Category: Behavioral Law and Economics


Wikipedia’s First Lawyer

In Wikitruth Through Wikiorder, Salil Mehra and I detailed the history of Wikipedia’s dispute resolution process.  We highlighted the role of Alex Roshuk, a Brooklyn lawyer and site volunteer who played a key early role in the process by suggesting that the site’s dispute resolution process should look like a “very simplified version[s] of the commercial or international arbitration programs of the American Arbitration Association.” When writing the article, I confess I found it ironic that a lawyer proposed such a formal process, and believed that it was evidence that legalism is an inescapable (and dominant) part of American society.   I just found Roshuk’s response to our article online.   He offers a stinging indictment of the Wikimedia foundation, and what’s come of the dispute resolution system.  As he argues:

While I originally suggested in the fall of 2003 that Wikipedia have a structured dispute resolution process, instead of making this process simple and straightforward, ADR atWikipedia has become a complex system that has all kinds of hard to understand rules.  Perhaps it is the management of this dispute resolution process (or lack thereof) is what has caused or contributed to a lot of Wikipedia users leaving the project and the ripple effect this system has on the general behavior of editors and administrators whose behavior is mediated by this process . . . After seeing the discussion develop at Wikipedia in the fall of 2003 I saw that there were a lot of people who misunderstood the idea of arbitration, They wanted to make it something formal, like a Wikipedia court system, the ArbCom, as it was called became a place where someone could obtain status in the Wikipedia community, originally by being appointed by Mr. James “Jimbo” Wales, one of the founders of Wikipedia, and later by election. When I suggested this kind of system my intention was to get people to talk, mostly through mediation by a neutral third party, to come to a mutual understanding that editors were all contributing knowledge, not fighting against each other to be “right” or “wrong”.

This view of the pathologies of the Arbitration system isn’t, of course, unique to Roshuk, nor is it really in tension with the story Salil and I set out in Wikitruth.  But it is notable that Roshuk has such a dim view of the site’s excessive legalization, and that he attributes the dominance of law to a desire for status and hierarchy, instead of the formal structure of the process itself.

(Image source: Wikilove.)


Harvard Clinic Responds to Greiner Study

Following up on my two posts on Jim Greiner’s study on attorney representation effects, I was just forwarded the following email from Rachel Lauter, President, Harvard Legal Aid Bureau.  It’s illuminating — of the study’s limitations and of the pressure that the Harvard Legal Aid Bureau is feeling to defend participating in research about the efficacy of its representation.  It’s a long email, so if you are interested, follow me after the jump.

Bubble Warning on Facebook, Groupon

The mysterious ways of financial valuation manifest daily. One mystery: Facebook, the social network business, and Groupon, the buying network company, both generate annual revenues of about $1 billion. Yet reported private stock trading indicates that traders are pricing Facebook at about 50 times that while pricing Groupon at about 5 times that.

Perhaps this is attributable to analytical factors, such as observed user growth rates, potential market and revenue sources, perceived capacity to convert the revenue into earnings, competitive threats—or negotiating skill in trading of privately-held shares. But given the wildly varying pricing traders give enterprises like this in recent years, it could be a sign of a bubble.

Financial bubbles recur as a natural, inherent product of human behavior in capitalist economies—from the recent real estate bubble, to the dot-com bubble a decade earlier, and stretching back to the tronics bubble of the 70s and back to Amsterdam tulip bulbs centuries ago.  (I wrote a trade book about this after last decade’s bubble burst.)  By definition, a critical mass cannot recognize the bubble as it is in inflating, though invariably some pessimists detect something. Read More


Three Policy Interventions for Reducing Privacy Harms

Thanks so much to Danielle and Concurring Opinions for inviting me to blog. This is an exciting opportunity and I look forward to sharing my thoughts with you. Hopefully you will find these posts interesting.

There are many policy interventions that legislators can impose to reduce harms caused by one party to another. Two that are very often compared are safety regulations (mandated standards) and liability. They lend themselves well to comparison because they’re generally employed on either side of some harmful event (e.g. data breach or toxic spill): ex ante regulations are applied before the harm, and ex post liability is applied after the harm.

A third approach, one that we might consider ‘sitting between’ regulation and liability, is information disclosure (e.g. data breach disclosure (security breach notification) laws). I’d like to take a few paragraphs to compare these alternatives in regards to data breaches and privacy harms.

Three Interventions


Read More


The Numbers are REALLY In–Plus Two Modest Proposals

For those of you who had any doubts, our friends at Kaplan have just confirmed it:  Aspiring law students care more about law school rankings than anything else, including the prospects of getting a job, quality of program, or geography.

