Are Courts Biased? The Anchoring Heuristic and Judicial Decisions in Personal Bankruptcy Proceedings

Yevgeny Mugerman, Neta Nadiv and Moran Ofir

Chapter 5 in Behavioral Finance:A Novel Approach, 2020, pp 99-128 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This chapter examines the seminal heuristic of anchoring and adjustment and its effects on personal bankruptcy proceedings. Using a unique and detailed database of bankruptcy files we analyze the effect of the official receiver’s recommendation on court decisions. The official receiver in bankruptcy proceedings is appointed by a judicial authority and is required to bring before the court any relevant information needed in order to reach a judicial decision. As part of her responsibilities, the official receiver is required to submit a financial report, which serves as the basis for the court’s proposal for the debtor’s payment plan. This chapter sets out the main factual infrastructure for determining the payment order under bankruptcy proceedings and should include information relevant to the court’s discretion. The richness of the data allows us to investigate the impact of the receiver’s recommendation on court final decisions. We find that overall, the receiver’s recommendation serves as an anchor to the judges, and, moreover, that deviations from this recommendation by the court are extremely rare. Notably, this outcome differs dramatically from that of corporate proceedings. Since personal bankruptcy proceedings do not allow for substantive oversight, which examines the plausibility of the actions or recommendations that the receiver seeks, there is no pure rational explanation for this finding.

Keywords: Analysts Recommendations; Behavioral Biases; Behavioral Economics; Behavioral Finance; Board of Directors; Compensation; Compensation Committee; Control; Coronavirus; Corporate Governance; COVID-19; Decision Making; Disposition Effect; Earnings Management; Elections; Emotions; Financial Crises; Financial Market Anomalies; Financial Markets; Forecast-Accuracy; Gender Differences; Heuristics; Interval Forecasting; Investment; Investor Horizon; Investors' Beliefs; IPO Under-Pricing; Life Expectancy; Myopia; Overconfidence; Pensions Industry; Policy Reforms; Polls; Portfolio Risk; Prediction Markets; Regulation; Stock Price Drifts; Time Preferences (search for similar items in EconPapers)
JEL-codes: G3 G30 G4 G41 (search for similar items in EconPapers)
Date: 2020
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