This article is a part of the Free to Choose Symposium symposium.
The rise of behavioral economics, and in turn, behavioral law and economics, has been one of the most significant developments in either field in a remarkably short period of time. In 2010, Nudge is a household name, “libertarian paternalism” is (a hotly debated) a term of art, and behavioral economics has taken made its way from articles, journals and popular books and into the policy and regulatory landscape. In the United States, Cass Sunstein — one of the godfather’s of the Nudge — heads OIRA, the Consumer Financial Protection Bureau is founded on a behavioral approach to consumer credit envisioned by Elizabeth Warren and Oren Bar-Gill, and behavioral economics appears to have gained traction within the Obama administration. But behavioral law and economics is not a phenomenon limited to the United States. Indeed, a “Nudge Unit” has been created in David Cameron’s cabinet.
To give some historical perspective on the speed with which the rise of behavioral economics and behavioral law and economics has occurred, consider that just thirty years ago, Milton Friedman launched the PBS television series “Free to Choose” and published a book by the same title. Consistent with Friedman’s central ideas, both the television series and book advocated reliance on the individualized, dispersed power of markets rather than the consolidated power government to protect consumer and workers and fuel innovation and economic growth. Thirty years later, the power of Friedman’s ideas and the ongoing development of markets around the world might have been expected to lead to the spread of this philosophy. Indeed, the final chapter of Free to Choose was entitled “Turning the Tide,” and discussed Friedman’s view (along with his co-author and wife, Rose) that public opinion was “shifting away from a belief in collectivism and toward a belief in individualism and private markets.” Central to Friedman’s work was the view that the economic costs of substituting the judgment of government bureaucrats and regulators for those of individuals, even when the individuals could be expected to err, would far outstrip any benefits of such an approach.
The topic of the symposium is necessarily broad. Behavioral economics itself has made a significant contribution to increasing our understanding of when individual decision-making deviates from the rationality assumption at the heart of the conventional microeconomic theory. Behavioral law and economics now reaches all corners of the law. The rise of behavioral economics raises interesting sets of questions both within the domain of economics itself: what are the costs and benefits of the intersection of psychology and economics? What explains the remarkable success of behavioral economics in the behavioral law and economics literature? Will the phenomenon have staying power? Is it in fact the case that behavioral law and economics is gaining traction in the current regulatory landscape? We do have the Consumer Financial Protection Bureau. But what else? On the specifics, what are the sorts of behavioral law and economic policy prescriptions in other areas of the law such as antitrust, consumer protection, and intellectual property? Would such interventions be successful? Will there be long-term costs of approaches built on the concept that one can rely on the the government to correct decision-making errors? And further, has the implementation of regulatory proposals by the behavioral law and economics camp in practice remained faithful to the insights produced by the behavioral economics literature in theory, laboratory experiments and the field? Or have proposed “nudges” merely take the form of default rules which map onto the policy preferences of the academic advocate?
The easy part is to raise the questions. Hopefully, I’ve highlighted a few of the interesting ones here. There are plenty more. I’ve done that. Truth on the Market Free to Choose Symposium is designed to begin a intellectual dialogue on these and related topics, bringing together legal scholars and economists with a variety of perspectives on these issues in terms of both methodology and subject-matter expertise. We are hopeful that the discussion is a starting point in identifying areas of agreement, causes for concern, and open questions for future research agendas.
We will run the symposium over two days, with eight or so posts each day, but flexibility to change if participants would like to respond to one another or add new posts. We are especially pleased to be able to offer a great set of participants. In addition to TOTM’s own Thom Lambert, Larry Ribstein, Geoff Manne and myself, we’ve got a fantastic group of participants including:
Stephen Bainbridge (UCLA)
Thomas Brown (O’Melveney & Myers)
Christopher Buccafusco (Chicago-Kent)
Richard Epstein (University of Chicago)
David Friedman (Santa Clara)
The Hon. Douglas H. Ginsburg (D.C. Circuit Court of Appeals)
M. Todd Henderson (University of Chicago)
Claire Hill (University of Minnesota)
David Levine (Washington University – St. Louis)
Ronald Mann (Columbia University)
Henry Manne (Dean Emeritus, George Mason University School of Law)
Kevin McCabe (George Mason University)
Christopher Sprigman (University of Virginia)
Judd Stone (Law clerk, Supreme Court of Alaska)
We will get things started with a set of posts from Larry Ribstein, David Friedman and David Levine. Look for others throughout the day as I will be posting them in batches.
Also — now is a great time to subscribe to the blog on the right hand sidebar of the blog if you haven’t. Also — as the symposium progresses, I will be compiling links to the posts in the “Free to Choose” tab at the top of the blog.
Once again, welcome! And without further ado, let us begin.