Sayeth Kaplan:

1,383 aspiring lawyers who took the October LSAT . . . [were] asked “What is most important to you when picking a law school to apply to?” According to the results, 30% say that a law school’s ranking is the most critical factor, followed by geographic location at 24%; academic programming at 19%; and affordability at 12%. Only 8% of respondents consider a law school’s job placement statistics to be the most important factor. In a related question asking, “How important a factor is a law school’s ranking in determining where you will apply?” 86% say ranking is “very important” or “somewhat important” in their application decision-making.

Mystal at ATL expresses shock–shock!–that potential law students could be so naive. Surely, he fairly observes, they should care most about job prospects.

Yes, that would be true if they were rational.  Yet, we all know from the behavioral literature that we apply a heavy discount rate to long-distance prospects.  How much can I or  should I care today about what may happen 3 (or 4) years from today?

If you think about it from the perspective of any law school applicant today, the one concrete thing they can lock onto that has present value is the school’s ranking:  It is simple, quantified, and–perhaps most important–tauntable.  No one’s face burns with shame because their enemy (or friend)  got into a law school with a better job placement rate.  Jealously and envy–the daily diet of anxious first-years–are driven by much simpler signals:  Is mine bigger (higher) than yours?

This is not to defend the students who place so much faith in numbers that have repeatedly been shown to be incredibly stupid.  It just means that Kaplan’s survey (and I have not seen the instrument or data) makes intuitive sense.

Which leads to me to offer two modest (and probably unoriginal) proposals:

Read More


CELS V: The Year of the Experiment

Data Collection Makes Everyone Grumpy and Hunched Over

For the last several years, I’ve posted recaps of the Annual Empirical Studies Conference.  (See me, @ Cornell, @ USC).  This year, as promised, will be no different.  Yale hosted CELS V, and the committee did a bang up job: the food was tasty; there were no technical snafus of note; and the panels appeared to have a high degree of internal validity & congruence. Richard Brooks, Alan Gerber, Dan Kahan, Yair Listokin, Tracey Meares, and (especially) Roberta Romano are all due a round of applause, or, better yet, supersized computer monitors so they can see their data better.  In this post, I’m going to provide a running diary of the conference.  It will be like you were there with me, except you don’t have to suffer through my bouts of social anxiety!

Unfortunately, I missed the hottest ticket of the conference, Bruce Ackerman’s commentary on Law/Versteeg’s The Evolution and Ideology of Global Constitutionalism.  From all reports, Ackerman said something like: “wrong questions, wrong data, wrong theory,” and then imploded in frustration.  Instead of watching those fireworks, I was watching Yair Listokin present The Meaning of Contractual Silence: A Field Experiment [Here’s an older version of the paper].  Listokin ran a field experiment selling ipods on ebay, some with a warranty, some as-is, and some silent on the warranty term. He found that individuals paid attention to the contract, and there was some evidence that the UCC default was about what they thought silence meant.  As he admitted, there were problems with the design of the study – particularly, (1) small & skewed samples; and (2) a lack of clarity about how much buyers know about ebay’s unique and self-contained dispute resolution system.  As someone remarked after the presentation, it would have been interesting had Listokin sold all the customers bad ipods (instead of good ones) and studied how the contract terms influenced behavior post-“breach”.  Then again, who needs that IRB hassle?

Read More


Litigating Toward Settlement

What is the relationship between litigation and settlement?  In a new working paper, Christina Boyd and I explore that question using data from federal trial dockets.  Our basic intuition is that motion practice propels cases toward faster settlements, as it unlocks information about the facts, the parties’ strategies, the resources they will spend on the case, and (sometimes) what the judge thinks of the merits.  Our results essentially support such hypotheses: the mere filing of a motion speeds case settlement. Moreover, “motions which are granted are more immediately important to the settlement rate than motions denied, plaintiff victories are more important than defendant victories, motions about unclear areas of law are more important than motions about settled law, and motions later in cases are more important that motions earlier in cases.”  These findings are suggestive.  Though motion practice is often thought of as parasitic, driven by agency costs, and part the problem of litigation, our results imply that it has significant pro-social consequences.  Indeed, paying homage to Gilson, why not re-imagine lawyers as canny litigation costs engineers?

