UCL Centre for Commercial Law Guest Lecture
THE USE OF BEHAVIOURAL LAW AND ECONOMICS
TO BETTER UNDERSTAND DEBATES IN CORPORATE LAW
Professor Claire A. Hill
University of Minnesota Law School
on Wednesday 12 March 2014
Registration from 5.30pm, event begins at 6pm
Law’s view of human nature is surprisingly underdeveloped. Law and economics uses the admittedly unrealistic ‘rational person’ model. Behavioral law and economics has sought to bring more realism to law and economics. But it is has too often focused on “mistakes.” Indeed, some people use the term “heuristics and biases” as a synonym for behavioral law and economics. The worldview in which people are either making mistakes or “getting it right” isn’t much more realistic than the one in which people are always “getting it right.”
In this seminar, I argue that to be more realistic and useful, legal scholars should pay far more attention to “priors.” Priors for this purpose are not simply prior beliefs – they include many aspects of a person’s mental state, conscious and not conscious. They include the person’s values, temperament, attitudes, and self-identification. The priors that the literature considers are mostly mistaken beliefs or biases; once these are identified in a particular context, ways to ‘correct’ or limit the effect of the mistake or the use some debiasing technique, are typically proposed. But many priors are not mistakes in any accurate or meaningful sense of that world.
Many priors are enormously relevant for law. One example is priors in the form of prototypes of actors important for law. Consider the following debates:
- How should power be allocated as between shareholders and management?
- How should (past and potential future) bad banker behavior be addressed?
- How should the tendency of investors, even “sophisticated” ones, to purchase bad investments be addressed?
Appreciating the extent to which priors influence worldviews and decisions could help people find a common ground – a sounder basis on which to debate, appraise, formulate, and effectuate, policy.
About the speaker
CLAIRE HILL teaches at the University of Minnesota Law School, heads its Institute for Law and Rationality, and co-heads its Institute for Law and Economics. She holds the James L. Krusemark Chair in Law. Professor Hill teaches corporate law, mergers and acquisitions, contracts, and seminars in law and economics and behavioral law and economics. She has published numerous articles on capital structure, corporate governance, structured finance, rating agencies, secured debt, contract theory, law and language, and behavioral economics. Three of her articles were selected for inclusion in the Securities Law Review, an annual edited volume of noteworthy scholarship in the field. One of her articles won the David Watson Memorial award. She has given several endowed lectures on subjects at the intersection of law, psychology and language. Her work has been featured on various business blogs; she has been interviewed on the subject of rating agencies on television and radio.
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