Behavioral Public Choice Economics and the Law 9811932328, 9789811932328

Table of contents :
Acknowledgements
Contents
1 Introduction
References
2 Behavioral Public Choice and the Law: The Synthesis of Two Revolutions
2.1 Introduction
2.2 The Public Choice Revolution
2.3 The Behavioral Economics Revolution
2.4 Behavioral Public Choice and the Law
2.5 Conclusion
References
3 Behavioral Democracy and the Law
3.1 Introduction
3.2 The Paradox of Voting
3.3 Bounded Democracy
3.4 Discussion and Conclusion
References
4 Behavioral Constitutional Economics
4.1 Introduction
4.2 Constitutions as Debiasing Mechanisms
4.3 Separation of Powers
4.4 Bicameralism
4.5 Constitutional Rights
4.6 Behavioral Autocracies
4.7 The Behavioral Limits of Constitutions
4.8 Conclusion
References
5 Behavioral Bureaucrats and Administrative Law
5.1 Introduction
5.2 The Economics of Government Intervention
5.3 The Behavioral Bureaucrat
5.4 Administrative Law as Debiasing Device
5.5 Conclusion
References
6 Behavioral Courts and Judicial Doctrines
6.1 Introduction
6.2 Standard Accounts of Judicial Behavior
6.3 Cognitive Shortcomings of Judges
6.4 The Behavioral Efficiency of Case Law
6.5 Conclusion
References

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SpringerBriefs in Law

Eric C. Ip

Behavioral Public Choice Economics and the Law

SpringerBriefs in Law

SpringerBriefs present concise summaries of cutting-edge research and practical applications across a wide spectrum of fields. Featuring compact volumes of 50 to 125 pages, the series covers a range of content from professional to academic. Typical topics might include: • A timely report of state-of-the art analytical techniques • A bridge between new research results, as published in journal articles, and a contextual literature review • A snapshot of a hot or emerging topic • A presentation of core concepts that students must understand in order to make independent contributions SpringerBriefs in Law showcase emerging theory, empirical research, and practical application in Law from a global author community. SpringerBriefs are characterized by fast, global electronic dissemination, standard publishing contracts, standardized manuscript preparation and formatting guidelines, and expedited production schedules

Eric C. Ip

Behavioral Public Choice Economics and the Law

Eric C. Ip The University of Hong Kong Central and Western District Hong Kong SAR

ISSN 2192-855X ISSN 2192-8568 (electronic) SpringerBriefs in Law ISBN 978-981-19-3232-8 ISBN 978-981-19-3230-4 (eBook) https://doi.org/10.1007/978-981-19-3230-4 © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

For Michael Law

Acknowledgements

I am grateful for the countless forms of support I have received in writing this book. I offer deep thanks to Trevor Wan for his excellent research assistance. I am grateful to Michael Law for inspiring me to embark on this project a decade ago. And I would like to thank Jerry Bains for his insightful comments on an earlier version of the manuscript and Bharath Kumar Dhamodharan from Springer for his patience and kind assistance in moving this project forward. Last but not least, I would like to thank my parents, my wife, and my children for their loving support.

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Contents

1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 3

2 Behavioral Public Choice and the Law: The Synthesis of Two Revolutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.2 The Public Choice Revolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.3 The Behavioral Economics Revolution . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.4 Behavioral Public Choice and the Law . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 3 Behavioral Democracy and the Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 The Paradox of Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 Bounded Democracy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4 Discussion and Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

21 21 23 24 29 31

4 Behavioral Constitutional Economics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Constitutions as Debiasing Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . 4.3 Separation of Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 Bicameralism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 Constitutional Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6 Behavioral Autocracies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.7 The Behavioral Limits of Constitutions . . . . . . . . . . . . . . . . . . . . . . . . . 4.8 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

35 35 36 38 41 43 44 45 46 47

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Contents

5 Behavioral Bureaucrats and Administrative Law . . . . . . . . . . . . . . . . . . . 5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 The Economics of Government Intervention . . . . . . . . . . . . . . . . . . . . . 5.3 The Behavioral Bureaucrat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 Administrative Law as Debiasing Device . . . . . . . . . . . . . . . . . . . . . . . 5.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

51 51 52 54 55 58 59

6 Behavioral Courts and Judicial Doctrines . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2 Standard Accounts of Judicial Behavior . . . . . . . . . . . . . . . . . . . . . . . . . 6.3 Cognitive Shortcomings of Judges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 The Behavioral Efficiency of Case Law . . . . . . . . . . . . . . . . . . . . . . . . . 6.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Chapter 1

Introduction

Public choice economics has broken new ground by using neoclassical economics to understand electoral, legislative, bureaucratic, and judicial processes traditionally reserved to political science, making important inroads that challenge conventional assumptions about the benevolence of the state in advancing the public interest. Illuminating public choice enables legal and political actors to grasp the tradeoffs and implications of the multifarious policy choices available to them, and to make decisions likelier to actually maximize social welfare [7]. Behavioral economics, which developed independently from public choice, extends the methods and findings of psychology to the study of market and regulatory decision-making, usually reserved to neoclassical economics. Building upon these two revolutions, behavioral public choice is a nascent field that applies the discoveries of behavioral economics in market decision-making to the study of political decision-making, on the assumption that homo economicus is not appreciably different from homo politicus. Behavioral public choice economics continues public choice’s quest to demystify non-market decision-making, while still challenging the latter’s unrealistic behavioral assumptions, shared with neoclassical economics. At the same time, behavioral public choice economics redresses the severe neglect of political institutions and behavior by behavioral economists, a neglect also shared by behavioral law and economics scholars who show little sustained interest in constitutional and administrative law. Despite its great importance, behavioral public choice economics remains a disorganized research program up till now which lacks a centripetal intellectual architecture. This short book seeks to fill that gap in part by clarifying for a very broad readership—including those who do not agree with behavioral public choice findings—the logical framework that organizes the otherwise disjointed insights which are being netted by the cutting-edge research living up to the revolutionary mission of behavioral public choice theory. This book is organized as follows. Chapter 2 sets out the basic concepts and their manifold intellectual contributions to a more realistic understanding of human action by conventional public choice and behavioral economists. After demonstrating © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 E. C. Ip, Behavioral Public Choice Economics and the Law, SpringerBriefs in Law, https://doi.org/10.1007/978-981-19-3230-4_1

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1 Introduction

how behavioral public choice draws the best out of both the other schools, and holds great promise in illuminating legal phenomena, this first chapter proceeds to criticize from the vantage point of behavioral public choice the “nudge” and “libertarian paternalism” movements inspired by conventional behavioral law and economics for having unduly assumed that policy-makers are less prone to cognitive and judgmental errors than the citizens they purport to regulate [11, 16]. Behavioral economics should not become an instrument manipulated by special interests to mask their policy preferences [2]. Chapter 3 begins by illustrating how conventional public choice cannot explain, with the rational actor model, the paradox of voting, and proceeds to explain how the behavioral concepts of bounded rationality, willpower, and self-interest apply to make sense of the apparently irrational behavior of voters and democratic politicians. Chapter 4 erects a rudimentary constitutional behavioral economics which can posit constitutions, “political law” that “constitutes the state and governs acts of authority made in the name of the polity” [9, 176], as useful devices to curb the negative effects of widespread biases and heuristics among political actors, notwithstanding the typical emotional uproar surrounding their ratification. This feat is effectuated by mechanisms like constitutional rights and checks and balances between the executive, legislative, and judicial branches, and even inside some legislatures. In the United States as elsewhere, the non-majoritarian administrative agencies and courts have emerged as consequential actors of the administrative state [3], after the legislature, running out of time and resources, outsourced rulemaking power to a civil service through “broad and relatively standardless delegations”, who in turn have been constrained by an activist judicial review the legislature tolerates [6, 819]. This book is not meant to be a wholesale denial of the potential of “nudges” to change human behavior for the better. But Chapter 5 justifies public choice’s traditional skepticism about state intervention in the economy to cure market failures—not, however, on grounds of bureaucratic self-interest or imperfect information, but of bureaucrats’ own cognitive flaws. It documents the typical biases and heuristics characterizing the “behavioral bureaucrat”, but suggests administrative law, especially administrative law doctrines developed by the courts, may yet serve as a potential debiasing device improving the quality of bureaucratic decision-making. Chapter 6 challenges our ideal of judges as impartial mouthpieces of the law by drawing attention to the kind of cognitive deficits that afflict judges, even the most well-intentioned, welltrained ones sitting on the most senior courts. In an attempt to explain many common law judicial doctrines that make economic sense, this chapter explores the utility of common law reasoning and precedents in debiasing judges. Behavioral public choice research promotes a humility which concedes that those among us who design regulatory systems in a world of radical uncertainty are neither immune to cognitive biases nor possessed of perfect information and omniscience [1]. As Thaler [10, 269], a founder of contemporary behavioral economics and the 2017 winner of the Nobel Prize in Economics, acknowledged, “if the government bureaucrat is the person trying to help, it must be recognized that the bureaucrat is also a Human, subject to biases.” To over-endow overconfident bureaucrats or technocrats with power—even if they are experts—may easily tilt the political process toward

References

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biased elite assumptions and preferences, opening it up to all sorts of cognitive capture by special interests [11, 17]. Behavioral public choice economics rightly encourages a “healthy skepticism” toward all forms of government intervention, the neglect of which puts legal and other scholars at risk of advocating wholly unrealistic and even perilous policies [5, 253]. One crucial observation that pervades this book is that the findings of behavioral public choice often reinforce and converge on tendencies already identified by classical public choice economists [4], even though each school had its own startingpoint and markedly different assumptions and axioms of human behavior. It has been pointed out elsewhere that, where the predictions of the behavioral economics side of behavioral public choice economics converge with the predictions of its public choice side, it might become “difficult to tell apart conscious self-interested calculation from automatic and partly unconscious self-serving biases” [12, 588]. This need not bother us if we accept that, realistically, people are both self-regarding and other-regarding, and any action may reflect both contrary traits at the very same time.

References 1. Booth P (2021) Subsidiarity and the role of regulation in the financial sector. In: Crane DA, Gregg S (eds) Christianity and market regulation: an introduction. Cambridge University Press, Cambridge, pp 136–159 2. DeAngelo G, McCannon BC (2021) Behavioral economics and public choice: introduction to a special issue. Pub Choice. https://doi.org/10.1007/s11127-021-00930-w 3. Farina CR (1989) Statutory Interpretation and the balance of power in the administrative state. Columbia Law Rev 89:452–528 4. Juurikkala O (2012) The behavioral paradox: why investor irrationality calls for lighter and simpler financial regulation. Fordham J Corp Financ Law 18:33–93 5. Lucas GM (2015) Out of sight, out of mind: how opportunity cost neglect undermines democracy. N.Y.U. J Law Lib 9:249–343 6. Shapiro SA, Glicksman RL (1988) Congress, the Supreme Court, and the quiet revolution in administrative law. Duke Law J 1988(5):819–878 7. Sokol DD (2011) Explaining the importance of public choice for law. Mich Law Rev 109:1029– 1048 8. Stearns ML, Zywicki TJ (2009) Public choice concepts and applications in law. Thomson Reuters, St Paul, MN 9. Stone Sweet A (2020) Constitutions, rights, and judicial power. In: Caramani D (ed) Comparative politics, 5th edn. Oxford University Press, Oxford, pp 159–177 10. Thaler RH (2015) Misbehaving: the making of behavioural economics. Penguin, London 11. Thomas MD (2019) Reapplying behavioral symmetry: public choice and choice architecture. Pub Choice 180:11–25 12. Zamir E, Sulitzeanu-Kenan R (2017) Examining self-interested behavior of public-spirited policy makers. Pub Adm Rev 78(4):579–592

Chapter 2

Behavioral Public Choice and the Law: The Synthesis of Two Revolutions

2.1 Introduction Behavioral public choice economics is an emerging field that integrates the insights of behavioral economics and political psychology into the established field of public choice economics to advance our knowledge about political processes broadly defined to include elections, democratic lawmaking, judicial decision-making, administrative regulation, and constitutional design [54]. Public choice, or “the application of economic analysis to political decision-making” ([38], 156), is “one of the most important interdisciplinary developments in the latter half of the twentieth century” ([47], 238). By carrying the axioms and analytic tools of neoclassical economics over to non-market settings, to demonstrate that self-interested politicians and civil servants often fail to correct market failures, it has demystified the state [33], formerly presumed by conventional public economics to be a trustworthy intervener into macroeconomic imbalances. The utility of public choice economics to the study of law is “natural” ([61], 1), although it is considered distinct from the law and economics movement. Public choice economics has made interesting findings when applied to the study of law. Constitutional economics, the application of public choice insights to the study of constitutional law and politics, has attracted considerable scholarly attention, after the award of a Nobel Prize in Economics to one of its founders, James M. Buchanan, in 1986. The other side of behavioral public choice derives from the relatively young field of behavioral economics and its offshoot behavioral law and economics, which “has fundamentally changed the way economists conceptualize the world” ([15], 1). It was similarly distinguished by the award of the Nobel Prize to Daniel Kahneman in 2002, and to Richard Thaler in 2017 [2], and will similarly demystify the regulatory state in the newer but equally influential field of behavioral economics, by exposing the cognitive biases and heuristics of policy-makers, regulators, judges, even voters as sources of state failure [52]. In this context, bias refers to a systemic deviation from standard rationality ([18], 149), and heuristics concerns mental shortcuts that © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 E. C. Ip, Behavioral Public Choice Economics and the Law, SpringerBriefs in Law, https://doi.org/10.1007/978-981-19-3230-4_2

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are pragmatic devices of evolutionary adaptation [50] that causes widespread failures to maximize expected utility optimally [4]. Behavioral public choice is thus a synthesis of two revolutions: the revolution of public choice economics in public economics, and the revolution of behavioral economics in economics in general. This book explores some of the implications of behavioral public choice for the study of law. This chapter is organized as follows. Section 2.2 reviews how public choice theory revitalized the political economic understanding of politics and public administration with a realist approach to political actors and their self-interests. Section 2.3 examines the behavioral economics and behavioral law and economics revolutions that injected a dose of realism into the common behavioral assumptions of neoclassical economics, not only public economics but also conventional public choice economics. Section 2.4 explains how behavioral public choice economics synthesizes the best of the two prior revolutions, constructing a model of politics that is no longer naïve or unrealistic. The chapter proceeds to critique the “libertarian-paternalistic” approach favored by many behavioral law and economics scholars. Section 2.5 concludes.

2.2 The Public Choice Revolution The neoclassical school has become the dominant tradition of microeconomics since the late nineteenth century [42], recognized by its power to offer “rigorous, parsimonious, and falsifiable models of human behavior” ([14], 5). Its goal is to understand rational behavior, understood merely as purposeful, deliberate, and goal-oriented behavior, which sets man apart from other animals [51]. The most important axiom of neoclassical economics is that self-interested individuals like consumers and corporations act to maximize their utility on the basis of their reasoned beliefs about the world, subject to the constraints they face, such as prices and legal sanctions ([39], 9). Thus to think of economics as monetary policy, economic growth, consumer spending, taxation, and the like [16], while then excluding government as an exogenous force [47], is all too commonplace. Since the 1950s, public choice economists have argued that economics should be defined by methodology, not by subject-matter: homo economicus and homo politicus should not be compartmentalized into two persons, not even in principle ([41], 43). The person “who casts a ballot for candidate A rather than B on Election Day” is the same person who buys apples instead of oranges at the grocery store” ([51], 3). Economic analysis is equally applicable to market and ballot decisionmaking and indicates that both markets and governments fail [22]. Real-world demë and their statesmen are neither angels nor benevolent omniscients; rather, they are motivated primarily to choose the maximal utility, if that is only to win the next election. Ignoring this leaves economics students with a false impression about political processes and their power to arrive at an efficient allocation of resources ([22], 190). This is not in itself a pessimistic standpoint, as Buchanan notes, “the delusion that political agents are saints becomes costly folly”, yet it is equally clear that “[p]olitics

