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5 See “Behavioral Economics: Legal Applications” section of the Oxford Handbook of Behavioral Law and Economics (2014). Works that use behavioral psychology to provide alternative perspectives include Halbersberg and Guttel (2014) on tort psychology and law, Eisenberg (2014) on psychology and contract law, and Sunstein (2014) on regulation. 14The argument in this article differs from Gregory Mitchell`s (2014) interesting recent critique of behavioural law and economics. Mitchell argues that the field relies too heavily on the work of cognitive psychologists and is therefore limited to one aspect of psychology.10 In addition, he believes that a better approach to behavioural law and economics would be to conduct sophisticated empirical analyses on specific issues in the legal field and to include as wide a variety of possible psychological phenomena as possible to explain the empirical phenomenon. The arguments presented in this paper are different. We do not take a position on whether the psychological approach to “heuristics and biases” is ultimately true, but simply assert that its unqualified adoption seriously undermines traditional law and economics. Another important contribution of the article is the argument that welfare analysis becomes much more problematic in traditional behavioral assumptions.11 8 An alternative critique of traditional law and economics is that it does not view law as a normative order, as is the case in the work of Hans Kelsen. For an analysis of this point in contrast to Posner and Kelsen, see Malecka (2016). 45 Based on current knowledge, behavioural economics can indicate strategies that lead to behavioural change, but cannot provide narrow ranges as to the magnitude of their effects.

For example, the differences between willingness-to-pay and acceptance measures in environmental studies are significant and notoriously fragile. One reason for this is that the method used to determine the differences between willingness to pay and willingness to accept is usually based on hypothetical scenarios posed to individuals. This contingent method of evaluation has aroused much scientific skepticism. In the title of a well-known paper, MIT economist Jerry Hausman (2012, 43) suggested that the conditional valuation method ranges from “dubious to desperate.” 24 53Proponents of behavioural law and economics have recognised that when decisions themselves do not constitute genuine underlying preferences, the traditional normative basis for the analysis of legal rules becomes problematic. Russell Korobkin (2011), a well-known contributor to the literature on behavioural law and economics, explicitly emphasized this point in a provocative article in which he raised, but did not answer, some philosophical and methodological questions that accompany the rejection of revealed preference.28 32The Environmental Arena provides a number of other examples where the founder effect challenges the predictions of traditional law and economics. Economists have long recognized that, as an empirical phenomenon, the individual`s willingness to pay for pollution reduction is much weaker than the individual`s willingness to accept additional pollution. For example, consider a lake that is 5% polluted and interview people to determine how much they would pay to restore the lake to its pristine character without pollution. This amount would usually be much less than what they claim to pay to reduce the quality of a lake from its pristine character to a lake where there is 5% pollution. Although this discovery may seem quite intuitive, after all, who wants to be responsible for the pollution of a lake? – it contradicts the fundamental trade-offs required to compare the marginal benefits and costs of pollution. 26Loss aversion is probably one of the strongest conclusions of behavioral economics; In fact, scientists in many different contexts – including legal contexts – have proposed creating incentives for loss aversion (Jolls, 2002, 44).

Fryer et al. (2012) suggested, for example, that incentive systems for teachers include the elimination of prepaid bonuses for teachers, rather than rewarding them with different bonuses once student performance has been determined. They provide evidence from field experience that the loss aversion framework leads to improved student achievement.

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