Law, Psychology, and Morality

Abstract

Abstract Prospect theory posits that people do not perceive outcomes as final states of wealth or welfare, but rather as gains or losses in relation to some reference point. People are generally loss averse: the disutility generated by a loss is greater than the utility produced by a commensurate gain. Loss aversion is related to such phenomena as the status quo and omission biases, the endowment effect, and escalation of commitment. The book systematically analyzes the relationships between loss aversion and the law. It weaves together insights from cognitive and social psychology, neuropsychology, behavioral law and economics, experimental legal studies, economic analysis of law, normative ethics, moral psychology, and comparative law. It discusses diverse legal issues in private law and public law, national and international law, and substantive and procedural law. The book provides an overview of the psychological studies of loss aversion. It examines the effect of loss aversion on human behavior in contexts of particular interest to the law, including consumer behavior and litigation. It then discusses the impact of the law on people's behavior through the framing of the choices they face. The book further highlights an intriguing compatibility between loss aversion and fundamental features of the law and various legal doctrines. Drawing on insights from the economic analysis of law and evolutionary psychology, it theorizes about the causes of this compatibility. The book points to the correlation among loss aversion, deontological and common-sense morality, and the law. Finally, it proposes many normative implications.

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