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can be reformed without depending on the moral suasion of kings and princes” [8], 88). The term public choice, broadly speaking, refers to the analysis of government and political behavior, i.e. collective action problems, using models of individual choice that decompose collective action into individual, instrumental behavior [20]. The “public choice revolution” began with and was dominated by neoclassical economists such as James Buchanan, William Landes, William Niskanen, Richard Posner, George Stigler, and Gordon Tullock, who systematically deployed the assumption that political actors are like consumers in the market in that they are rational, selfinterested individuals intent on maximizing budgets, rents, and profits of various sorts [37], This assumption exposes the motive-forces underlying major contemporary issues of political economy: budget deficits, unsustainable growth of sovereign debt, unfunded pension liabilities, political favoritism, inefficient special interest spending, and the transfer of resources from productive activities to rent-seeking [22]. Elected officials have strong incentives to support special interests groups who feel strongly about certain policy positions, and they acquire political resources from them, which they then redeploy to run campaign advertisements and buy the support of a largely uninformed electorate. Public choice economics is about collective action complications that emerge from coordinating and mobilizing individual political actors like politicians, lobbyists, and voters which are rooted in the difficulties of translating individual preferences— be it wider ideological goals or narrower economic wants—into group preferences [20]. It rejects the organic concept of the state in standard political science and the assumption in standard public economics that legislators, regulators, and other officials generally seek to act for the public interest and are uncritically obedient to their superiors [38]. Public choice thus favors methodological individualism—the scientific study of institutions and organizations must have a micro-foundation in the actions of individual humans [27], and theorizes the legislative process as a market with organized special interests who act like buyers, and political officials and senior bureaucrats who make policies who act like sellers, in accord with their own selfinterest. Payment takes the form of support for reelection or investment in career progress [55]. Consequently, shrewd politics and economic efficiency will be in conflict. Rent-seeking is a “natural outgrowth” of governmental activism in granting contracts, subsidies, tax credits, and low-interest loans to business corporations, labor organizations, and other special interests [22]. Public choice analyses find that “public” officials are incentivized to benefit special interest groups while dumping costs on the general public. Interest groups may resort to “logrolling” and vote trading to boost each other’s policy and fiscal preferences to the politicians in legislatures ([10], 16). In getting their preferences codified into legislation, big business and other organized interest groups are likelier than not to prevail over the divided and unorganized majority [55]. The upshot is rent-seeking, log-rolling, and a bigger state [49]. The predictions of public choice economists, based on the assumption that public officials are motivated by selfinterest, are often successful, in relation to federal spending patterns across states in the United States, the deployment of the American president’s veto, the timing of

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British prime ministers to call elections, and cabinet ministers of the same country to appoint a public inquiry in response to a given crisis [85]. One of the most widely studied collective action problems in public choice is Condorcet’s paradox, namely, that different majority coalitions may prefer option A to B and B to C, yet may prefer C to A, as the size of the political population or the range of choices enlarges; a phenomenon known as “cycling” that at least in theory is known to plague majority rule ([1], 3). Arrow’s Impossibility Theorem, named after Kenneth Arrow, the Nobel Prize winner in Economics in 1972, rigorously proves that cycling is an inevitable characteristic of and limit on collective decision-making that cannot be blamed on human weakness or defect, and cannot be completely cured by any electoral system [20]. The inevitability of cycling means that no electoral system could meet all of the criteria of reasonableness identified by Arrow: (1) if every person prefers A to B, A ought to prevail, (2) when ranking two alternatives, A and B, preferences for C ought not to influence the result of the aggregation; (3) an unambiguous winner or set of winners ought to result; and (4) the result ought to respond to the preferences of not even one dictatorial person ([24], 111–112). It follows that a group or body politic may collectively hold “illogical” judgments, notwithstanding each individual’s being perfectly logical ([79], 14). Public choice economists therefore admit that legislative decisions often yield inefficient results, as reflecting bargaining among interest groups [81]. The results of majoritarian voting might even be said to be arbitrary: the “will of the people” as channeled by electoral processes is not as determinate as it appears to be ([34], 779). It is possible, even in a representative democracy, for the self-interest of a very small number to effect decisions that are detrimental to the majority ([6], 12). Their disillusionment with aspects of democracy, however, does not imply that public choice theorists endorse authoritarianism. As Gordon Tullock and co-authors ([75], 8) wrote, Further experimentation with nondemocratic forms of government indicates that they produce outcomes that are less desirable than democracy. As a consequence, we have a form of government that is far from what we would really like, but until a new and better one is invented, we had better keep the one we have despite its shortcomings.

One important insight of public choice is that preference cycling, though inevitable, can be curbed by gatekeeping mechanisms like legislative committees, executive veto, bicameralism, and judicial review. Inter-cameral and legislativejudiciary preference differences, if they cancel each other out, can defeat any strategy of agenda-setters to exploit majority cycles. Taken together, these institutions may curb the encroachment of arbitrariness [79]. Formal procedures can also restrict the size of an issue space: if a legislative committee has jurisdiction of only one issue, then its aggregate preferences likelier will be single-peaked, and cycling will be avoided [20]. Neoclassical law and economics theory tends to conceive laws as so many efficient or inefficient solutions to the optimal contracting problem in organizing society [67]. By contrast, public choice tends to conceive laws as so many rent-seeking outcomes that politically powerful actors frame to benefit “concentrated industries”, for instance ([67], 1508). It can be perplexing when the public choice approach

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yields observations of the same statute law or judicial doctrine that differ so widely in their conclusions from its “analytical cousin, law and economics” ([61], 1). The latter addresses the economic fundaments of legal doctrines, whereas public choice views law through the lens of the mediating political institutions which formulate and develop it, the two approaches can therefore arrive at divergent understandings about the same policy proceedings. Public choice assumes that institutions should be taken seriously, as mediating how price affects behavior. This institutional emphasis leads public choice economists to concentrate on tradeoffs between institutional designs in achieving accountability and other normative goals [61].

2.3 The Behavioral Economics Revolution There is a sense in which law and economics now defines the agenda for most policy discussions in American legal and political debate. Its analytic power lies in offering an instrumental framework that squares with legal analysis, asking the question: “Do these legal rules achieve the objectives at which they aim, and would alternative rules do any better?” ([5], 212) Economic analysis of law concentrates on property rights, contracts, torts, crime, antitrust, corporate law, and family law ([17], 3). Neoclassical economic analysis of law may be said to have come of age in the modern world in the writings of Ronald Coase, about the incentives to reduce harms arising from property rights assignments, Gary Becker on crime, inspired by Jeremy Bentham; Guido Calabresi on accidents and liability rules; and Richard Posner’s common law efficiency hypothesis [56]. Commonly deemed the foremost founding father of law and economics, Ronald Coase ([12], 205–207) noticed that lawyers habitually think of property sold and bought as a bundle of rights, simply, but in reality: How the rights will be used depends on who owns the rights and the contractual arrangements into which the owner has entered. If these arrangements are the result of market transactions, they will tend to lead to the rights being used in the way which is most valued, but only after deducting the costs involved in making these transactions. Transaction costs therefore play a crucial role in determining how rights will be used.

The Coase Theorem as restated by Francesco Parisi ([47], 47) holds that “regardless of the initial allocation of rights and the choice of remedies for their protection, the market and the free bargaining of the parties will lead to their efficient final allocation”. The Coase Theorem is a fundament of neoclassical law and economics for neutralizing the psychological contexts of human interactions [78]. The law, on this view, is irrelevant to overall human welfare in the absence of transaction costs. This matters for finding the optimal assignment of legal rights and remedies if transaction costs are positive [47]. For example, whether the law allocates to a factory the right to emit pollution next to a laundry, or to a laundry the right to be free of pollution, will not affect the outcome insofar as the transaction costs are small enough [26]. Experiments in behavioral economics have demonstrated, however, that initial assignments of legal entitlements ought to be taken seriously. In a landmark study

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in 1990, Daniel Kahneman, Jack Knetsch, and Richard Thaler [29] discovered that if experimental subjects are initially assigned Cornell University mugs to keep for themselves after the experiment, it “dramatically” altered their behavior, over against tokens to be exchanged for cash. Those originally given mugs rarely sold them, yet those originally given cash seldom bought mugs, notwithstanding the low transaction cost environment in the laboratory. This directly contradicts the Coase Theorem [26]. Subjects systemically ask higher prices for goods assigned to them, even though they bid lower prices for goods not in their possession, this phenomenon, known as the “endowment effect”, is considered “the most celebrated, and certainly the most discussed, of the cognitive biases in the behavioral law and economics” ([83], 1042). Prospect theory, a well-known behavioral-economic explanation of this phenomenon, holds that people are risk averse about gains but risk seeking in relation to losses, that is to say, they evaluate consequences relative to a reference point contrary to neoclassical assumptions [4]. In an experimental setting it is found that a decision is more “popular” than not if framed in terms of avoiding death, for instance, “a one-third probability that nobody will die and a two-thirds probability that 600 will die” versus “400 out of 600 will die”; even when there is no substantive difference between the two ([76], 453). Such findings challenge the neoclassical assumption that people value the ultimate outcome only, and not the process through which it is achieved [80]. The endowment effect means the Coase Theorem no longer holds insofar as it predicts that, given low transaction costs, outcomes will be equivalent regardless of initial endowments [26]. This brings us to the more general issue, that neoclassical economics, even public choice economics, rests on the assumption that homo economicus, as he is nicknamed, a bit wryly, is a perfectly rational, self-interested, forward-looking, atomistic decision-maker with such exceptional efficiency in using information, as if mathematics were systematically, objectively guiding his behavior, as to preclude emotional forces [2]. As Gary Becker, one of the leading lights of law and economics, so eloquently put it: “all human behavior can be viewed as involving participants who maximize their utility from a stable set of preferences and accumulate an optimal amount of information and other inputs in a variety of markets” ([3], 14). These assumptions are often useful but as often false [67]. The economist Milton Friedman [21] famously condemned evaluation of a theory as nonsensical on the ground of the realism of its assumptions rather than the accuracy of its predictions. It seems indisputable that people are more friendly yet more spiteful than homo economicus, a fact that any serious study of law and its institutions cannot afford to ignore, pace Friedman [67]. And if folks in the real world do not always act rationally in the sense of neoclassical economics, then the predictive value of its analyses is open to question [47]. A primary task of sciences, physical and social, is to be objective [59], and yet it is arguable that neoclassical economic assumptions are not as objective as they appear to be, reflecting what might as well be considered value choices whose validity cannot ultimately be proven [55]. Empirical research after the Second World War, led by those who came to be known as behavioral economists, proved that homo economicus fails to model, predict, or explain behavioral regularities amongst both individuals and collectives which systemically depart from the rational choice

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paradigm [47]. Humanity appears to be cognitively limited and led by biases and emotions when judging under uncertainty. Behavioral economics, integrating insights from psychology, emerged in the latter half of the twentieth century, motivated by observations that individual and collective behavior deviates in practice from normative economic principles [42]. Behavioral economists claimed antecedents in Adam Smith’s The Theory of Moral Sentiments [2]. Interestingly, Smith is also deemed the forerunner of neoclassical economics. Leading practitioners of several schools of behavioral economics include Herbert Simon, Daniel Kahneman, Colin Camerer, Ernest Fehr, George Loewenstein, and Richard Thaler [72]. A polymath who contributed significantly to computer science, cognitive science, political science, public administration, economics, philosophy, and sociology, Simon dissented from the neoclassical rational actor model, arguing that leaders use simplifying decision procedures that are not rational in the homo economicus sense, such as heuristics and rules of thumb, to choose from a narrow subset out of the universe of options, and end up “satisficing”, that is, resting satisfied with a sufficient, rather than the best option [72]. Simon ([57], 222) influentially coined the term “bounded rationality” to denote the “whole range of limitations on human knowledge and computation that prevent real world actors from behaving like economic man”. There are, according to Simon, two types of decision-makers: maximizers, who pursue the “best” outcome after having exhausted all possibilities, and satisficers, who merely look for an outcome that is “good enough” ([74], 338). It is not, according to bounded rationality, that people are willfully irrational, but that their knowledge and powers of calculation are too bounded to permit the optimal decisions theorized by the neoclassicists [58]. The discovery by Daniel Kahneman, Paul Slovic, and Amos Tversky [30] of cognitive biases and heuristics, which laid the groundwork for modern behavioral economics, revealed e.g. that people tend to predict the frequency of an event by how often or conveniently they remember similar events; or they are swayed by factors like disproportionate or excessive media coverage of some events compared to others, overestimating the odds of being killed in an airplane crash, while underestimating their chances of dying from heart disease ([60], 1038). Kahneman is known for popularizing the “two systems” of cognitive action, namely, the fast and intuitive System 1 or “Fast Thinking”, and the slow and calculative System 2 or “Slow Thinking”. The two do not literally constitute physical structures in the brain, but neuroscience does suggest that the prefrontal cortex, which sets us apart from other species, seems more associated with System 2, whereas the amygdala may be more involved in System 1 ([63], 5). Regarding the interaction between the two Systems, ([28], 25) has this to say: In summary, most of what you (your System 2) think and do originates in your System 1, but System 2 takes over when things get difficult, and it normally has the last word. The division of labor between System 1 and System 2 is highly efficient: it minimizes effort and optimizes performance. The arrangement works well most of the time because System 1 is generally very good at what it does: its models of familiar situations are accurate, its short-term predictions are usually accurate as well, and its initial reactions to challenges are swift and generally appropriate.

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Unmistakable divergences subsist between neoclassical and behavioral economics. The former invokes a positivist philosophical outlook and is characterized by rigorous mathematical models, while the latter is more receptive of other social sciences and is less dependent on abstract mathematical reasoning [72]. But it would be wrong to say the two schools do not agree on anything. Because “automatic and mostly unconscious processes lead well-intentioned people to make self-serving decisions”, behavioral economists “support many of the predictions of standard economic analysis, without committing to a simplistic portrayal of human motivation” ([84], 1). Unlike neoclassicism, behavioral economics has yet to ripen into a unified paradigm; a diversity of theories and practices deprives it of the neoclassical parsimony [72]. Resort to laboratory experiments to test theories is of course more frequent in behavioral than in neoclassical economics research. In this context experimental techniques entail isolating environments under tightly controlled, clearly specified rules; creating incentives for experimental subjects that square with the incentives facing hypothetical agents in known circumstances; and constructing theoretical models that yield general, quantifiable predictions about human behavior in other institutional environments [46]. Behavioral law and economics, “the application of empirical behavioral evidence to the analysis of laws and legal institutions” ([47], 25), has revolutionized American legal scholarship in many areas of law ([25], 171). It has been observed that “behavioral economics has had, and is likely to continue to exert, a profound effect on economics and on the field of law and economics” ([77], 6), and that it is “the most promising and exciting new developments in public policymaking theory and practice” ([7], 1595). In what is regarded the inaugural article in behavioral law and economics, Cass Sunstein, Christine Jolls, and Richard Thaler ([67], 1545) argued that people are boundedly rational in the sense that they “suffer from certain biases, such as overoptimism and self-serving conceptions of fairness; they follow heuristics, such as availability, that lead to mistakes; and they behave in accordance with prospect theory rather than expected utility theory” ([67], 1545). As if this was not enough, they suffer moreover from “bounded willpower, they can be tempted and are sometimes myopic”. And yet they are also “boundedly self-interested”, for they are “concerned about the wellbeing of others, even strangers in some circumstances, and this concern and their self-conception can lead them in the direction of cooperation at the expense of their material self-interest” ([67], 1545). The “behavioral law and economics revolution” has yielded “a greater interest in and openness to regulation” ([32], 1658). Standard economics recommends that the state should intervene if rational market participants suffer under constraints that hold them back in pursuing their preferred choices, or when such participants fail to fully consider the externalities that their decisions inflict on others [31]. In other words, if individuals were not confronted by needless constraints, and did not inflict externalities on others, then little scope would be left for government intervention. Vito Tanzi ([69], 4) helpfully summarized the assumptions of the “traditional approach to public finance” as follows:

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that the government works to promote the public interest and that individuals, both those in private sector activities and those working for the government, are rational and act rationally. In their actions, they are not influenced by irrational biases, or are guided by irrational behavior. Both when they act in what could be defined as their strictly personal interests, or when they act in the interest of the whole community, they act rationally.

Orthodox public economics assumes that the state can intervene “surgically and unbiasedly” to redress the problems of market failure ([71], 13). Intriguingly, the behavioral school of law and economics follows the neoclassical school in offering its share of novel public policy prescriptions for intervention, supposedly to help people achieve their best, or to save them from their own irrationality. It has proposed an approach known as “libertarian paternalism” ([67], 1546), whose repertory features “low-cost tools” called “nudges”—information disclosures and default rules that supposedly leverage people’s cognitive limitations to steer them toward efficient outcomes, also “choice architecture”, i.e. “the background conditions for people’s choices” ([65], 5), such as the way a restaurant menu is arranged or the size of onscreen covers on websites that sell books [64], 9). Libertarian paternalism’s most famous exponents, Richard Thaler and Cass Sunstein, advocate that regulators, once armed with “an understanding of behavioral findings of bounded rationality and bounded self-control” and in light of the fact that “people’s preferences are illinformed”, subject to influence by “default rules, framing effects, and starting points” ([68], 1202), would do well to “steer people’s choices in welfare-promoting directions without eliminating freedom of choice”. As Sunstein ([62], 18) recounts, In Canada, the United States, Germany, Japan, Australia, New Zealand, Sweden, Denmark, the Netherlands, Qatar, and the United Arab Emirates, important initiatives enlist tools such as disclosure, warnings, and default rules, and they can be found in multiple areas, including fuel economy, finance, energy efficiency, environmental protection, highway safety, smoking, health care, and obesity (with behavioral findings playing an unmistakable role in efforts to improve diet).