We also found some nifty case effects.  Women judges were on average (as Boyd had previously established) better at encouraging settlement than men: “the likelihood of a case settling in any given month is, on average, 25% larger when a female judge presides than when a male judge does.” Also, imbalance between the size of the firms representing the plaintiff and the defendant had a significant influence on compromise’s timing, as the figure below illustrates:

Read More


When a (Health Care) Fine is a (Health Care Price): Israeli Day Cares and HCR

Fortune reports that during the health care debate, AT&T, Verizon, Caterpillar, and John Deere all  produced internal documents considering whether it made sense to stop providing health insurance and simply pay the fine:

AT&T produced a PowerPoint slide entitled “Medical Cost Versus No Coverage Penalty.” A document prepared for Verizon by consulting firm Hewitt Resources stated, “Even though the proposed assessments [on companies that do not provide health care] are material, they are modest when compared to the average cost of health care,” and that to avoid costs and regulations, “employers may consider exiting the health care market and send employees to the Exchanges.”  . . .

Kenneth Huhn, vice president of labor relations at Deere, said in an internal email that his company should look at the alternatives to providing health benefits, which “would amount to denying coverage and just paying the penalty,” and that he felt he already had the ability to make this change under his company’s labor agreement. Caterpillar felt it would have to give “serious consideration” to the penalty option.

You might see these documents as posturing, whimsical make-work*, or simply good business planning.   But I tend to think about this as an example of the Israeli day care problem: when you put prices on conduct that previously was enforced through social norms, you may increase its incidence.** This phenomenon, incidentally, would appear to be even more important when considering how to enforce the individual mandate .

*The whimsy story is supported by the unwillingness of the firms to stand behind their analysis today.

**Of course, you might object that employer-provided health insurance results from market incentives, not social practice, but I’m not so sure those concepts are easily segregated.


Endowment Effects, Confirmation Bias, and the Politics of Health Care Post-Passage

Gavel of Justice, or Hammer of Doom. Your Call. (Chip Somodevilla / Getty Images / March 21, 2010)

Sen. Tom Harkin articulates the new conventional wisdom:

“I can’t wait for this debate [about Health Care reconciliation and repeal] to happen. I look forward to it. I will relish it,” Harkin said, on his way into a weekly Democratic caucus lunch. “Now the bill is passed, its signed into law. Now the American people have something. They own it. It’s theirs. And the Republicans are saying they want to take it away from them.”

This sounds like an argument based on the endowment effect. But it’s actually not all that clear that this “bias” operates in the way that Sen. Harkin posits, i.e., that individuals will value the benefits of a law more after it passes, because they exhibit loss aversion.  This optimism risks ignoring an important limitation on endowment, which (simplifying radically) suggests that how you obtain property seriously affects whether you exhibit an endowment superpreference.  That is: when people think that property is allocated randomly or by grace, they value it less than when they feel they’ve earned it.  It strikes me that Republicans will have every incentive to try to convince the public that health care goods have been allocated randomly or by influence peddling, rather than because the Congress deliberated fairly and divided by desert.  That’s why fighting about reconciliation and in the courts make strategic sense: not because such battles are likely to succeed (they aren’t) but because they reduce general belief in the procedural legitimacy of reform and attachment to its substantive products.

In other news, Prof. Ann Althouse is very defensive about saying “so what if some idiot said a bad word,” referring to the worst word there is.  Of course, what was objectionable was that she first asserted – with no evidence at all – that Representative Lewis had made up the charge  (“It’s one of the oldest dirty tricks.)  Then, she argued that it was actually white politicians who were upset by the protesters who were racist because they were “so quick to think of powerful black politicians as vulnerable and besieged.”  All this while refusing to permit her commentators to actually use the word, presumably because she recognizes that it is uniquely stigmatizing, evil, and, well, racist.

Read More


Milgram on T.V.

At least Milgram Wasn't Doing It For Profit

From the hyper-civilized French comes a new game show:

Game show contestants turn torturers in a new psychological experiment for French television, zapping a man with electricity until he cries for mercy — then zapping him again until he seems to drop dead.

“The Game of Death” has all the trappings of a traditional television quiz show, with a roaring crowd and a glamorous and well-known hostess urging the players on under gaudy studio lights.

But the contestants did not know they were taking part in an experiment to find out whether television could push them to outrageous lengths, and which has prompted comparisons with the atrocities of Nazi Germany.

The better analogy is Stanley Milgram’s Yale experiments, which were the direct inspiration for this show.  Though the article blames television’s “absolutely terrifying power” to compel obedience here, I think the result can be explained much more simply as depending on the power of authority itself.

Maybe we need an IRB for reality show producers.