Behavioral Law and Economics
NBER Working Paper No. 12879
Behavioral economics has been a growing force in many fields of applied economics, including public economics, labor economics, health economics, and law and economics. This paper describes and assesses the current state of behavioral law and economics. Law and economics had a critical (though underrecognized) early point of contact with behavioral economics through the foundational debate in both fields over the Coase theorem and the endowment effect. In law and economics today, both the endowment effect and other features of behavioral economics feature prominently and have been applied in many important legal domains. The paper concludes with reference to a new emphasis in behavioral law and economics on "debiasing through law" - using existing or proposed legal structures in an attempt to reduce people's departures from the traditional economic assumption of unbounded rationality.