In 2010, the then-new Prime Minister of the United Kingdom, David Cameron, set up the Behavioural Insights Team to recommend policy proposals informed by the findings of behavioral science ([45], 1). Under the leadership of Sunstein ([66], 16–17) as Administrator, the Office of Information and Regulatory Affairs within the Executive Office of the President of the United States applied nudges as “the best response” to address “behavioral market failures”, understood as “market failures that complement the standard economic account and that stem from the human propensity to err.” Similar units have been created in Germany, Australia, Qatar, and so on [63]. Policymakers are implicitly assumed under this approach to be benevolent and constrained by fewer cognitive biases, without any good reason ([71], 13). The most widely examined instance of choice architecture following the prescriptions of behavioral law and economics was the default enrollment of employees in employer-sponsored savings plans unless they opted out of it, countervailing bias in favor of the status quo [83]. Other policy prescriptions would empower officials to restrict consumer choices and to mandate disclosures to enhance consumers’ decision-making quality [19], and higher “sin” taxes on unhealthy products like tobacco, alcohol, fatty foods, and sugary soft drinks [44].

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2.4 Behavioral Public Choice and the Law The policy program of behavioral law and economics presupposes that regulatory planners can and will implement it in a manner that respects liberty and does not limit the choices available to individuals [83]. Recall the conventional public choice objection to state intervention in the economy and society: governments do not always perform better than markets,“government failures” happen just like market failures. Political decision-making is hardly a “dispassionate pursuit” of the public interest [10], given that blood-and-flesh legislators, bureaucrats, and judges are no less selfinterested utility maximizers than homo economicus ([61], 112). Behavioral public choice goes farther, for we can expect emotional and cognitive biases to be no less compromising in politics than in the marketplace, imposing critical limits on law and public policy ([36], 14). At its roots is the insight that probably no human group survive without some empirically identifiable and theoretically explainable social institutions [40]. Given the neurobiological constraints on cognitive powers, a more accurate portrait of human beings has to be that of “imperfect information processors” being “driven or motivated to act in accordance with personality characteristics, values, beliefs, and attachments to groups,” who “employ logical, but often faulty, perceptions of others when deciding how to act, and they often are unaware of the causes of their own behavior,” sometimes “seemingly contrary to their own interests, values, and beliefs” (see [13], 2). The message of behavioral public choice is quite straightforward. It agrees with the conventional public choice critique that, in explaining human behavior whether in the economy or in politics, economists should use the same assumptions about individual behavior, because homo economicus and homo politicus are the same person. If we can assume that economic actors are bounded in their rationality, willpower, and self-interest [42], and that systematic cognitive biases are at work in the market, then under a unified methodology we must assume political actors to be likewise bounded in their rationality, willpower, and self-interestand that systematic cognitive biases are no less at work in the political arena [53]. This corroborates with important observations of empirical psychologists that there are political behaviors that standard economics could not satisfactorily account for [11]. Libertarian paternalism has failed spectacularly to reconcile its assumption that consumers and voters are constrained by behavioral defects in decision-making, with its tacit assumption that benevolent officials and regulators are not bound, or as if the latter will overcome their own biases and cognitive limitations and collect and process all information with the perfect rationality necessary for efficient intervention. There is no reason, if behavioral economics is internally consistent, to suppose high politics to be immune from risk aversion, confirmation bias, information disproportionality and turf battles, or that Nudge Units are solutions to the irrationalities of the modern state [35]. On this view, libertarian paternalism has not taken seriously the cognitive limitations of actual politicians and regulators in answering the question, even if given all needed information, will they “nudge individuals into the direction of the homo economicus benchmark?” ([53], 411) As Sunstein concedes, “even if they are

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well-motivated, public officials might not know what is best” ([65], 75). A “behavioral public choice theory” is therefore needed ([23], 652). Any regulatory decision to construct choice architectures is not normatively neutral, let alone superior, for it obliges regulators to pass potentially biased value judgments on which consumer behaviors should be deemed informed decisions as opposed to ill-informed ones [35]. Behavioral economists who ignore the advice of their behavioral public choice colleagues risk inheriting the hoary mistake of neglecting the realities of politics to give counter-productive, if not perilous advice to imagined social angels to devise policies that may yield unintended consequences in the hands of real men [53]? History is rife with examples of government taking action that proves suboptimal and irrational, making bad laws despite the costs far exceeding the benefits [36]. As W. Kip Viscusi and Ted Gayer ([80], 981), two of the pioneers of behavioral public choice, concluded, The behavioral public choice approach seeks to weigh the political incentives and psychological biases of government decision making and critique the optimistic view of a government composed of well-meaning technocrats who are better equipped than ordinary citizens to overcome purported System 1 biases.

It has been argued that politicians and regulators, whose decisions may impose considerable externalities on populations, are “prime candidates” to be nudged, rather than ordinary citizens ([23], 656). Public officials and servants universally profess commitment to the public interest, to constitutional liberties and the rule of law, and to democracy, even though their actual decisions are often compromised by the shortterm pressures of periodic elections, the demands of their affiliated political parties, the interferences of lobbyists, and the fund-raising demands of electoral campaigns. This is a theme that will be revisited in subsequent chapters herein.

2.5 Conclusion Public choice economics refers to the economic analysis of political systems, and of how law is made and applied ([37], 19). One of its founders, James Buchanan ([9], 11), had called it “politics without romance.” Like standard public economics, the methodological atom of neoclassical public choice is the self-interested, utilitymaximizing individual, not economic classes, ethnicities, societies, or nations [8]. The breakthrough of public choice in economics consists of the principle that explanations of individual behavior in politics should rely on the same motivational assumptions that guide the economic analysis of market behavior [53]. Voting and the market mechanism are merely two modes of decisionmaking in modern democracies, not two isolated universes ([1], 1). The element of self-interest in actors of any political system, as in the economy, will lead to “government failure”, which can be far more serious than market failure because of the coercive powers of government and because government is not subject to a direct competitive process ([6], 12). Indeed, as Richard Posner [48], 24), a founding father of the Law and Economics movement,

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rightly noted, “cognitive limitations affect judges, legislators, and other government actors as well as private individuals—and maybe more so, because they do not have as much at stake, since they are not as subject to the normal economic incentives and constraints.” Behavioral economics has made consequential contributions to our knowledge of human behavior through cycles of theory elaboration and empirical experiment [70]. Many of its foremost findings originated in the laboratory, where skeptical researchers used innovative designs to test economic theory, not for the sake of demonstrating it a failure, but to pinpoint the conditions under which it breaks down [82]. Explanations in behavioral economics rely on more realistic assumptions about human decisionmaking. People are understood to be boundedly rational due to biological constraints on their cognitive capacities. Even formal organizations and institutions designed to overcome these limitations will not be completely immune from cognitive constraints on human informational processing [27]. The application of behavioral economics to the analysis of legal institutions, or “behavioral law and economics”, revolutionized much of the existing law and economics field. The behavioral approach “seeks to inform legal analysis by drawing on both the methods and the extensive findings of behavioural decision research, the psychology of judgment and decision-making, and related fields”; along with the empirical legal studies movement, it is “the most significant development in legal scholarship in recent decades”, its adherents having examined the “behavioural lessons for the law in most legal fields” ([73], 17). Note that constitutional and administrative law are among the fields into which behavioral economics has not made substantial inroads. Behavioral public choice economics, the synthesis of two revolutions, is a field that shares all of the methodological assumptions of behavioral economics, and rejects the neoclassical homo economicus model shared by conventional public choice and standard public economics. The rational actor model underemphasizes the fact that human actors must often act on the basis of incomplete information mediated by mental constructs that can lead to systemically inefficient paths of development [43]. The behavioral public choice approach weighs the psychological biases and political incentives of public sector decision-making to critically evaluate the optimistic view of the state as run by well-intentioned technocrats significantly unaffected by what is called System 1 biases in Kahneman’s work ([80], 981). All boundedly rational individuals, be they ordinary citizens or government officials, make judgment errors that deviate from neoclassical expected utility theory [26]. Despite not receiving the scholarly attention from legal academics that it deserves, behavioral public choice is extremely relevant to legal scholarship, especially constitutional and administrative legal research [36]. Because law exists to guide human behavior, it must take seriously empirical findings about human motivation and judgement [86]. Behavioral public choice theorists of law have arrived at conclusions not that different from those of conventional public choice, interestingly enough. Dissensions between behavioral public choice and behavioral law and economics parallel earlier conflicts between public choice and welfare economics [80]. Legal scholars who ignore the behavioral public choice perspective risk exaggerating the optimal scope of state intervention; failing to take into account the many cognitive biases

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plaguing political processes; and above all, forgoing opportunities to identify which constitutional and legal tools might enhance the quality of electoral decision-making and democratic lawmaking through reforms that tap the rich insights of the behavioral public choice field into political and administrative behavior ([36], 204).

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Chapter 3

Behavioral Democracy and the Law

3.1 Introduction Law in modern democracies, from constitutions to legislations to judicial decisions and administrative regulations, is created by multiple interdependent actors: members of the electorate, legislators, executive officers, administrators, and judges [45], none of whom are totally insulated from the domain of electoral politics [59], where voters select executive heads, lawmakers, and sometimes judges. Since the twentieth century, referendums, a form of direct democracy, have become increasingly widespread in countries such as Australia, Denmark, France, Ireland, Italy, New Zealand, Switzerland, and Uruguay [24]. The United Kingdom’s 2016 Brexit Referendum eventually led to the country’s historic departure from the European Union in January 2020. Referendums have been used in Catholic countries such as Ireland, Italy, Malta, and Portugal to decide moral issues such as divorce, abortion, and same-sex marriage. Conventional public choice economics theorizes “the creation and implementation of law as it pertains to the political process—the demand for law and the supply of law—in an effort to assess the impact of alternative laws and rules governing the political process” ([46], 206). Interest groups constitute the demand side, whereas legislators constitute the supply side, the political market for legislation is “badly functioning,” as it systematically results in too few laws that promote society’s overall efficiency with a collective benefit that would unlikely emerge from the actions of separate individuals, and too many laws that distribute resources to special interests without contribution to the overall efficiency of society [20]. Public choice can improve our understanding of how law shapes political behavior, and how political behavior shapes law [65]. From this perspective, constitutional and administrative law can be seen as a set of institutional structures [17], that addresses the difficulties of cooperative action between instrumentally rational individuals who are not necessarily ethical [21]. Democracy, direct or representative, requires political choices to be made by the people according to certain procedures which aggregate © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 E. C. Ip, Behavioral Public Choice Economics and the Law, SpringerBriefs in Law, https://doi.org/10.1007/978-981-19-3230-4_3

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preferences presumably reflective of the well-being of the political community and its members [51]. The legislature is centrally important for representative democracy. The preferences of elected legislators are at least influenced by the electoral process that confers their democratic legitimacy. By deliberating and enacting laws, they estimate the rank order of benefits and costs, assign rights, and ultimately sway the distribution of wealth in society. Consider how behavioral public choice economics approaches the democratic lawmaking process. Conventional economics, even public choice, assumes voters, legislators, bureaucrats, judges, lobbyists, and so on, to make choices as if they are mathematical maximizers of well-defined functions, with nothing but self-regarding preferences [3]. Political institutions exist to mediate the rational pursuit of political ends by individuals and groups of individuals, individuals being the fundamental unit of analysis. By contrast, behavioral public choice models its unit-agent not on “the exclusively self-regarding and extremely rational homo economicus, gifted with sheer unlimited calculative capacity and skills”, but on “a more realistic homo sapiens with severely constrained cognition and emotions, facing uncertainty rather than risk” ([75, 298). It follows that voters and politicians are among those constrained in their cognitive processes, which encompass everything from attention, imagination, information processing, language, memory, perception, problem solving, and thinking ([15], 48). It is useful to invoke the “tripartite typology” associated with Richard Thaler to organize the rest of this chapter: the boundedness of (1) rationality, (2) willpower, and (3) self-interest, which entail that “cognitive limitations constrain human judgement and choice, people occasionally make choices that are against their own interests and people are often altruistic” [50]. This chapter is organized as follows. Section 3.2 examines conventional public choice theory’s inability to explain the “paradox of voting”. Section 3.3 explores how the triad of bounded rationality, willpower, and self-interest that is commonly used in behavioral economics helps to illuminate the behavioral characteristics of voters and politicians in a “bounded democracy” [12], which has received considerable attention from the behavioral public choice literature. The same folks are unlikely to be more rational as voters than as consumers. It is unrealistic to assume that only the electorate is psychologically constrained, as if those who make up governments, legislatures, bureaucracies, interest groups, the media, and the like are exempt from cognitive biases. It is inconsistent to think that exploitation of people’s cognitive and mental limits exists only in market economies but not in the public arena and politics generally. Behavioral public choice theorists generally observe that irrationality causes voters to support policies that are objectively detrimental to the common good [39]. Section 3.4 discusses the implications of these insights for the functioning of democracy.

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3.2 The Paradox of Voting Making sense of why people vote is crucial not just to election forecasting and polling analysis but our understanding of the theory and practice of democracy. Anthony Downs ([18], 48), whose research changed conventional public choice understandings of voting, explains why it is irrational for homo economicus to vote thus: “[a] rational voter first decides what party will benefit him the most … [but] even if he prefers party A, he is wasting his vote on A, if it has no chance of winning … the relevant choice in this case is between B and C. Since a vote for A is not useful in the actual process of selection, casting it is irrational.” For Downs the paradox of democratic elections is “why do individuals vote?” in light of the fact that the value of one vote is so minuscule in sizeable electorates that the existence of even small costs should deter voting participation” ([10], 170). In brief, although voters’ collective action will consequentially affect their well-being as members of a group, an individual’s vote has at most a negligible effect on his self-interest, so negligible that he is not warranted to cast the vote in the first place. Yet making an informed choice in an election involves choosing between two or more options, each of which is associated with divergent values or preferences, given the negligible power of an individual vote, however, it may be concluded that the effort of weighing up the options, let alone of visiting the polls, is an irrational act [55]. This conventional public choice explanation in some ways chimes with daily experience. Ordinary people are much more incentivized to become informed about what jobs to seek, romantic partners to pursue, and food to consume, than to become politically informed or active, since it is near-impossible for a single vote, in virtually every imaginable case, to swing the electoral outcome [57]. Millions do vote nevertheless. Why so many people are irrationally willing to incur the costs of voting is a “mystery” conventional public choice fails to explain ([1], 73). It cannot help us understand why the poor are less likely to vote than the well-off, even though the time spent on voting should worth more to the latter than the former, nor why the probability of voting is lowest for the young and the elderly, despite having more free time than those in their prime earning years, nor why those with more education are prone to vote more than those with less education in spite of the fact that voting is not rational from the rational actor standpoint [54]. Such underprediction of turnout in large elections is dubbed “the paradox of voter turnout” ([37], 143). Those who choose to vote volunteer to partake in producing a functioning democracy, which is a public good. Behavioral public choice does not conceive of voting in isolation from social norms, civic duty, motives like expressing one’s values, character, or identity, and social pressures, as a purely instrumental act with the sole and supreme aim of tipping elections [1, 9]. The low cost of voting as a perceived means of promoting the public interest may be more attractive to many than donating their time and money to charitable work ([41], 207). Voting confers reputational enhancements and psychological satisfactions that can outweigh the minuscule cost in terms of real time and effort. Its low cost implies that voting is motivated by anything but the rational calculation of self-interest; viz., expressive concerns and moral beliefs [5].

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Laboratory research has found that voters with unambiguous ideological preferences in the trade-off between redistribution and efficiency are likelier to participate in elections than those without such preferences [77]. Some find utility or satisfaction— even at great costs and great lengths—in fulfilling a civic duty or displaying their perceived identities, and others may mistakenly think that their vote actually will have an impact on the outcome of an election [58, 63]. For instance, casting a vote could be understood as meaning everything from “I care about my family’s future and setting a good example for them” to “I care about my society and fulfilling my civic duty” ([58], 99). Divergences between voters’ expressive and instrumental preferences can distort the aggregate electoral outcome [42]. As Jonathan Baron ([5], 16–17) has pointed out, Although self-interest itself does not seem to play a large role in voting decisions, people may think that it does. They may deceive themselves into thinking that their vote really does affect outcomes for themselves, so that, therefore, they should vote according to what is best in terms of their self-interest … People think, “What helps my group helps me, because I am a member of my group. Therefore, my own self-sacrifice helps me.” Again, they fail to do the arithmetic to see that cooperation with their own group is a net loss for themselves as well as for everyone (counting outsiders). These results together suggest that self-interest plays a small role in political behavior, although people sometimes think that it does. Political behavior seems to be more influenced by moral judgments. Note that the claim that voting is influenced by moral judgments, rather than self-interest, is not the same as the claim that voting is expressive.

3.3 Bounded Democracy The Condorcet Jury Theorem holds that groups composed of large numbers of individuals can frequently be wise, the dark side of which, however, is that if each member of the group is more likely to be erroneous than correct, the upshot of which being the decline of the group’s likelihood of correctness to zero as the group enlarges ([66], 141). A behavioral public choice economist understands the paradox of voting in a different way: through the prism of bounded rationality, bounded willpower, and bounded self-interest, and in light of the systematic departures from homo economicus discovered by cognitive psychology and behavioral economics research. Anne van Aaken and Jürgen Kurtz ([74, 603) eloquently sum up the assumptions of conventional public choice as follows: As a starting point, a public choice account of domestic regulation contests the notion that government is necessarily a benevolent maximizer (servant) of social welfare. Public officials are viewed instead as politically sophisticated actors pursuing rational (self-interested) agendas, especially the maximization of political support in order to increase their chances for re-election. Public choice theory places a significant weight on the role played by interest groups in the formation of regulatory policy.

