Vol. 10 No. 3 (March 2000) pp. 189-192.

BEHAVIORAL LAW AND ECONOMICS by Cass R. Sunstein (Editor). New York: Cambridge University Press, 2000. 480 pp. Cloth $69.95.
Paper $24.95.

Reviewed by Paul J. Wahlbeck, Department of Political Science, George Washington University.

Cass Sunstein and the contributors to BEHAVIORAL LAW AND ECONOMICS explore the limits of rational choice theory and economic analysis of the law. The objective of this book is to apply behavioral economics, a developing area of inquiry that examines how people actually make decisions, to the analysis of the law. The core theoretical premise of behavioral economics is that the rational decision maker of conventional economic analysis is not a "real" person. Instead, Sunstein argues that decision makers are characterized by bounded rationality, bounded willpower, and bounded self-interest. If this is the case, or so the behavioral economist's argument goes, humans may respond to their cognitive limitations by relying on heuristic devices or other mental shortcuts. We, as humans, may also take action that is in conflict with our own long-term interests, and we may even care about others and want to treat them fairly. Of course, this does not mean that decision makers are wholly irrational. Instead, as Sunstein states in his introductory essay, "People are not always 'rational' in the sense that economists suppose. But it does not follow that people's behavior is unpredictable, systematically irrational, random, rule-free, or elusive to social scientists. On the contrary, the qualifications can be described, used, and sometimes even modeled" (p. 1). Challenging the assumptions underlying conventional economic analysis of the law, the authors generate behavioral predictions based on the bounds of human decision making, subjecting them to testing through experiments.

The first section of this volume delves into heuristic devices that people use in decision making and the biases and aversions from which people suffer. The heuristic devices that the authors explore are availability (people think risks are more serious when an incident is readily called to mind or "available"), anchoring (probability judgments on the basis of an initial value for which they make insufficient adjustments), and case-based decisions (simplifying decision-making costs by reasoning from past cases). The individual essays develop applications of these heuristics in the legal system (e.g., juror decision making and the effect of legal rules), but the
essays do not fully explicate the value that these heuristics may have for political scientists who study judicial decision making (nor is that the authors' goal). That, of course, does not mean that the application of these heuristics to court decision making is limited. Indeed, the case-based decision heuristic is relevant to the running debate about the role of law and legal precedent in judicial decision making. As Sunstein and Edna Ullmann-Margalit describe in their essay, the typical precedent-based court decision involves, , a low "on-the-spot burden," but a high ex ante burden. That is to say, less thought is

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expended when a decision applies a precedent, but substantial thought and effort was required when a court created the precedential rule. A judge can, therefore, rely on precedent and minimize the cost of making a decision and evaluating all the alternatives, while also reducing the costs of making a mistake in choosing a suboptimal outcome. What is useful about this essay for students of judicial decision making is that it might compel us to think systematically about the conditions under which judges engage in incremental decision making as opposed to a more comprehensive development of legal rules. Rather than simply assert that precedent always plays a particular role in decision making, politically it would be useful to examine when judges incur the costs associated with each type of decision-making process.

Behavioral economics also explores biases that may lead to inaccurate perceptions, including extremeness aversion (because people are averse to extremes, most people seek a compromise), hindsight bias (the probability of an event is seen as more likely given that it occurred), optimistic bias (people think risks are less likely to afflict them), and status quo bias (people like the status quo and demand more to justify a departure from it). Again, these theoretical insights present political scientists with opportunities for a fuller understanding of the judicial process. Take, for example, the compromise effect that is produced by the extremeness aversion
discussed in the essay entitled "Context-Dependence in Legal Decision Making" by Mark Kelman, Yuval Rottenstreich, and Amos Tversky. These authors run a series of experiments that demonstrate that a person's choice is affected by the alternatives that are presented. For instance, they give participants in an experiment the choice of convicting a killer of murder or convicting the defendant of voluntary manslaughter. Given these two choices, respondents evenly split between them, but when a third alternative with a higher penalty is presented, participants' preference for the offense with the lightest penalty, manslaughter, drops significantly. While the extremeness aversion might reasonably influence a juror's decision, what about judicial choice. Although this question is not directly addressed in this volume, the political science literature suggests that Supreme Court justices also suffer from an extremeness aversion. For instance, Lee Epstein and Joseph Kobylka
(1992) argue that part of the reason that interest groups were unable to preserve or continue their earlier victories in abortion and capital punishment cases was the argument they presented to the Supreme Court. Epstein and Kobylka conclude that interest groups succumbed to the tyranny of absolutes by arguing that the law depended on "unbending obeisance to precedent based on unassailable 'rights,'" and by not leaving room for strategic retreat (pp. 307-10). Another way to look at this conclusion is that, when presented with absolutist legal arguments, justices exhibited an aversion for the extreme and chose another alternative. Of course, this is
speculation, as judicial scholars have not subjected this decision making hypothesis to systematic testing.

