.

22 Notably, this account casts doubts on Lessig’s reconstruction of the old Chicago School. In his view, the Chicago School tried to trivialize law against other external drivers of behaviour (the market, social norms, and choice architecture). In my understanding, the relation between the law and the market for the Chicago School is summarized by Posner´s maxim “mimic the market”, which implies that the market plays a defining role in identifying desirable outcomes and, therefore, the ends to be pursued by legal norms. See also Medema (1998, 221).

23 At the prescriptive level, the analysis could be expanded to consider the degree of trust in legal institutions – in particular in the legislative, the court system and agencies. The distinction however correlates with the one between market and non-market approaches. In fact, marketists favour the court system against other institutions. Compare Easterbrook (1983) with Rose-Ackerman (1988) and more recently Sunstein (2016). The distinction can be traced to the distinction in political economics between public choice and public interest theories (see den Hertog 2012). Behavioural insights are leading to a new version of this debate. Currently, it seems that behavioural public choice goes in the direction of stressing the cognitive limitation of public officials and other scholars focus on the importance of prosocial behaviour; compare Lucas and Tasić (2015) and Gayer and Viscusi (2015) with Bell et al (2013) and Stout (2014).

24 See Posner (1999).

25 A limited exception is Hammond (1982, 1499-1500).

26 See Posner (1981, 82; 2015, 9).

27 Komesar (1994). Compare, for example, Joskow (2007) and Posner (1999) with regard to natural monopolies.

28 Calabresi and Melamed (1972)

29 Lunn (2014, 52), White (2016), Esposito (2017, 202-203).

30 Marciano and Ramello (2014b, 101-115).

31 More precisely, an intersubjective or non-strictly-subjective theory of value.

32 See Bubb and Pildes (2014) and Marciano (2015). For an attempt of reconciliation, see Esposito (2017, 210-211).

33 “We elaborate a form of paternalism, libertarian in spirit, that should be acceptable to those who are firmly committed to freedom of choice on grounds of either autonomy or welfare” (Sunstein and Thaler 2003, 1160).

34 Bar-Gill (2014, 477); Sunstein (2014, 38).

35 Sunstein (2014, 7).

36 Korobkin (2003, 1255). At 1275 the goal for courts is again “to use the unconscionability doctrine to promote social welfare or protect buyers as a class”.

37 Korobkin (2003, 1252).

38 Bar-Gill (2014, 475).

39 Bar-Gill (2014, 476).

40 An early example is Jolls (1998).

41 See, for example, Bar-Gill (2014, 478) and Ben-Shahar and Schneider (2014, 178-180 and 194). This appears to be a beautiful example of the framing effect. The argument is presented in such a way that emphasis is put on—i.e. the reference point is—the most plausible value, the protection of the weaker party in case of regressive distribution or the protection of autonomy in case of harm for the less boundedly rational agents.

42 See, for example, Baldwin (2014), Cserne (2015) and for a defense, Sunstein (2014, 123-162).

43 De Geest (2015).

44 The “compensation paradox” stems from the consideration that “when precaution is bilateral, the principle of efficiency requires both parties to be fully responsible for the harm” (Cooter and Porat, 2014, 93).

45 Considering false beliefs as part of the problem is, for example, the starting point of the behavioural critique of the “information paradigm” of EU consumer law. See Esposito (2017) for an articulation and development of the premises of the critique and for further references.

46 See also Cooter and Ulen (2012, 51) discussed below, Section 6.2.

47 Compare Bar-Gill (2014, 467) and Alemanno and Sibony (2015, 18) with Sunstein (2014, 16-17). For a more detailed account of the challenges to marketism, see Esposito (2017).

48 See Korobkin (2003), Bar-Gill (2012, 2014).

49 See, for an insightful discussion, Gillette (2004, 708-712).

50 On these issues, see respectively Langevoort (1996) and Hoeppner (2014).

51 See also Bar-Gill (2012, 7).

52 See, for example, Posner (1998).

53 For an important contribution to the integration of behavioural insights regarding information, see, in this journal, Hefti and Heinke (2015).

54 See, for example, Hylton (2005) and Marciano and Ramello (2014b) and the many conferences and special issues of journal focusing on The Future of Law and Economics that are been organized and published around the globe.

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Fabrizio Esposito, « How the Behavioural Turn in Law and Economics Vindicates the New Haven School », Œconomia, 7-3 | 2017, 375-406.

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Fabrizio Esposito, « How the Behavioural Turn in Law and Economics Vindicates the New Haven School », Œconomia [En ligne], 7-3 | 2017, mis en ligne le 01 septembre 2017, consulté le 16 décembre 2017. URL : http://journals.openedition.org/oeconomia/2756 ; DOI : 10.4000/oeconomia.2756

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Fabrizio Esposito

Department of Law, European University Institute, Florence. fabrizio.esposito@eui.eu

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