This is to be contrasted with the postulates of behavioral economics. John Hasnas ([25], 646–647) summarizes the “built-in heuristics or rules of thumb” that shape human decision-making:

3.3 Bounded Democracy

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Human judgment is influenced by anchoring: extrapolating from a known although possibly irrelevant starting point; availability: making judgments on the basis of how easy future events are to imagine or assimilate into what one can retrieve from memory; and representativeness: basing judgments on how well something corresponds to one’s image or stereotype of that thing. Human choice is influenced by unrealistic optimism or the Lake Wobegon effect: most people’s belief that they are above average; loss aversion or the endowment effect: feeling the loss of something one has more intensely than the gain of something one does not have; the status quo bias: most people’s tendency to stick with their current situation; and framing: the way in which problems are stated and choices are presented.

Consider, first, “bounded rationality”. This term, famously espoused by Herbert Simon, expresses the finitude of human cognition, and the phenomena that people respond to these failings and their flawed memories with predictable heuristics and other shortcuts that compensate for their limited time and brainpower ([72], 1477). Deliberation among humans is far from purely logical [31]. But this is outright inconsistent with the neoclassical position, that rational voters, who will rationally discount the self-serving messages of politicians and interest groups, cannot be vulnerable to propaganda; rather, people are fallible and complex learners who learn heuristics and social norms to improve outcomes without calculating a complete set of strategies for all possible contingencies [53]. Democracy makes significant cognitive demands on its citizens [47]. Passionate citizens are the bedrock of democracy, but the same passions may trigger biases and heuristics, and worsen polarization [38]. Contrary to the predictions of the neoclassical model, citizens do not treat information about political parties, candidates, or issues evenhandedly, but are prone to discounting facts that challenge their preconceptions, to being swept up by feelings automatically triggered at the earliest stages of ideating a given issue. The reality is that people overconfidently hold stereotyped beliefs in the mottos and symbols that often arouse subjective feelings amongst factions of the electorate to the exclusion of correct information, letting their biases filter elite ideas and statements [34]. When individuals find themselves belonging to groups of like-minded types, they are more likely than ever to move to more extreme positions ([66], 2). Strong opinions on complicated issues tend to exacerbate biased interpretations of information and reality ([52], 13). Experimental evidence indicates that people vote to confirm their political identity [73]. They search for and interpret information so as to vindicate prior beliefs and feelings, ignoring disconfirming information to the detriment of arriving at optimal decisions [38]. They prefer media reports that confirm their prior ideology, a phenomenon known as “confirmation bias”. Political liberals tend to read articles and essays authored by political liberals, for instance ([6], 20). And if people with similar thoughts speak predominantly with one another, in the end they will likely find themselves having “intensely heightened concerns about small risks” ([68, 88). Voters who delegate cognitively costly analyses of political information to pundits, journalists, or politicians [47], inadequately discount emotional appeals, propaganda, and deception or information cascades [40]. A starting point is that when people lack enough private information, they are attentive to the information provided by the statements or actions of others. Then they may fall victim to “cascade effects”, when masses of people subscribe

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to beliefs because they think others believe the same. Indeed, such cascades can be identified in numerous contentious political questions, such as abortion, same-sex marriage, capital punishment, climate change, and so on: people rarely think hard about these issues but sometimes dramatically move to the right or to the left due to cascade effects, which are “almost inevitable, and they might well be based on poor thinking and confusion” ([66], 2). The effect of an informational cascade will depend on a variety of factors such as the initial distribution of beliefs, the sequence in which people announce their beliefs, and their thresholds for deferring to beliefs announced by others [67]. Due to the many limitations of the human brain, people fall back on mental shortcuts or heuristics in making political judgments. Invoking political heuristics automatically and knowingly [34], people may not ask whether they agree with electoral candidates on economic policy, which can be a highly complex question, but instead ask simpler questions such as, “Do I like and trust this person?” or “Is this person like me?” ([69], 33). The “affect heuristic” refers to the “general tendency to rely on subjective feelings about the goodness or badness of things in making judgments and decisions about them” ([57, 344). In politics, this means that “[w]e like most things about politicians we favor, and we dislike even the looks and the voices of politicians we dislike” ([30], 170). These are all understandable, as unbiased reasoning is very difficult in the context of complex public policy [40]. People have less incentive to control their emotions as voters than as consumers, as there is little to gain from resisting intuitions or gut reactions about public affairs [57]. One obvious but also simple political heuristic is to “reward success, punish failure”, which apparently enables voters who possess “little, zero, or even negative knowledge about policy” to “extract socially beneficial behavior from their leaders” [14]. Another popular heuristic is to vote according to party affiliation, which is believed useful in compensating for want of reliable information about candidates’ preferences apart from their public statements [34]. Some voters may become deeply biased in favor of a candidate merely because of their identification with the party, his personal traits, characteristics, and qualities notwithstanding [56]. But there are many other heuristics. It is no surprise that not a few take mental shortcuts, ranging from the identity of a candidate’s endorsers, to polls released by their favorite media outlets, to a candidate’s physical appearance [38]. Research in the United States indicates that about one-fourth of the voting electorate consists of “swing voters” often persuaded by their impressions of candidates’ behavior and physiognomy ([56], 124). Candidates who speak eloquently or who appear to know what is right “deep in their bones” may inspire confidence, but if they are not open to counterarguments and understand their own fallibility, they are unlikely to reduce error on behalf of their constituencies ([30], 235). Bounded rationality has important implications for the median voter theorem in public choice economics. The theorem, which is due to Duncan Black [8] among other theorists, holds that, on straightforward matters like how much money should be spent on roads, opposing political parties eventually move to the center, where most voters are distributed. Because political parties aim to win votes, the result should indeed be that parties converge on the center, leaving voters with little meaningful choice

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[11]. However, if the median voter, as boundedly rational, consistently succumbs to biases, as the voluminous empirical evidence indicates [48], then the policy outcome is unlikely to be optimal or efficient, as it would reflect the irrationalities of the masses [76]. Incidentally, the modern political party is a hotbed of behavioral failure. Extreme movements are most likely to emerge when like-minded party members regularly meet in the absence of being continuously exposed to alternative views [67]. Even internal discussions among party members may bring forth party-line voting and even polarization. And people who closely identify themselves with a partisan label not infrequently become unnecessarily hostile to the opposing group [67]. Even if partisan lawmakers rationally understand that a bipartisan agreement makes a lot of sense, they might be pressurized by their polarized constituencies to avoid it, or else they might be punished by voters and their own party in the next election. Consider now bounded willpower. Those of bounded willpower are prone to act in ways they know are inconsistent with their long-term interests ([72, 1479). To put it vividly: “people often have goals to save more, exercise more, eat healthier, work harder, and strive for higher achievement, yet cannot muster the consistent, prevailing motivation to follow through. Consequently, individuals end up acting in a manner opposite of that which they had formerly hoped and decided to” ([64], 114). One of the most well-known manifestations of bounded willpower is hyperbolic discounting, where one discounts one’s future compared to the present. In an electoral context some actual and potential voters who decide they wish to vote are unable to overcome the short-term costs of going to the polls, waiting in line, and so on [64]. Consider, lastly, bounded self-interest, which embraces dimensions of altruism, fairness, and reciprocity [33]. Greed and the willingness to cheat, lie, kill, or steal cannot account for the full gamut of human behavior [23]. It takes considerable mental gymnastics to explain why a rational self-interested utility maximizer would want to serve as a front-line soldier to defend his or her country, or always abide by the law despite the probability of being arrested for a minor offence is minimal, or to vote although the chances of affecting electoral outcome are negligent ([23], 350). The most straightforward explanation is that people are not just self-interested, as per the neoclassical model, but also altruistic, interested in the common good, and harbor non-pecuniary ethical and ideological motivations [63]. Most people “care, or act as if they care, about others, even strangers, in some circumstances” and “care about being treated fairly and want to treat others fairly if those others are themselves behaving fairly” ([72, 1479). For instance, voters sometimes support policies that may be deemed in the public interest but not their self-interest (narrowly defined), as when younger voters support elderly welfare programs despite having no elderly parents and intending to rely on no such programs in their own distant future retirement [41]. The altruistic behavior of political leaders depends on how they were selected: democratically elected ones are less likely to enact policies that purely maximize their own material payoffs than appointed or self-appointed ones; though “being elected to lead” is on its own insufficient to induce pro-social behavior ([19], 14). Experimental research suggests that the behavioral differences between elected and appointed leaders may reflect reciprocity between elected leaders to the constituencies who elected them. Reciprocity is known to be an important mechanism

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in human behavior, generally. Political officials have some discretion to pursue their own preferences, but they have limited political and psychological ability to defy an electorate who care deeply about an issue and are prepared to electorally punish politicians who shirk [41]. Conventional public and welfare economics erred by assuming that public wellbeing and the common good determine the utility function of politicians and public servants [13]. Conventional public choice economics corrected this error by highlighting the self-interest of political actors, as in getting votes to stay in power or to maximize their agencies’ budgets [11]. Behavioral public choice economics further refines theory by demonstrating that voter irrationality offers a host of opportunities for politicians, regulators, interest groups, and other political actors to take advantage of voters, who often do not rationally discount propaganda and deceptive appeals to emotion [41]. In fact, cognition and affect are nearly always intermingled, to the extent that it could be said that “[e]motion is as much the handmaiden of reason as reason is of emotion” ([42], 314). For instance, humans tend to exhibit the tendency of making judgments on the basis of just a subset of available information, and to overweigh that information while under-weighing information that was not made available to them [60]. Any sophisticated political actor, not just public authorities, mass media, non-profits, and interest groups, can, by fixing public attention on specific issues, construing particular events in only one of many ways, and selectively raising the salience of issues, exploit popular cognitive limitations ([35], 687). Environmental advocacy groups, for example, pursue policy objectives by drawing public attention to natural disasters of recent memory. Political parties seize on scandalous incidents to trigger painful memories, playing on voters’ emotions to activate related heuristics and mental shortcuts in their decisional processes [68]. Journalists, influencers, and opinion leaders switch to framings that give one-sided or omissive representations of facts so as to favor their own preferences, exploiting common biases like loss aversion or the status quo bias to their advantage [61], the promotion of aviation regulation through exploiting public emotions against a highly publicized aircraft accident is a classic example ([78], 409). Public officials tend to forge close relations with availability entrepreneurs to exploit the electorate’s cognitive limits in ways that may lead to mutual benefitting at the expense of public rationality and the common good. Terrorists are “extreme examples of availability entrepreneurs” who take advantage of people’s “probability neglect” to create fear that is in excess of statistical reality [69]. Generally speaking, events that were “highly vivid,” albeit with low probability, such as a plane crash, tend to be excessively weighted by people, whereas medium-to-high probability events, such as finding oneself in a car wreck, tend to be significantly underweighted [15]. Some abusers of popular cognitive limitations go so far as to discourage expression of opinions and preferences incompatible with their own, and inflict reputational damage on people who resist their agenda, framing them personally as selfish, vicious, and so on ([68], 92). Framing effects violate the standard invariance principle of the rational actor model ([61], 403). People lack “absolute, well-defined

3.4 Discussion and Conclusion

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criteria” over many questions in relation to democracy, equality, freedom, and fairness, which rendered their moral, legal, and political judgments “labile and endogenous to context” ([71], 25). Worse of all, electoral competition does not necessarily neutralize the cognitive impact of political rhetoric [2]. Real-world political parties often find themselves constrained, by the electorate’s pre-existing biases, in the range of arguments they can credibly use to combat bias-exploitative frames, due in part to the media’s “first-mover advantage”. The media then, not necessarily intentionally, privileges such framings in its portrayal of political events. Public economics must recognize that even fierce electoral competition is simply unable to eliminate cognitive bias from politics or principal-agent problems from public administration [61].

3.4 Discussion and Conclusion Government in modern democracies is almost a synonym of the lawmaking process ([4], 74). The electorate’s judgments are relevant to the development of legislation for their voting behavior decides who the elected leadership are, and their popular opinion shapes the decisions of public officials, who in turn also shape the former’s judgments for their own benefit [78]. Why and how the electorate votes determine the representativeness and the legitimacy of democratic outcomes [16], including of legislation, which at the end of the day is a by-product of attitudes, biases, and political, social, and cultural values [59]. A behavioral political economy bids fair to forge new answers, driven by empirical findings, to old questions in public choice, such as the paradox of voting [7]. Unlike the neoclassical homo economicus, real world people are not perfectly rational, and information is costly [41]. A public choice account based on the neoclassical model fails to recognize the bounded rationality, willpower, and self-interest of homo sapiens as political actors. According to behavioral public choice, voters “are not merely ignorant; their beliefs about policyrelevant subjects are often systematically biased” ([14], 760). Moreover, emotion is no less important than rationality in determining political choice [49]. It follows predictably that the typical polity is a hotbed of irrational behavior the cognitive biases of which should be comprehended as endogenous, not exogenous variables [62]. Democratic decisional processes present incentive structures that encourage voters to think wishfully, as they are incentivized to vote for politicians who make them feel good for doing so. The electorate’s self-serving bias is bound to be magnified by democratic institutions: people tend to take responsibility for their preferred outcomes while deflect responsibility for unpreferred consequences [36]. If their preferred candidates could not resolve the daunting socioeconomic problems of the day, voters would be prone to attribute their failures to “insufficient funding, or inadequate enforcement, or the influence of malign special interests, or the obstructionism of the narrow-minded or bigoted or hyper-partisan members of the opposing party”, to put it more colorfully, “in a democracy, who wins elections is not determined by what is true; what is thought to be true is determined by who

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wins elections” ([26], 652). Voters’ low personal stakes involved in voting insufficiently incentivizes them to rein in their own cognitive limitations in making electoral choices. Indeed, the incentives to overcome their irrationality in politics is arguably lower than those they have as consumers to make daily marketplace decisions that directly affect the welfare of themselves and their families [41]. Consumers who act irrationally harm themselves, their families and friends, but electorates can harm countless more people by electing an irrational legislature. Some voters let themselves become distracted by irrelevant personal traits of electoral candidates, such as their physical attractiveness or level of charisma. Legislators, regulators, lobbyists, and journalists—whose preferences may well be more extreme than the average voter ([22], 1716)—nonetheless have long-term interests and incentives to reinforce the bounded rationality of voters, to retain their power to shape popular behavior by various manipulative techniques ([62], 504). Politicians competing on the basis of their rhetorical success can exacerbate the effects of the electorate’s biases and heuristics and biases ([43, 1789). Short-sighted, even if well-meaning politicians, intent on re-election, are likelier than not to acquiesce in their constituents’ irrational demands [41]. They will support protectionism, for example, because protectionism is popular, but protectionism is popular because voters believe it will enrich them [13]. Intuitions on other policy matters, such as those in favor or against climate action, may be driven by cultural commitments towards erroneous polarizations ([70], 30). The consequence of all this is that the electoral and legislative processes will produce laws that follow the prevailing ideological fad rather than careful studies of benefits and costs. In short, the central portrait of democratic lawmaking painted by the behavioral public choice economist is this: “[t]he cognitively biased lead the cognitively biased, absent the disciplining mechanisms of market competition” ([28], 174; see [44]). Bad regulatory outcomes emerge despite the good will of all participants; the power of simplistic sound bites is ample evidence of the constraints on information processing that plague every dimension of public debate [27, 857], hence the compelling need for a behavioral public choice economics to supplement the classical public choice literature by highlighting the myriad ways biased lawmakers and citizens interact, and hopefully to reinforce the healthy skepticism found in the public choice literature about the efficacy of regulatory intervention [29]. With the more realistic portraits of political actors offered by behavioral public choice, it is possible to assess the viability of different democratic theories in solving practical questions in ways that were not previously available [32]. The seriousness and enormous consequences of political decisions warrant a heightened concern about the power of framing effects. In this chapter explores how constitutional rules—the rules of the political game— might be redesigned to mitigate the consequences of widespread cognitive biases in politics. Constitutional mechanisms can be developed to enhance our ability to make better collective political judgments.