Another series of essays explore valuation. As Sunstein puts it, "how do people react to gains and to losses" (p. 5)? A central theme in this series of essays is the validity of the Coase Theorem, which suggests that the allocation of initial entitlement will not matter when there are no transaction costs. That is to say, bargaining will occur between people who possess the entitlement and those who do not possess it. However, this theorem is challenged if people are especially averse to

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losses, producing what the authors describe as an endowment effect - "greater valuation stemming from the mere fact of endowment" (p. 6). Substantively, the valuation essays focus, to a large extent, on damages awarded to plaintiffs. For instance, an essay by Sunstein, Daniel Kahneman, and David Schkade seeks to answer the question of why punitive damage awards are erratic. They find that while there is shared outrage over certain behavior, valuation of dollar awards would be erratic. They explore a number of explanations for these differences, including sensitivity to harm and the size of the offending firm. This essay also serves as an example of another facet of this book - its analytical focus. Although some authors explore the positive, or predictive, facets of the behavioral economics theory, other authors focus on prescriptions of how rules might accomplish their intended objectives given what we know about decision making. In keeping with the
second tradition, the essay by Sunstein, Kahneman, and Schkade discuss the implications of their theoretical perspective on a number of different reform alternatives, like caps on damages.

Although the essays were not written by political scientists or with attention to the questions that usually dominate our studies of law and courts, we still may benefit from incorporating their theoretical insights into our analysis. First, given the increasing prominence of rational choice theory with its focus on preferences, as well as the criticism that many scholars direct toward such theories, this book offers a valuable model of how such a debate can be conducted fruitfully. Authors in this volume suggest that predictions made from conventional economic analysis of the law are simply wrong. They, for their part, develop alternative explanations,
develop appropriate tests, and find empirical support for their critique. Second, although most of the essays focus on jury decisions or the content of legal rules, the critique of rational choice theory certainly has implications for viewing judicial decisions through the rational choice framework. As I hope that I've already made clear, these theoretical ideas may be transferable to our studies of judicial decision making. Having just made the argument that we should explore the ideas presented in this book, I want to readily add that we have something valuable to add to this debate: empirical evidence. The essays in this volume take one of two approaches. They can be characterized as either thought experiments or actual experiments. In the first case, authors discuss what effect their ideas
might have on court processes, while in the second case, authors report findings of experiments that they have conducted on university students (usually). The latter are particularly interesting to me, maybe because judicial scholars in political science rarely employ experiments, but the setting of college classes is somewhat artificial. It strikes me that our expertise in a wide range of court processes with "real-life" data could serve as a valuable testing ground for these and related theoretical ideas.

In conclusion, this is a valuable contribution to the study of law and courts, even though each essay has appeared in print elsewhere, ranging from law reviews (Chicago, Pennsylvania, Stanford, UCLA, Vanderbilt, Virginia, and Yale) to other academic journals (like the Journal of Political Economy and the Journal of Behavioral Decision Making) and a book chapter. I think the value of the volume, though, extends beyond the contribution of any one essay. This compilation serves to focus discussion on a set of particularly important theoretical challenges to the standard economic model. Thus, this book belongs on the shelf of any student of the

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law and courts who advocates or challenges the rational choice model of decision making on the courts.

REFERENCE:

Epstein, Lee, and Joseph F. Kobylka. 1992. THE SUPREME COURT AND LEGAL
CHANGE: ABORTION AND THE DEATH PENALTY. Chapel Hill: The University of North
Carolina Press.