Rational Choice, Behavioral Economics, and the Law

Abstract

Jolls, Sunstein, and Thaler wish to use the insights of behavioral economics to improve economic analysis of law, which they believe to be handicapped by its commitment to the assumption that people are rational.1 The editors of the Review have asked me to comment on JST's paper, no doubt because of my identification with rational-choice economics. Since JST complain with some justice that economists and economically minded lawyers do not always make clear what they mean by rationality, let me make clear at the outset what I mean by the word: choosing the best means to the chooser's ends. For example, a rational person who wants to keep warm will compare the alternative means known to him of keeping warm in terms of cost, comfort, and other dimensions of utility and disutility, and will choose from this array the means that achieves warmth with the greatest margin of benefit over cost, broadly defined. Rational choice need not be conscious choice. Rats are at least as rational as human beings when rationality is defined as achieving one's ends (survival and reproduction, in the case of rats) at least cost. No doubt my definition lacks precision and rigor. But it is good enough to indicate the difference in approach between rational-choice economics and behavioral economics.

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