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27. Hirshleifer D (2008) Psychological bias as a driver of financial regulation. Eur Financ Manag 14(5):856–874 28. Ip EC (2017) Debiasing regulators: the behavioral economics of US administrative law. Common Law World Rev 46(3):171–197 29. Juurikkala O (2012) The behavioral paradox: why investor irrationality calls for lighter and simpler financial regulation. Fordham J Corp Financ Law 18:33–93 30. Kahneman D, Sibony O, Sunstein CR (2021) Noise: a flaw in human judgment. Little Brown Spark, New York, NY 31. Keestra M (2012) Bounded mirroring: joint action and group membership in political theory and cognitive neuroscience. In: Valk FV (ed) Essays on neuroscience and political theory: thinking the body politic. Routledge, New York, NY, pp 201–221 32. Kelly JT (2012) Framing democracy: a behavioral approach to democratic theory. Princeton University Press, Princeton, NJ 33. Kuehnhanss CR (2019) The challenges of behavioural insights for effective policy design. Policy Soc 38(1):14–40 34. Kuklinski JH, Quirk PJ (2000) Reconsidering the rational public: cognition, heuristics and mass opinion. In: Lupia A, McCubbins MD, Popkin SL (eds) Elements of reason: cognition, choice, and the bounds of rationality. Cambridge University Press, Cambridge, pp 153–182 35. Kuran T, Sunstein CR (1999) Availability cascades and risk regulation. Stanf Law Rev 51(4):683–768 36. Larsen MV (2021) How do voters hold politicians accountable for personal welfare? Evidence of a self-serving bias. J Polit 83(2):740–752 37. Levine DK, Palfrey TR (2007) The paradox of voter participation? A laboratory study. Am Polit Sci Rev 101(1):143–158 38. Lodge M, Taber CS (2013) The rationalizing voter. Cambridge University Press, Cambridge 39. Lucas GM Jr (2015) Out of sight, out of mind: how opportunity cost neglect undermines democracy. N Y Univ J Law Lib 9:249–343 40. Lucas GM Jr (2017) Voter psychology and the carbon tax. Temple Law Rev 90:1–52 41. Lucas GM Jr, Tasi´c S (2015) Behavioral public choice and the law. West Virginia Law Rev 118:199–266 42. Mackie G (2012) Rational ignorance and beyond. In: Landemore H, Elster J (eds) Collective wisdom: principles and mechanisms. Cambridge University Press, New York, NY, pp 290–318 43. McCaffery EJ, Baron J (2005) The political psychology of redistribution. UCLA Law Rev 52:1745–1792 44. McCaffrey EJ, Slemrod J (2006) Toward an agenda for behavioral public finance. In: McCaffery EJ, Slemrod J (eds) Behavioral public finance. Russell Sage Foundation, New York, NY, pp 3–31 45. McNollGast, (2007) The political economy of law. In: Polinsky AM, Shavell S (eds) Handbook of law and economics, vol 2. Elsevier, Amsterdam, pp 1651–1738 46. Mercuro N, Medema SG (2006) Economics and the law: from Posner to post-modernism and beyond, 2nd edn. Princeton University Press, Princeton, NJ 47. Miller KP (2009) Direct democracy and the courts. Cambridge University Press, New York, NY 48. Millner A, Olivier H (2016) Beliefs, politics, and environmental policy. Rev Environ Econ Policy 10(2):226–244 49. Mutz DC (2007) Political psychology and choice. In: Dalton RJ, Klingemann H-D (eds) The Oxford handbook of political behavior. Oxford University Press, New York, NY, pp 80–99 50. Nature Human Behaviour Editorial (2017) The rise of behavioural economics. Nat Hum Behav 1:767 51. Oppenheimer J (2012) Principles of politics: a rational choice theory guide to politics and social justice. Cambridge University Press, New York, NY 52. Orbach B (2017) Invisible lawmaking. Univ Chic Law Rev 79(1):1–16 53. Ostrom E (1998) A behavioral approach to the rational choice theory of collective action: presidential address. Am Political Sci Rev 92(1):1–22

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54. Pressman S (2004) What is wrong with public choice. J Post Keynes Econ 27(1):3–18 55. Redlawsk DP, Lau RR (2013) Behavioral decision-making. In: Huddy L, Sears DO, Levy JS (eds) The Oxford handbook of political psychology, 2nd edn. Oxford University Press, New York, NY, pp 130–164 56. Riggio HR, Riggio RE (2010) Appearance-based trait inferences and voting: evolutionary roots and implications for leadership. J Nonverbal Behav 34:119–125, 123 57. Rizzo MJ, Whitman G (2020) Escaping paternalism: rationality, behavioural economics, and public policy. Cambridge University Press, Cambridge 58. Rogers T, Fox CR, Gerber AS (2013) Rethinking why people vote: voting as dynamic social expression. In: Shafir E (ed) The behavioral foundations of public policy. Princeton University Press, Princeton NJ, pp 91–107 59. Rubin PH, Shepherd JM (2013) Public choice and the law. In: Reksulak M, Razzolini L, Shughart WF (2013) The Elgar companion to public choice, 2nd edn. Edward Elgar, Cheltenhan, pp 345–361 60. Sales BD, Krauss DA (2015) The psychology of law: human behavior, legal institutions, and law. American Psychological Association, Washington, DC 61. Schauer F (2006) Do cases make bad law? Univ Chicago Law Rev 73:883–918 62. Schnellenbach J, Schubert C (2019) A note on the behavioral political economy of innovation policy. J Evol Econ 29:1399–1414 63. Schubert C (2017) Exploring the (behavioural) political economy of nudging. J Inst Econ 13(3):499–522 64. Shapiro SA, Tomain JP (2014) Achieving democracy: the future of progressive regulation. Oxford University Press, New York, NY 65. Sokol DD (2011) Explaining the importance of public choice for law. Mich Law Rev 109:1029– 1048 66. Stearns ML, Zywicki TJ (2009) Public choice concepts and applications in law. Thomson Reuters, St Paul, MN 67. Sunstein CR (2009) Going to extremes: how like minds unite and divide. Oxford University Press, New York, NY 68. Sunstein CR (2019) How change happens. MIT Press, Cambridge, MA 69. Sunstein CR (2002) Risk and reason: safety, law, and the environment. Cambridge University Press, Cambridge 70. Sunstein CR (2014) Why nudge? The politics of libertarian paternalism. Yale University Press, New Haven, CT 71. Sunstein CR (2018) The cost-benefit revolution. MIT Press, Cambridge, MA 72. Sunstein CR (2021) This is not normal: the politics of everyday expectations. Yale University Press, New Haven, CT 73. Tulman SA (2015) Altruism, noise, and the paradox of voter turnout: an experimental study. J Appl Math 2015(2):1–22 74. Tyran J-R, Wagner AK (2019) Experimental evidence on expressive voting. In: Congleton RD, Grofman B, Voigt S (eds) The Oxford handbook of public choice, vol 2. Oxford University Press, New York, NY, pp 928–940 75. van Aaken A, Kurtz J (2019) Beyond rational choice: international trade law and the behavioral political economy of protectionism. J Int Econ Law 22(4):601–628 76. van Winden F (2015) Political economy with affect: on the role of emotions and relationships in political economics. Eur J Polit Econ 40:298–311 77. Viscusi WK, Gayer T (2015) Behavioral public choice: the behavioral paradox of government policy. Harvard J Law Pub Polic 38:973–1007 78. Wiese R, Jong-A-Pin R (2017) Expressive voting and political ideology in a laboratory democracy. Eur J Polit Econ 50:54–74

Chapter 4

Behavioral Constitutional Economics

4.1 Introduction Constitutions have been a recurring subject of comparative political science ever since Aristotle over two thousand years ago ([1, 20], 101). In principle, a constitution is the preeminent formal political institution, laying out a prepotent design for organizing political action, and “a body of legal norms—meta-norms—that governs the production and application of all other legal norms” ([52], 165). In the parlance of public choice economics, a constitution is a mechanism to promote the production of public goods, which in so doing structures and constrains the choices of political elites of which public goods to produce [67]. They specify obligatory procedures by which laws are given legitimate authorization through the costs of making them, before they may be given force through the penalties of breaching them. Constitutions restrict governments’ authority through the provision of prepotent public goods like individual rights and liberties, and super-majoritarian requirements for amending the constitution itself [12]. Public choice economists generally consider political institutions as pre-existing constraints on the self-interested acts of political actors [43]. The subfield of constitutional economics within public choice, also known as constitutional political economy, views constitutions as devices to facilitate human cooperation and mediate competition, the better to gain from political and other forms of transaction [59]. The microeconomics of “the choice of constitutional rules” may be the best description [4]. Theorists analytically distinguish between constitutional design and constitutional action (see [5]). A game theoretic perspective holds constitutions to be “the rules of the political game,” and views public policy as the consequence of equilibrium strategies chosen by politicians, their voters, and the bureaucracy. As the rules of a game partially determine its outcome, so varying constitutions result in varying public policies; whence it follows that insofar as some policies are better than

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 E. C. Ip, Behavioral Public Choice Economics and the Law, SpringerBriefs in Law, https://doi.org/10.1007/978-981-19-3230-4_4

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others, so some constitutional designs are better than others [9]. By contrast, constitutional action, whereby political actors pursue their goals within a given constitutional setting, happens at the sub-constitutional level. It assumes that the constitution is an unquestioned part of the institutional landscape that shapes the opportunities available to political actors in their mutual interactions [64]. Jan Schnellenbach and Christian Schubert ([48], 400) have pointed out that no “behavioral constitutional economics” has been theorized as yet. This chapter takes up part of the challenge of mapping out the implications of behavioral economics for the analysis of constitutions. It argues that constitutions should be seen as important, if not untapped resources for promoting rationality in politics; that, besides traditional justifications that appeal to human rights, constitutional constraints may also be justified by their power to curb the negative effects of widespread biases and heuristics among political actors. Section 4.2 identifies some of the minimum core of constitutionalism, such as the separation of powers and the enforcement of constitutional rights in accordance with the rule of law, principles that “are endorsed or, at least, are not rejected emotionally by an overwhelming majority and are compatible with the interests of all people” ([47], 380). This Section demonstrates that each of these can be justified not only on conventional but also on behavioral grounds, as devices that dampen the negative consequences of cognitive biases and heuristics (see [71]). Section 4.3 argues that authoritarian constitutions are prone to exacerbate preexisting behavioral defects, leading to political failures more frequently than other forms of government, primarily due to the lack of adequate debiasing. Section 4.4 concludes this chapter.

4.2 Constitutions as Debiasing Mechanisms From the vantage-point of constitutional political economy, democracy is “a principal-agent problem on a colossal scale”: notionally, the people frame their institutions of government in “a rare, almost heroic act of civic responsibility,” only to “retire to their private pursuits” afterwards, delegating to those in government the powers to advance the public interest, notwithstanding that the latter harbor interests of their own which may be inconsistent with the public interest ([43], 140). A good constitution is a complex work, “a set of interlocking parts that are finely adjusted to each other” to allow for efficient functioning ([13], 148). To actually be efficient, a constitution must set an opportunity structure that will incentivize public officials to act in accord with the public interest while pre-empting or deterring deviations from the public interest by them, as well as by special interests [26]. A constitution exists to facilitate collective action between members of a polity, without the benefits of cooperation, constitutions would have little reason to exist [21]. Constitutional constraints may be understood as devices to lower the political transaction costs of collective action [58]. Constitutions demand veneration and obedience on the allegation that they critically enable rational behavior in society, thanks to “the power of reason that animates

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the master plan behind the constitution” ([47], 355). The design and interpretation of constitutional texts in a democracy actually involve a tradeoff between democracy and efficiency [46]. Codified constitutions can be drafted in such a manner as allows the better alignment of the strategies of political officials with the electorate’s long-term interests, leading in turn to better democratic governance [9]. More basically, efficiency is maximized but democracy minimized when a constitution limits government measures to the function of encouraging positive externalities and deterring negative externalities, the will of the majority notwithstanding [46]. Recall the assumption that various constitutional designs may yield various incentive effects on the production of public goods and the ambit of special interests’ influence [19]. Indeed, good and efficient constitutions by definition dampen the volatility of parliamentary majoritarian preferences as influenced by lobbyists and interest groups, from cycle to election cycle, taking certain issues like inviolable human rights off the table, the better to secure fundamental stability to the framework of legislation and policy-making that facilitates day-to-day cooperation. Certain constitutional mechanisms are widely recognized as bearing crucial consequences, for instance, on the economy, such as electoral rules, central government configurations, bicameralism or unicameralism of legislatures, and the ways of enforcing constitutional rights. As mentioned above, the irrationality of human behavior provides a justification for constitutional limitations on government power [38]. If badly designed constitutions aggravate cognitive biases among public officials and citizens, then efficiently designed constitutions should be able to cancel out at least some of the biases that plague public governance. Legislatures, bureaucracies, and business organizations evolved in part to simplify decisional procedures for public officials, but as organizations, they inevitably, like boundedly rational individuals, fall prey to their bounded attention-spans; rely on prepackaged solutions to repeat problems; and regularly encounter troubled decision processes [30]. An eye on the availability heuristic and groupthink manages to explain why well-intentioned public officials make suboptimal decisions so often; while self-serving bias and bounded ethicality explain why even ordinarily honest public officials may violate social and ethical norms to maximize their own utility and that of favored rent-seekers [71]. The most obvious example of self-serving behavior occurs in France, where the parliament has power to choose the electoral system to be deployed in each election; whence France flip-flops back and forth between plurality and proportional representation, depending on what best serves the incumbent ruling coalition [43]. Semi-presidentialism has the advantage of having a potentially unifying national figure who can stand above daily politics yet remain directly accountable, but is disadvantaged by the gridlock that also plagues pure presidential systems [22]. Governments under the sway of the availability and representativeness heuristics are prone to overreact to dramatic events by adopting disproportionately tough laws and other policy solutions [15]. Legislatures exhibiting the traits of collective egocentrism may assume that the entire citizenry is similar to individual parliamentarians and their allies, and be apt to blame their own bad policy choices on non-conforming minorities, to the extent that they inflict excessive discriminatory measures on such minorities. Egocentric parliamentarians are likelier than not to

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cause ideological polarization in the legislature as well, whereby legislative committees indulge extreme preferences on matters that had been agreed by all beforehand. Certain constitutional mechanisms have the potential of “debiasing” public institutions of these complications. Provided voting procedures and electoral norms yield wieldier institutions that forestall agenda control problems, electoral mechanisms can be plausibly tweaked in light of behavioral economics so as to minimize the risks of the legislative process being overwhelmingly captured by private interests, or of gridlock that prevents the legislative process from functioning efficiently at all ([19], 261). The best way to control the fallout of bad policy-making driven by cognitive errors is for policy-making itself to be reshaped by the unifying framework of a behaviorist constitution [16]. It is argued that the separation of powers, bicameralism, federalism, and enumerated constitutional rights are justified debiasing mechanisms in the context of behavioral economic theory.

4.3 Separation of Powers Constitution designers confront two horns of one daunting dilemma: whether to adopt parliamentarianism and weaker separation of powers, or presidentialism and stronger separation of powers ([17], 188). With the exception of American presidentialism and a handful of semi-presidential systems like France’s, most of the world’s stable democracies are parliamentary [35]. But these exhibit considerable diversity, ranging from constitutional monarchies in Australia, Belgium, Canada, Denmark, Japan, the Netherlands, New Zealand, Norway, Spain and Sweden, to the republics of Austria, Czechia, Estonia, Finland, Germany, Greece, Hungary, India, Ireland, Italy, Latvia, Singapore, Slovakia, Slovenia, and South Africa (see [8]). Of the world’s advanced industrial democracies, most are parliamentary in form (see [29]). Coalition governments and multi-party legislatures are the norm in the world of parliamentarism [39]. Common political science perspectives on the merits of the two basic systems focus on their comparative ability to solve political gridlock: parliamentary coalitions forming governments typically can pass new laws and replace one head of government with another in short order and sometimes with minimal scrutiny; the presidential vs. legislative separation of powers, by contrast, typically can get trapped in disastrous gridlock if the polity is closely divided along partisan lines [22]. It has been observed that “while the parliamentary system leads to instability in government, the presidential system can lead to instability in the institutional regime as a whole” ([22], 182). This is not to say the two systems have nothing in common. The organic checks and balances in Britain’s parliamentary system inspired the French jurist and political philosopher Montesquieu as well as the American Founders to conceive a systematic separation of powers, to divide the exercise of political power into impotent pieces that only work when independently concurring, so preventing special interests capture of the public power [26]. Although an absolute or perfect separation is

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practically impossible,the degree of separation is commonly held to be greater in presidential systems like the American one than in parliamentary ones, as the head of the executive in the former does not depend on the confidence of the legislature to survive politically,—unlike the latter ([68], 208). The classical principles of the separation of powers were restated by Madison in Federalist No. 51: It is equally evident, that the members of each department should be as little dependent as possible on those of the others, for the emoluments annexed to their offices. Were the executive magistrate, or the judges, not independent of the legislature in this particular, their independence in every other would be merely nominal. But the great security against a gradual concentration of the several powers in the same department, consists in giving to those who administer each department the necessary constitutional means and personal motives to resist encroachments of the others. The provision for defense must in this, as in all other cases, be made commensurate to the danger of attack. Ambition must be made to counteract ambition. The interest of the man must be connected with the constitutional rights of the place. It may be a reflection on human nature, that such devices should be necessary to control the abuses of government. But what is government itself, but the greatest of all reflections on human nature? If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself.

