Refounding Law and Economics: Behavioral Support for the Predictions of Standard Economic Analysis

Zamir Eyal ()
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Zamir Eyal: Faculty of Law, Hebrew University of Jerusalem, Mt. Scopus, Jerusalem9190501, Israel

Review of Law & Economics, 2020, vol. 16, issue 2, 35

Abstract: Based on the premise that people are rational maximizers of their own utility, economic analysis has a fairly successful record in correctly predicting human behavior. This success is puzzling, given behavioral findings that show that people do not necessarily seek to maximize their own utility. Drawing on studies of motivated reasoning, self-serving biases, and behavioral ethics, this article offers a new behavioral foundation for the predictions of economic analysis. The behavioral studies reveal how automatic and mostly unconscious processes lead well-intentioned people to make self-serving decisions. Thus, the behavioral studies support many of the predictions of standard economic analysis, without committing to a simplistic portrayal of human motivation. The article reviews the psychological findings, explains how they provide a sounder, complementary foundation for economic analysis, and discusses their implications for legal policymaking.

Keywords: agency problem; positive economics; normative economics; behavioral law and economics; bounded ethicality; behavioral ethics; motivational rationality; self-serving biases; motivated reasoning (search for similar items in EconPapers)
JEL-codes: A13 D00 D03 D64 K00 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1515/rle-2019-0023

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