The behavioral approach to political economy contains strong justifications for the separation of powers. The Framers’ decision to separate lawmaking by Congress from law enforcement by the President and executive branch and from legal interpretation by the Supreme Court and the federal judiciary was “a rational response to the most feared legislative decisional biases” ([15], 640). Partisans are especially susceptible to “my-side” bias misleading them to favor policies irrationally in the teeth of counterargument and counterevidence ([2], 20). For instance, foreign policy is notoriously difficult to alter, because once a certain stereotype of a foreign state is adopted, that stereotype could easily persevere as a barrier to the accurate transmission of information to makers of foreign policy, whether they are based in the executive or the legislature [10]. However, the solution to biased legislative decisionmaking is not to appoint “impartial legislators,” which is impossible, but to establish competing and separated institutions that may be equally biased, yet competent to offset or cancel out the biases of the legislature ([66], 130). For instance, in the United States, Congress cannot pass a binding statute singlehandedly, it requires the President’s concurring signature. On the one hand, the power of the President, as head of the executive branch, to veto biased bills favoring special interests over the national interest, but sanctioned by Congressional majorities, serves as a critical check on arbitrary exercises of legislative power [6], on the other hand, the President’s dependence on Congressional concurrence to pass his legislative agenda functions as a safeguard against Presidential overreach and groupthink within the executive [54]. Indeed, a figure as powerful as the president in a presidential system, who, unlike a premier in a parliamentary country who can in theory be removed by parliament singlehandedly,

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can easily “fall into a maverick mode of decisionmaking” or fall victim to the availability and representativeness heuristics ([15], 640). There are particular situations in which political decision-makers are likely susceptible to departing substantially from the rational actor standard, such as fallaciously going to war to recover sunk costs, or taking no action in face of a humanitarian catastrophe under the sway of status quo bias [51]. Imposing constitutional checks to debias members of the executive seems urgently needed to reduce their cognitive shortcomings, at the very least, the existence of separate institutions serves to check the diffusion of error [54]. Note that a parliamentary polity enables rapid legislative change, which can result in arbitrary, irrational decisions that destabilize the interplay between party structures and the underlying electoral system. Reducing the risks of overconfidence and narrow-mindedness requires mechanisms in situ that compel decision-makers to look at issues from sundry perspectives [71]. More checks naturally increase the complexity, costs, and inefficiencies of the constitution, yet institutional multiplicity and overlap can be seen in the light of simple arithmetic as an “insurance policy” against the failure of any one institution ([22], 196). An estimated 45% of constitutions currently in force have bodies such as a non-partisan electoral commission to oversee elections ([22], 199). Checks and balances, even if necessary for organizational life, have not sufficed to rid organizations of cognitive vices like overconfidence [40]. Henry Simons ([50], 20, see [34], 318), who, like James Buchanan and Milton Friedman, was a protege of Frank Knight, the co-founder of the Chicago School, once warned: Constitutional provisions are no stronger than the consensus that they articulate. At best, they can only check abuses of power until moral pressure is mobilized, and their check must become ineffective if often overtly used. Regardless of the reasons for the erosion of constitutional constraints, it can allow government to do more good things, but also more harmful things. Unfortunately, even well-intended government actions often result unintentionally in serious harm.

The worldwide triumph of constitutional democracy over the last fifty years has been remarkable, evident not only in the adoption of new constitutions but also in the growing significance of constitutions in the regulation of political life. Constitutionally entrenching an ambitious bill of rights does not straightforwardly preempt the emergence of poor democratic outcomes, given that constitutional documents cannot self-interpret themselves or punish those who breach their provisions; arguably no democratic constitution can be effective without effective institutional mechanisms that are competent at detecting, deterring, and defeating unconstitutional decisions, whether adopted by political officials, legislators, or even members of the electorate ([32], 111). There has been a dramatic expansion in the constitutional role of courts, an erosion of doctrinal checks on jurisdiction, a growing jurisprudential trade between jurisdictions and an increased role for constitutional courts [37]. Indeed, the latter are given ever-widening auxiliary powers to police constitutional democracy, viz., to oversee and certify elections; to conduct impeachment proceedings; to regulate political parties in the name of militant democracy; and to approve declarations of states of emergency ([22], 187). The prestige and massive influence of constitutional courts are often justified on the ground that such courts have stood up to power, whether

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in democracies or autocracies ([27], 806). However, when judicial decisions replace political decisions, courts may be accused of hindering the democratic life of the polity [28]. Anticipating the implicit potence of the judicial power centuries ago, in Federalist No. 78 Alexander Hamilton famously disclaimed: It proves incontestably, that the judiciary is beyond comparison the weakest of the three departments of power; that it can never attack with success either of the other two; and that all possible care is requisite to enable it to defend itself against their attacks. It equally proves, that though individual oppression may now and then proceed from the courts of justice, the general liberty of the people can never be endangered from that quarter; I mean so long as the judiciary remains truly distinct from both the legislature and the Executive. For I agree, that “there is no liberty, if the power of judging be not separated from the legislative and executive powers.

The wisdom of the constitutional court can be weighed up from an alternative, “behavioral constitutional economics” perspective. The fallibility of human decisional processes necessitates vigilance against the concentration of excessive powers in one individual prone to cognitive biases, or in a single body prone to groupthink and other collective cognitive shortcomings, in addition to the usual bias. Recognition of human cognitive limits gives powerful support to the constitutional doctrine of separation of powers, on the basis of which sophisticated checking and balancing mechanisms offer some protection from biases and irrationalities ([71], 399). But still, the judiciary is made up of homo sapiens, not homo economicus. Arguably, it has more reason than the political branches to jealously guard its own powers. And inevitably under the supremacy of the Constitution and the rule of law, the judiciary is given implied powers unmatched by other competences in the system of laws, those of judicial review of legislation and of administrative acts [36], which entitle judges to rectify at least some of the harm inflicted on the body politic by public officials’ cognitive biases and heuristics. In so doing, the judiciary may partly restrain biased actors and prevent them from acting outside the law or deeper constitutional notions, buttressed by lifetime appointments, meritocratic, and non-partisan procedures of judicial appointment (see [6]).

4.4 Bicameralism Bicameral legislatures, consisting of two concurrent bodies within the legislative organ of the state, feature in about one-third of the world’s countries, and about half of the Organisation for Economic Co-operation and Development (OECD) countries ([55], 61). They reign in federal (India) and unitary states (United Kingdom) as well as in presidential (United States) and parliamentary systems (Germany). Montesquieu [41] discussed the merits of bicameral legislatures in the context of the separation of powers: The executive power, pursuant of what has been already said, ought to have a share in the legislature by the power of rejecting; otherwise it would soon be stripped of its prerogative.

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4 Behavioral Constitutional Economics But should the legislative power usurp a share of the executive, the latter would be equally undone. Here then is the fundamental constitution of the government we are treating of. The legislative body being composed of two parts, they check one another by the mutual privilege of rejecting. They are both restrained by the executive power, as the executive is by the legislative. These three powers should naturally form a state of repose or inaction. But as there is a necessity for movement in the course of human affairs, they are forced to move, but still in concert.

Likewise, the Framers of the United States Constitution, who founded the world’s most influential federal state, were worried about legislative power being wielded by a single capricious operator, which they constrained by a gamut of restrictions such that only bills with massive social support could make it through Congress [60]. This reflected broader separation of powers considerations. Consider what James Madison wrote in Federalist No. 47: The accumulation of all powers, legislative, executive, and judiciary, in the same hands, whether of one, a few, or many, and whether hereditary, selfappointed, or elective, may justly be pronounced the very definition of tyranny.

The upper chamber is typically described as “epistemically superior” in composition and design as offering a calmer, more experienced perspective to the lower chamber, which is typically constituted as representatively populist, with locallybased members focused on a shorter time-horizon ([66], 142). Relatedly, the frequency of bicameralism in federal states is explained by the necessity of striking a balance between the interests of the people as a whole, typically represented by the lower chamber, and the interests of federated polities, typically represented by the upper chamber [31]. It should be clarified that in modern constitutional democracies, upper chambers tend to perform their function of effectuating the preferences of territorial constituents by way of amending legislation under severe constraints [55]. Conventional public choice justifications for bicameralism include its capacity to forge compromises between the majority’s preferences and the minority’s if prevailing in one of the two chambers; to break cycling—discussed earlier in this book—so as to achieve policy stability; and to improve the quality of legislation by letting legislators from the upper chamber, within the setting of a sequential legislative process, to use the voting tallies in the lower chamber to screen weak bills and minimize the risk of enacting a poor statute [55]. Behavioral public choice offers a fresh perspective on the weaknesses and strengths of bicameralism. It is based on the assumption that “lawmakers operate in a context of bounded rationality,” in that they are constrained not just by the “lack of time, skill and resources” but also from “limited information and analysis, political or other pressures” ([42], 158). The complexity of a bicameral legislature coupled with the veto power vested in the hands of chief executives, and the prospects of judicial review “may lessen the adverse effects of cognitive biases” in politicians who know their handiwork will be scrutinized ([70], 402). At root, bicameralism was meant to safeguard against short-term passions on one hand, and factional polarization on the other [54]. The Framers’ decision to found an upper chamber containing senators who have “long

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and staggered terms” was probably intended to “ameliorate the predictable operation of the availability and representativeness heuristics” ([15], 639). Bicameralism tends to substantially raise the number of “veto players,” none immune to cognitive biases and heuristics, capable of checking proposed changes to the status quo; something which is almost certainly reinforced by the status quo bias, “a general tendency [of people] to stick with their current situation” that is triggered by a variety of motives, such as loss aversion ([56], 36). In short, bicameralism makes it more difficult to change the status quo than unicameralism [61]. However, while the status quo bias of a bicameral legislature may well result in policy inertia, the stable policies that flow from it may help to reduce uncertainty,enhance policy predictability; reduce corruption; minimize government expenditure; even increase investment ([70], 59).

4.5 Constitutional Rights Constitutional democracies typically constitutionalize a constellation of basic rights to remove from daily politics a set of political issues regarded as embodying high stakes [32]. Basic rights can be justified from a behavioral public choice perspective independently of philosophical and other justifications. Constitutions that enshrine rights maximize popular consent over crucial public policy matters, and, at least in principle, minimize the costs that may be inflicted on individuals [19]. Constitutional rights have the potential to deepen the epistemic capacity of democratic systems by steering the people and the process away from collectively erring on the side of costliness by trampling interests protected by rights ([32], 111). The stakes of politics, and so the damage that boundedly rational political actors can cause, are constitutionally reduced ([19], 273). Consider freedom of speech as a core example. Typically, it is guaranteed alike by democratic and by authoritarian constitutions, and is cherished and venerated under international human rights law. It may be regarded as prerequisite to democratic self-government by enabling citizens to enlighten each other with the exchange of opinions and information, not least about public officials, the better to hold them accountable. In this sense, this freedom may be called prerequisite to the exercise of all other rights, as without it, the people are precluded in advocating other rights, let alone petitioning public authorities for redress of grievances, and coordinating to vote in favor or against public tribunes and public policies [53]. Undoubtedly, speech shapes listeners’ psyches, emotions, behaviors, and beliefs; but unlike other behavior, speech impacts listeners through intermediating behavioral reactions only. Even provocative speech materially differs from throwing stones that cause damage directly through force ([53], 22). From a behavioral public choice perspective, the enforcement of “hate speech” laws in developed constitutional democracies will likely turn out to be counterproductive to self-government. In contemporary developed constitutional democracies, speech deemed hateful, even unintentionally insensitive expressions, is often harshly and swiftly condemned by

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public officials, community leaders, influencers, social media campaigns and so on ([53], 130). In some such jurisdictions, despite a constitutional right to the contrary, it is actually punished by “hate speech” laws, which were originally imposed by the Soviet Union on the Communist Bloc contrary to the positions of almost all “capitalist” constitutional democracies. The Soviet Constitution of 1936 provided, “Any advocacy of racial or national … hatred … shall be punishable by law” ([53], 26). Historically, totalitarian states have used such laws to nullify other rights, according to the United States representative to the United Nations between 1946 and 1953, Eleanor Roosevelt. Indeed, “hate speech” laws “deeply damage freedom of speech, democracy, equality, and societal harmony” ([53], 182). Behavioral constitutional economics concludes that suppressing speech as a cure for injurious and false information is worse than more information promoting rational deliberation, not less ([71], 410). Genuine freedom of speech confronts those who hold extreme positions, whether from ideological polarization or other reasons, with those who hold diametrically opposite views, such that the rise of any extremist movement cannot be due to dissent being suppressed and ignored [54]. Lively public discourse and debate is “the most powerful antidote to governmental manipulation” in light of the authorities’ perennial temptation to suppress information and hidden motives, offer contradictory misinformation, and deceptively frame events and issues ([71], 409). Freedom of speech given priority of enforcement will always expose boundedly rational electors to wild diversity in speakers, grievances, viewpoints, and solutions, which is bound to offset some, at least, of the irrational biases ingrained in their minds [54]. For example, the existence of ample information in a marketplace of ideas is likelier than not to dissuade terrorists by demonstrating the implausibility of their theories. At the end of the day, “hate speech” laws are likelier to increase than to decrease intergroup tensions ([53], 149–150). The more efficient way to reduce such tensions is cooperation and conciliation, not lawfare, suppression of any speech tends to curb dialogue about bias that is a precondition for minimizing intergroup hatred. Besides, deployment of censorship of otherwise available information inevitably whets the audience’s appetite for it, known as the so-called “forbidden fruits effect” ([53], 146).

4.6 Behavioral Autocracies Gordon Tullock [62], one of the founders of the public choice and constitutional economics program, observed that constitutional democracy is an exception in world history, in which autocracy has always been the norm. Typically suppressing civil and political rights, especially freedom of speech, free and fair elections, and access to an impartial tribunal, authoritarianism in all its variety was the commonest form of government in the twentieth century, which will be remembered for Hitler’s Germany, Mussolini’s Italy, Stalin’s Russia, and Pol Pot’s Cambodia (among others). And since the Second World War, two-thirds of the world’s ethnic conflicts and civil wars have erupted under authoritarian governments [18]. In the twenty-first century,

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constitutional democracy is undergoing a backslide ([7], 301). All over the world intolerant nationalism is undergoing a resurgence, and the temptation to restrict civil liberties in the name of national security has been difficult to resist; witness the rising anxieties about democracy’s future in countries from Bolivia and Brazil to Hungary and Poland, to the Philippines and Myanmar [45]. As of 2018, autocracies are lording it over 40% of the nations of the world ([18], 1). No credible enforcement mechanisms, at either international or domestic level, rein in autocracies’ issuing empty promises to respect human rights and the rule of law [33]. Like their predecessors throughout human history, contemporary authoritarian states tend to concentrate political power in an elite group under the leadership of one or a few persons. A single party, cabal or junta monopolizing political power has little incentive to create multiple, mutually competitive political frames [32]. Nor will a mere partisan duopoly suffice for the reliability of political judgments, as their frames will compete over a set of issues limited by their haphazard divergence from each other. More fundamentally, from a behavioral constitutional economics perspective, severe authoritarian restriction of political competition and civic participation aggravates the cognitive biases of political decision-makers [63]. It can thus be argued that autocracies are prone to make significant cognitive errors ([54], 137). Descriptively if not also causally, constitutional democracies tend, on the contrary, to be “wealthier, more educated, and more individualistic” than their autocratic counterparts; exceptions like Singapore are so “extreme outliers that there is little reason to believe that they say very much about autocracy, or that autocracy explains why they in particular are well-governed” ([44], 144). In spite of the numerous cognitive shortcomings of representative democracy identified in Chap. 2, it is the lesser evil when weighed up against autocracy.

4.7 The Behavioral Limits of Constitutions There are clear limits to the power of constitutions to function as debiasing devices in political communities of human beings who are boundedly rational. As constitutional economists have pointed out before, constitutions, including those of democracies, are not immune to interest-group pressures that besiege the ordinary legislative process. Constitutions ought to favor neither special interests nor the prejudices of any faction, including the framers themselves [14], yet historically they flow from the convergence of several factions involved in a mixed game of conflict and cooperation. While each party may have an incentive to cooperate with another to reach agreement, collectively they diverge over how benefits and costs should be allocated ([21], 30). Constitutional constraints can easily begin to erode as the polity proceeds to take its constitution for granted, and as the officials whom the constitution created study to circumvent constitutional law, to cater to the rent-seeking special interests that support them politically [34].

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Moreover, constitutional framers are as boundedly rational as the communities they spring from. Constitution making by cognitively constrained framers is frequently a messy business triggered by crises and seldom ruled by the “calm, sedate medium of reason” ([13], 149). As crisis goes hand in hand with strong passions detrimental to the rational formation of beliefs, the result is flawed a constitution [14]. Constitutional design may be determined by expressive considerations embodying every sort of strictly unnecessary ideological symbolism [48]. Expressive preferences favoring biased and selective political and ideological shibboleths may be unduly privileged during constitutional debate and ratification, to the detriment of vital concerns over social and economic outcomes [3]. A constituent assembly may be swayed by self-enhancement bias create an excessively strong legislative branch with a weak executive and judiciary [13]. The subsequent phase of constitutional ratification that involves the broader polity can rarely repair such biases perfectly, either, as they too are fertile grounds for expressive behavior [25]. The availability heuristic may cause a constitution framed in the aftermath of a turbulent crisis like a war or revolution to privilege short-term needs like national unity and political stability over long-term goods like durable protections of rights and freedoms [65]. The status quo bias may tilt framers toward grandfathering-in a previous regime’s special interests and their customary advantages, and prepare the restoration, eventually, of the previous regime type.

4.8 Conclusion The economic analysis of constitutions, also known as “constitutional economics” or “constitutional political economy”, is a relatively novel research program that uses the established rational choice model yet differs from its conventions which assume choice within rules that are exogenously given and fixed ([67], 205). Constitutions are institutionalized mechanisms embodying the principles, standards, and procedures that govern public goods production. Put concretely, polities write and adopt constitutions not to fix petty details about the kind of public goods they intend to produce, but to frame the strategic constraints on the behavior of the people’s representatives in choosing and producing public goods. Given that self-interested officials are apt to exploit the public power to their own benefit [24], polities in which the state stays within the bounds set out by the constitution may be described as having an efficient constitution. The mere existence of constitutions designed to constrain power argues that we are far from the perfectly rational beings we fancy ourselves, as “rational actors do not need to be protected from themselves” ([11], 47). This chapter theorized some implications of behavioral public choice economics for constitutional economics. A behavioral constitutional economics program is not meant to exclude the conventional approach but complement and improve on it. This chapter has demonstrated that there are sound behavioral justifications for separation of powers, bicameralism, free speech, and constitutional democracy, over and above the usual public choice justification that these goods enable self-interested,

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utility-maximizing political actors to restrain each other, cancelling out each other’s abuses of power; institutions which at the same time allow boundedly rational actors of bounded willpower and bounded self-interest to offset each other’s systematic and potentially catastrophic cognitive biases in favor of the polity’s perdurability. From the perspective of behavioral constitutional economics, the most efficient constitution is ceteris paribus the one in which the executive and a bicameral legislature are elected independently of each other; the former is accountable to the latter; and each is vested with power to propose laws while restraining the other, with a judiciary independently interpreting the constitution to rigorously protect the freedom of speech, among other constitutional rights (see [23], 130). It would of course be naïve to suggest that such a constitutional design could eradicate behavioral failures, as cognitive biases may be “hardwired” into constitutions by boundedly rational framers, the consequences of which would start to surface once the historic moment fades away.

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17. Farber FA (2017) Public choice theory and legal institutions. In: Parisi F (ed) The Oxford handbook of law and economics, vol I. methodology and concepts. Oxford University Press, New York, NY, pp 181–201 18. Geddes B, Wright J, Frantz E (2018) How dictatorships work: power, personalization, and collapse. Cambridge University Press, New York, NY 19. Ginsburg T (2010) Public choice and constitutional design. In: Farber DA, O’Connell AJ (eds) Research handbook on public choice and public law. Edward Elgar 2010, Cheltenham, pp 261–282 20. Ginsburg T (2015) Constitutions as political institutions. In: Gandhi J, Ruiz-Rufino R (eds) Routledge handbook of comparative political institutions. Routledge, New York, NY, pp 101– 112 21. Ginsburg T (2017) The design of constitutions. In: Parisi F (ed) The Oxford handbook of law and economics, vol III. public law & legal institutions. Oxford University Press, New York, NY, pp 28–36 22. Ginsburg T, Huq AZ (2018) How to save a constitutional democracy. The University of Chicago Press, Chicago, Il 23. Grayling AC (2020) The good state. Oneworld, London 24. Hamlin A (2019) Choosing among governments. In: Congleton RD, Grofman B, Voigt S (eds) The Oxford handbook of public choice, vol 1. Oxford University Press. New York, NY, pp 25–41 25. Hamlin A, Jennings C (2019) Expressive voting. In: Congleton RD, Grofman B, Voigt S (eds) The Oxford handbook of public choice, vol 1. Oxford University Press. New York, NY, pp 333–350 26. Holcombe RG (2016) Advanced introduction to public choice. Edward Elgar, Cheltenham 27. Ip EC (2013) The evolution of constitutional adjudication in the Chinese Special Administrative Regions: theory and evidence. Am J Comparat Law 61(4):799–830 28. Ip EC (2014) The democratic foundations of judicial review under authoritarianism: theory and evidence from Hong Kong. Int J Constitut Law 12(2):330–353 29. Ip EC (2021) Parliamentary regimes. In: Cane P, Hofmann HCH, Ip EC, Lindseth P (eds) The Oxford handbook of comparative administrative law. Oxford University Press, New York, NY, pp 277–296 30. Jones BD (2001) Politics and the architecture of choice: bounded rationality and governance. The University of Chicago Press, Chicago, Il 31. Kantorowicz J (2019) Federalism. In: Congleton RD, Grofman B, Voigt S (eds) The Oxford handbook of public choice, vol 2. Oxford University Press. New York, NY, pp 72–93 32. Kelly JT (2012) Framing democracy: a behavioral approach to democratic theory. Princeton University Press, Princeton, NJ 33. Law DS, Versteeg M (2014) Constitutional variation among strains of authoritarianism. In: Ginsburg T, Simpser A (eds) Constitutions in authoritarian regimes. Cambridge University Press, New York, NY, pp 165–196 34. Lee DR, Murphy RH (2017) An expressive voting model of anger, hatred, harm and shame. Public Choice 173:307–323 35. Linz JJ (1994) Presidentialism or parliamentarism: does it make a difference? In: Linz JJ, Valenzuela A (eds) The failure of presidential democracy: comparative perspectives, vol 1. Johns Hopkins University Press. Baltimore, MD, pp 3–90 36. Little LE (2000) Envy and jealousy: a study of separation of powers and judicial review. Hastings Law J 52(1):47–122 37. Loughlin M (2017) Political jurisprudence. Oxford University Press, Oxford 38. Lucas GM, Tasi´c S (2015) Behavioral public choice and the law. West Virginia Law Rev 118:199–266 39. Martin LW, Vanberg G (2015) Coalition forming and policymaking in parliamentary democracies. In: Gandhi J, Ruiz-Rudino R (eds) Routledge handbook of comparative political institutions. Routledge, New York, NY, pp 181–194

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Chapter 5

Behavioral Bureaucrats and Administrative Law

5.1 Introduction Law constrains and shapes behavior, which feeds back again to condition and alter law. Public choice economics offers a toolkit that social scientists could use to understand dynamic legal behavior in a political context. At its very core, public choice economics is the deployment of neoclassical economics to make sense of political phenomena, the classical purview of political science. Public choice economists study the opportunities and constraints afforded to political actors by public life, in a manner not dissimilar to how conventional economists study the intricacies of private life in a free market [47]. The essential insight of public choice economics is that public servants and their principals, the politicians, are at the end of the day homo sapiens who respond to the whole range of incentives to self-interest, pecuniary or not; e.g., power and influence [10]. This is why conventional public choice economics cautions against scientists “schizophrenically” divorcing homo economicus from homo politicus, for the nature of homo sapiens does not change regardless of the activity pursued, be it political, economic, or otherwise ([11], 49). Public officials, including technocrats, are human and they err like all humans. Crises, such as the COVID-19 pandemic, which are complex and demand the balancing of competing interests like human rights [19], mental health [7]), and economic activity, all too easily aggravate the cognitive biases and heuristics of policy-makers when processing information [24], and escalate the probability of suboptimal policy outcomes [39]. This chapter applies the insights of behavioral public choice economics to explain the dynamics of rulemaking by boundedly rational administrative agencies and cognitively prejudiced courts in the modern administrative state. It is organized as follows. Section 5.2 reviews the understanding of government intervention to correct market failures presented by three strands of contemporary theory, welfare economics, public choice economics, and behavioral economics. It discusses some of the problems of the “nudge” movement, which has brought-on a paradigm shift in perspectives by treating homo sapiens not as rational © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 E. C. Ip, Behavioral Public Choice Economics and the Law, SpringerBriefs in Law, https://doi.org/10.1007/978-981-19-3230-4_5

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agents, but cognitively flawed subjects who respond to manipulation in a scientifically determinable manner [41]. Some of the shortcomings of existing approaches may be ameliorated by the behavioral public choice approach, as argued in Sect. 5.3, which paints a portrait of the “behavioral bureaucrat” ([50], 1543). Documentation of the typical cognitive flaws bedeviling public officials is important; there is no shortage of research on the biases and heuristics of ordinary citizens but little on policy-makers [29]. Biases are more worrisome in the public than the private sector: the public sector offers far worse incentives to curb one’s irrational tendencies but many opportunities to indulge one’s conceits and prejudices at low cost [37]. Section 5.4 demonstrates that administrative law (at least its common law variant) bears an untapped potential to debias some of the cognitive foibles of boundedly rational bureaucrats. Section 5.5 concludes.

5.2 The Economics of Government Intervention Recall that orthodox welfare economics assumes that government, defined broadly to include all administrative and regulatory agencies, can and should intervene in an impartial and surgical way to resolve market failures, such as those helpfully identified by Michael Thomas ([53], 13): (1) (2) (3)

(4)

externality, which may be remedied through taxes, subsidies, or regulation; asymmetric information between buyers and sellers, remediable by provision of public information; weak incentives for production or preservation because clearly defined property rights are lacking, resulting in free rider abuses, which government may remedy by producing underprovided public goods; and monopoly requiring government regulation of prices or the forceful dissolution of firms that acquire too much market power.

Conventional public choice economists disagree. Their principal insight is that bureaucrats care about their self-interest at least as much as the public interest. They are not exempt from pressures to accommodate rent-seeking behavior, and subject to “capture” by oligopolist market-makers [1]. Public choice theorists argue that the failure of public policy interventions—government failure—is no less frequent or damaging than market failure, because regulators and administrative officers harbor private interests not essentially different from business firms [10]. Public servants, on this view, do not reliably act on the common good, but have incentives to maximize their budgets, jurisdiction, reputation, salaries, and the agenda of collusive special interests [25]. Public managers, like lawmakers, are deeply motivated to prefer laws and administrative regulations that attract the support of determined interested parties, such as activists who promote ideologies that others may not share, pundits and academics ambitious to disseminate their research, and special interests hungry for public policies that cater to their interests ([37], 348). Governments and markets fail in similar ways: markets fail when their prices no longer give accurate signals of

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social costs and benefits, governments fail when sufficient and accurate information to optimally act falls on deaf ears [10]. By contrast, conventional behavioral economists are noticeably more optimistic about the benignity of bureaucratic intervention in markets [53]. Several key findings of behavioral economics serve to identify behavioral market failures and offer new justifications for state behavioral policy interventions; justifications often based on the tacit assumption that public officials are “omniscient experts” ([33], 459). Their insights, incorporated into countless mainstream policy applications in the twentyfirst century, from tax compliance to energy requirements, to consumer finance, assume ordinary citizens are incapable of making rational choices [46]. The Nudge movement epitomizes this approach. Claiming their policy proposals do not coerce but only “nudge” people toward healthier, wealthier, happier lives, they observe, for instance, widespread mental inertia as subjects economize on their scarce cognitive resources when calculating costs and benefits in daily life. They recommend that regulators should leverage this inertia to make citizens opt-out of default organ donation or automatic renewal of subscriptions for government information. The US federal government has mandated a great many nudges, such as calorie labels at chain restaurants; graphic warnings on cigarette packages; automatic enrollment in saving plans, all subject to opt out ([51], 19). Nudges now feature prominently in policy domains as diverse as education, environmental protection, financial regulation, national security, and poverty reduction. Nudges are not self-reinforcing; they must be implemented by a constellation of administrative and regulatory agencies, as self-interested and cognitively biased as the citizens they are supposed to nudge, only armed with the knowhow to tweak people’s choices [41]. These political actors are prone to biases that distort their utilization of information and choice of problem-solving techniques [21]. They systematically rely on heuristics or mental shortcuts that yield suboptimal policy. Behavioral public choice economics holds that if the “nudge-ocrats” are biased, then they will merely substitute their own biases for those of market actors ([53], 15). Nudging may not only be mishandled, it may delude policy-makers into fancying themselves as choice-architects who provide “real” freedom to citizens, without noticing they have compounded to truly suboptimal levels the likelihood rent-seekers will interlope [41]. Perhaps we should not be surprised that in the actual implementation by various administrative agencies nudge theory has produced such wildly unpredictable results. The US Consumer Financial Protection Bureau, for example, in the course of implementing behavioral recommendations has adopted, some say, “a far less nuanced—and potentially unconstitutional—approach that relies more on intimidating firms into choices that regulators unilaterally deem appropriate, with less regard to an ultimate set of choices left before the consumer” ([46], 766).

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5.3 The Behavioral Bureaucrat In an ideal world, official policy choices would be made impartially and objectively with due consideration to the preferences of majorities and minorities, to relevant evidence, and to community welfare maximization ([10], 291). But this world is not ideal. Cass Sunstein ([49], 102) acknowledges, “For every bias identified for individuals, there is an accompanying bias in the public sphere”. Herbert Simon had observed before that, contrary to the homo economicus model, public administrators reckon with “just a few of the factors of the situation regarded as most relevant and crucial” which “perceived world is a drastically simplified model of the buzzing, blooming confusion that constitutes the real world” ([45], 119). A profile of their biases and heuristics puts the behavioral bureaucratic agency under the microscope [52]. In a context of agency technical expertise the overconfidence heuristic is the propensity to overestimate its mastery of subject-matters over which it thinks it possesses cuttingedge knowledge, blind to a fuller body of knowledge and its practical ramifications [34], and the like propensity to underestimate the risk that the conventional wisdom and received assumptions in their field of expertise are wrong [35]. Agencies this overconfident will be tempted to adopt excessively interventionist, counterproductive remedies. Experience and professional knowledge do not reduce the overconfidence bias, and may even aggravate it. Overconfidence bias makes its victims assume that their knowledge and skill at applying it are greater than they really are to the extent of overestimating society’s need for their nostrums and calling for policies the costs of which exceed the benefits [37]. Confirmation bias is the propensity of decision-makers to invest undue credence in a priori theory or prediction, such that contrary evidence and other information is missed, misinterpreted, or dismissed [9]. This bias is common in financial regulation, wherein evidence is complex and subject to multiple conflicting inferences [22]. One study of politicians in Denmark gave them performance statistics about a public school and a private school. They were less likely to identify which school performed better if the answer was inconsistent with their prior ideological preferences [3]. Worse is when the overconfidence and confirmation biases synergize, the combination becomes a real obstacle to sound reform ([22], 80). The upshot is the omission of reasonable options from the decisional calculus of public servants [6]. Status quo bias is the propensity of boundedly rational actors to procrastinate or cling to the status quo as a lodestar, which may have been fixed arbitrarily [27]. Loss aversion, according to Daniel Kahneman [23], is a “gravitational force” inhibiting deviation from psychological truisms. Status quo bias resists any inclination to change over for better but deviant paths ([16], [38], 818). It manifests itself in phenomena like “bounded search” and “tunnel vision” that crimp the creativity of policy-makers ([22], 81). Indeed, status quo bias typifies bureaucracies, the “conservative, incrementalist institutions” that both hinder “rapid democratic change and [makes] meaningful democratic decision making feasible by preserving decisions beyond the life of the enacting coalition” ([13], 104).

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The sunk cost fallacy means the unwillingness of subjects to discontinue a project even if new information questions its continued efficiency; public officials may even feel obligated to overuse a resource after paying a high price for it [40]. As discussed in Chap. 2, public administrators and private persons alike may suffer from availability bias and rely on the availability heuristic [42]. Citizens and public servants are both prone to focus on risks that deserve little attention [48]. And a traumatic incident like the financial meltdown of 2007–2009 can lead regulators to overestimate the comparative importance of some issues, unduly influencing the rationality of their decisions. Special interests can strategically capitalize on the availability bias to draw bad outcomes to the attention of public officials to elicit disproportionate regulatory responses ([49], 1872). Groupthink occurs when bureaucrats over-identify with their institutions, depreciating alternatives that contradict their own consensus [26]. This psychological phenomenon pervades elite, cohesive, ideologically uniform, insulated, authoritarian organizations ([6], 490), obviates critical analysis, and coerces open-minded members to defer to their peers [8]. During the COVID-19 pandemic, it was suggested that groupthink, compounded by other biases and heuristics, mushroomed all over the world, visible in governments’ tunnel-vision to contain the viral spread at the expense of devastating fallout for the livelihoods and mental health of millions for decades to come [39]. The behavioral public choice perspective is not at all necessarily inconsistent with its predecessor, conventional public choice theory. In fact, they share more common ground with each other than with conventional behavioral economics in the context of public administration. Boundedly rational policy actors may follow various irrational or heuristical mental shortcuts in making decisions and still be prone to self-interested behavior [47]. The outcomes predicted by the two schools of public choice may reinforce each other. Stephen Choi and Adam Pritchard ([8], 45) observe that “cognitive biases may encourage regulators to equate self-interest and the public interest”, giving a vivid example: “An overoptimistic regulator … may … delude himself into believing that a regulatory change, which coincidentally increases the prestige and power of the regulator’s position, also benefits the market.”

5.4 Administrative Law as Debiasing Device We live in an era of administrative statism which, according to former United States Supreme Court Justice Sandra Day O’Connor ([31], 643), has “meant that more and more of the goods and services on which people depend are made available through administrative proceedings of one type or another”. Law in general, and statute law in particular, may be made outside the classical Legislative framework, formulated and enforced by executive agencies, on the one hand, sometimes described as a “bureaucracy”, and by the courts on the other. In the modern era, legislators wittingly delegate policy-making to these agencies on the grounds of their superior expertise. Yet all too often the latter aggravate, rather than mitigate the state’s behavioral failures. [9]. Unlike their corporate counterparts, bureaucrats usually have tenure and are

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not disciplined by profitability. Executive institutions amplify cognitive defects by suppressing bad news and fostering illusions among bureaucrats and experts that they know more than they actually do [5]. The state’s behavioral failures stand convicted as a critical source of agency costs for the polity’s principals, both legislatures and electorates [15]. This is an insight derivative of the behavioral public choice analysis of bureaucracy as much as of its conventional variant [17]. Behavioral public choice economists would advert the administrative state to its own agencies’ and bureaucrats’ biases and heuristics by passing organic laws designed to do just that [14]. Administrative law, “the law that regulates the regulators” ([19], 4), is useful to push back the expansion of the agencies’ range of action, according to public choice economists [30]. Administrative law has much potential to act as a “debiasing device” to constrain and prompt public officials to act impartially and rationally [18]. Ombudsmen, civil service commissions, and other administrative justice institutions help to insulate bureaucrats from corruption and patronage who were supposed to be meritocratically selected with neutral procedures for hiring, promotion, and retirement which promote professionalism and obviate bias [53]. Conventional behavioral economics, as in the work of Christine Jolls ([20], 137), already implied that the law should be harnessed to compensate for bounded rationality, willpower, and self-interest of ordinary people. Debiasing does not foreclose any of the choices available to decision-makers; it is to eliminate nothing but bias [32]. The same judgement covers standard administrative law doctrines found in many common law jurisdictions, which, if applied properly, could mitigate some of the cognitive shortcomings of public officials identified in Sect. 5.2. Powerful debiasing techniques are discernible in the doctrines of contemporary administrative law, at least in the common law world. These doctrines, as we shall see, obligate public officials to take an outsider standpoint; to anticipate outcomes opposite to what they prefer; to consult those of diverse backgrounds and biases before reaching final decisions; and to defend their decisions before the public and in court ([28], 1647). Consider the “hard look” doctrine in the United States. The Court of Appeals for the District of Columbia in Greater Boston Television Corp. v FCC 44 F.2d 841, 851 (D.C. Cir. 1970) held that agencies have to give “reasoned consideration to all material facts and issues”; to “articulate with reasonable clarity its reasons for decision”; to “identify the significance of the crucial facts” and to “effectuate general standards, applied without unreasonable discrimination”. And in Motor Vehicle Manufacturers Association, Inc. v State Farm Mutual Insurance Co. 463 U.S. 29, 43, the Supreme Court of the United States held that administrative agencies must “offer the rational connection between facts and judgment required to pass muster under the arbitrary and capricious standard”. Whether intentionally or not, what the Court was requiring is that agencies debias themselves by taking account of rationalities contrary to their own [2]. The Court supplemented this regime with further requirements: “The agency must examine the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made.” Administrative law can even concern whether “the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its

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decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise”. Much later, in Judulong v Holder 565 US 42, 11 (2011), the Court reiterated that if an agency were to make a decision “by flipping a coin”, the Court would “reverse the policy in an instant … because agency action must be based on non-arbitrary, ‘relevant factors’”. The “hard look” doctrine rewards effective participation in regulatory decisionmaking by a broader range of stakeholders (Environmental Defense Fund, Inc v Ruckelshaus, 439 F2d 584 (D.C. Cir. 1971), giving due consideration to alternative options (National Citizens Committee for Broadcasting v FCC, 567 F2d 1095, 1110– 115 (D.C. Cir. 1977), all which is intelligible in light of the concern that administrative decisions should serve the public interest, not special interests. To meet these legal obligations, American agencies have had to produce “enormously elaborate justification[s] of the rule[s] the agency had adopted” [44], that is, meticulous analyses of the relevant statutes, compendious evidentiary bases, and detailed responses to inputs from stakeholders. These methods chime with debiasing techniques that lay down certain baselines which frame analysis so as to offset the biases of the decisionmakers’ framing of the issues [43]. From a behavioral public choice perspective, obligating agencies to justify themselves makes sense if it makes boundedly rational officials face their cognitive handicaps [8]. The requirement to be open-minded and actively seek evidence and arguments against strongly held priors may counteract the overconfidence heuristic, confirmation bias, and status quo bias ([4], 21). In a similar vein but in a less demanding way, the English High Court in Hanks v Minister of Housing and Local Government [1963] 1 QB 999, 1020 ruled, “if it be shown that an authority exercising a power has taken into account as a relevant factor something which it could not properly take into account in deciding whether or not to exercise the power, then the exercise of the power, normally at least, is bad”. The Appellate Committee of the House of Lords in Lonrho plc v Secretary of State [1989] 2 All ER 609, 620, held that “if all other known facts and circumstances appear to point overwhelmingly in favour of a different decision, the decision-maker who has given no reasons cannot complain if the court draws the inference that he had no rational reason for his decision”. In Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24, 39, the High Court of Australia opined, “The failure of a decision-maker to take into account a relevant consideration in the making of an administrative decision is one instance of an abuse of discretion”. In R v Higher Education Funding Council, ex p Institute of Dental Surgery [1994] 1 WLR 242, 257–258, the English Court of Appeal forthrightly stated what many consider the untapped debiasing potential of a legal duty that public officials must give good reasons for their decisions, which “among other things concentrate the decisionmaker’s mind on the right questions; demonstrate to the recipient that this is so; show that the issues have been conscientiously addressed and how the result has been reached; or alternatively alert the recipient to a justiciable flaw in the process.” English law is more forgiving of bureaucrats than American federal law when it comes to justifying drastic changes to established policy [17]. No general rule exists that obligates an agency departing from a former policy to propose cogent

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justifications [12], however, the Appellate Committee of the House of Lords in R (Bancoult) v Secretary of State for Foreign and Commonwealth Affairs [2009] 1 AC 453, 513–506, ruled “the adoption of a new policy” should be evaluated as a possible “abuse of power”, by considering whether agencies have taken into account “entirely legitimate factor[s]”. The rules proposed by these courts in some ways chime with the insights of behavioral public choice economists, that public servants, perhaps in groups, will less often succumb to the availability bias if they must take action to evaluate evidence that may contradict the status quo and their own confirmed beliefs, whether their task is to conserve or alter the status quo [36]. The overwhelming focus on the present and future but never the past, as demonstrated in these Anglo-American cases, is as good an opportunity as any to suppress the sunk cost fallacy. These substantive review standards, especially the “hard look” doctrine, together nudge agency officials to articulate reasons they consider relevant to the act at bar in ways compatible with the findings of behavioral research. The overconfidence bias is best suppressed by entertaining alternatives and honestly evaluating reasons counter to one’s preferred position [35]. Other of these administrative law principles, if properly followed every day by the administrative state, could curb groupthink by dividing the group, insofar as possible, between conformists and mavericks.

5.5 Conclusion Conventional behavioral economists zealously campaigned for public policy initiatives that nudge boundedly rational citizens or market participants toward rational choices at the same time they were ignoring the well-documented insights of public choice economists that public officials routinely fall prey to pressures from special interests [18]. Behavioral public choice theorists only add that public servants fall prey to their own cognitive biases and heuristics as much as the citizens and firms that they are supposed to regulate. This chapter urges greater recognition that our public servants’ systematic behavioral failings are one very significant source of agency costs to the legislature and the electorate. Interestingly, contemporary administrative law in the Anglo-American common law world features doctrines that deploy some of the most effective debiasing techniques. Properly recognized as debiasing devices and properly applied, these doctrines could be actuated by officials themselves, and by reviewing courts, to reduce the incidence and consequences of the status quo and confirmation biases, the overconfidence and availability heuristics, and the groupthink and the sunk cost fallacies. That said, there is no reason to believe that judicial intervention into the administrative process necessarily makes it better rather than worse [48]. If judges succumb to the same cognitive ills as bureaucrats, why should they be able to debias the latter? This question will be answered in this chapter.

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References 1. Avishalom T (2002) The fable of entry, bounded rationality, market discipline, and legal policy. Mich Law Rev 101:482–516 2. Babcock L, Loewenstein G, Issacharoff S (1997) Creating convergence: debiasing biased litigants. Law Soc Inq 22:913–925 3. Baekgaard M, Christensen J, Dahlmann C, Mathiasen A, Petersen N (2019) The role of evidence in politics: motivated reasoning and persuasion among politicians. British J Polit Sci 49(3):1117–1140 4. Baron J (2014) Heuristics and biases. In: Zamir E, Teichman D (eds) The Oxford handbook of behavioral economics and the law. Oxford University Press, New York, NY, pp 3–27 5. Bendor J (2010) Bounded rationality and politics. University of California Press, Berkeley, CA 6. Brest P (2013) Quis custodiet ipsos custodies? Debiasing the policy makers themselves. In: Shafir E (ed) The behavioral foundations of public policy. Princeton University Press, Princeton, NJ, pp 481–493 7. Cheung D, Ip EC (2020) COVID-19 lockdowns: a public mental health ethics perspective. Asian Bioethics Rev 12:503–510 8. Choi SJ, Pritchard AC (2003) Behavioral economics and the SEC. Stanford Law Rev 56:1–73 9. Cooper JC, Kovacic WE (2012) Behavioral economics: Implications for regulatory behavior. J Regul Econ 41:41–58 10. Coyle D (2020) Markets, state, and people: economics for public policy. Princeton University Press, Princeton, NJ 11. de Rodriguez CR (2021) Public choice theory and interest group capture. In: Crane DA, Gregg S (eds) Christianity and market regulation: an introduction. Cambridge University Press, Cambridge, pp 44–73 12. Fordham M (2012) Judicial review handbook, 6th edn. Hart Publishing, Oxford 13. Ginsburg T, Huq AZ (2018) How to save a constitutional democracy. The University of Chicago Press, Chicago, Il 14. Halpern SD, Truog RD, Miller FG (2020) Cognitive bias and public health policy during the COVID-19 pandemic. JAMA 324(4):337–338 15. Hamburger P (2014) Is administrative law unlawful? University of Chicago Press, Chicago, IL 16. Harris DA (2012) Failed evidence: why law enforcement resists science. NYU Press, New York, NY 17. Ip EC (2014) Doctrinal antithesis in Anglo-American administrative law. Supreme Court Econ Rev 22:147–180 18. Ip EC (2017) Debiasing regulators: the behavioral economics of US administrative law. Common Law World Rev 46(3):171–197 19. Ip EC (2020) Judging regulators: the political economy of Anglo-American administrative law. Edward Elgar, Cheltenham 20. Jolls C (2007) Behavioral law and economics. In: Diamond P, Vartiainen H (eds) Behavioral economics and its applications. Princeton University Press, Princeton, NJ, pp 115–144 21. Jones BD, Baumgartner FR (2002) The politics of attention: how government prioritizes problems. University of Chicago Press, Chicago, Il 22. Juurikkala O (2012) The behavioral paradox: why investor irrationality calls for lighter and simpler financial regulation. Fordham J Corporate Finan Law 18:33–93 23. Kahneman D (2011) Thinking, fast and slow. Farrar, Strauss and Giroux, New York, NY 24. Landucci F, Lamperti M (2021) A pandemic of cognitive bias. Intensive Care Med 47(5):636– 637 25. Lucas GM Jr (2017) Voter psychology and the carbon tax. Temple Law Rev 90:1–52 26. Marshall G (2012) Hold the Mayo: why strong deference to treasury regulations might not be healthy. Trans Tennessee J Bus Law 13:343–360 27. McCaffrey EJ, Slemrod J (2006) Toward an agenda for behavioral public finance. In: McCaffery EJ, Slemrod J (eds) Behavioral public finance Russell Sage Foundation, New York, NJ, pp 3–31

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28. McDonnell B, Schwarcz D (2011) Regulatory contrarians. North Carolina Law Rev 89:1629– 1682 29. Mello MM, Greene JA, Sharfstein JM (2020) Attacks on public health officials during COVID19. JAMA 324(8):741–742 30. Merrill TW (1997) Capture theory and the courts: 1967–1983. Chicago-Kent Law Rev 72:1039– 1117 31. O’Connor SD (1986) Reflections on preclusion of judicial review in England and the United States. William Mary Law Rev 27:643–667 32. Pi D, Parisi F, Luppi B (2014) Biasing, debiasing, and the law. In: Zamir E, Teichman D (eds) The Oxford Handbook of Behavioral Economics and the Law. Oxford University Press, New York, NY, pp 143–166 33. Platt AI (2017) Unstacking the deck: administrative summary judgment and political control. Yale J Regulat 34:439–490 34. Rachlinski JJ (2004) Heuristics, biases, and governance. In: Koehler DJ, Harvey N (eds) Blackwell handbook of judgment and decision making. Blackwell Publishing, Oxford, pp 567–584 35. Rachlinski JJ, Farina CR (2002) Cognitive psychology and optimal government design. Cornell Law Rev 87:549–615 36. Ritov I, Baron J (1992) Status-quo and omission biases. J Risk Uncertain 5(1):49–61 37. Rizzo MJ, Whitman G (2020) Escaping paternalism: rationality, behavioural economics, and public policy. Cambridge University Press, Cambridge 38. Ruhl JB, Salzman J (2003) Mozart and the red queen: the problem of regulatory accretion in the administrative state. Georgetown Law J 91:757–850 39. Schippers MC, Rus DC (2021) Optimizing decision-making processes in times of COVID-19: using reflexivity to counteract information-processing failures. Front Psychol 12:650525 40. Schnellenbach J, Schubert C (2019) A note on the behavioral political economy of innovation policy. J Evol Econ 29:1399–1414 41. Schubert C (2017) Exploring the (behavioural) political economy of nudging. J Inst Econ 13(3):499–522 42. Seidenfeld M (1997) Hard look review in a world of techno-bureaucratic decisionmaking: a reply to Professor McGarity. Texas Law Rev 75:559–569 43. Seidenfeld M (2009) Why agencies act: a reassessment of the ossification critique of judicial review. Ohio State Law J 70(2):251–321 44. Shapiro M (1992) The giving reasons requirement. Univ Chic Leg Forum 1992:179–220 45. Simon H (1997) Administrative behavior, 4th edn. Free Press, New York, NY 46. Smith AC (2017) Utilizing behavioral insights (without romance): an inquiry into the choice architecture of public decision-making. Missouri Law Rev 82:737–768 47. Sokol DD (2011) Explaining the importance of public choice for law. Mich Law Rev 109:1029– 1048 48. Sunstein CR (2002) Risk and reason: safety, law, and the environment. Cambridge University Press, New York, NY 49. Sunstein CR (2013) The Storrs Lectures: behavioral economics and paternalism. Yale Law J 122:1826–1899 50. Sunstein CR, Jolls C, Thaler RH (1998) A behavioral approach to law and economics. Stanford Law Rev 50:1471–1550 51. Sunstein CR (2017) Human agency and behavioral economics: nudging fast and slow. Palgrave Macmillan, Gewerbestrasse 52. Tasic S (2011) Are regulators rational? J des Économistes et des Études Humaines 17(1):1–21 53. Thomas MD (2019) Reapplying behavioral symmetry: public choice and choice architecture. Public Choice 180:11–25. https://doi.org/10.1007/s11127-018-0537-1

Chapter 6

Behavioral Courts and Judicial Doctrines

6.1 Introduction In most contemporary legal traditions, it is considered inappropriate for judges to be affected by emotions, be it anger, disgust, fear, happiness, hatred, love, or sadness, in their decisional processes [28]. The popular stereotype of judges is that they are, and ought to be dispassionate, impartial, neutral, and rational decision-makers [3], because judicial power is justified only by its impartiality in interpreting law according to principles [14]. However, in accordance with what we have seen in the previous chapters, the judge as an official of the legal system is still homo sapiens, not an ideal automaton like homo economicus [52]. Unavoidably, he or she must be susceptible to cognitive shortcomings [32]. Given the iconic image of the judge as a dispassionate custodian of justice, judges may be unaware of the influence of their own cognitive biases and illusions on their work [3]. Even when judges are aware of them, it is customary to claim that only the light of reason should have and actually has guided judicial decisions [42]. All this is apt to yield dire consequences as judges become increasingly powerful and consequential in the wake of the Second World War. As Ginsburg and Huq ([16], 187) have noted, by 2010 some 80% of national constitutions provided for some power of judicial review, and no less than half provide an apex constitutional court to exercise that function. They further note that constitutional courts have received extraordinary powers to police democratic institutions; these include “powers to oversee and certify elections; to conduct impeachment proceedings; to regulate political parties in the name of militant democracy; and to approve declarations of states of emergency” ([16], 187). It follows that the central role played by courts exercising the power of judicial review of legislative and administrative acts can substantially heighten the stakes of political battles. This chapter is organized as follows. Section 6.2 reviews standard accounts of judicial behavior in conventional public choice theory and in law and economics, namely, the attitudinal and strategic schools. Section 6.3 examines the cognitive © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 E. C. Ip, Behavioral Public Choice Economics and the Law, SpringerBriefs in Law, https://doi.org/10.1007/978-981-19-3230-4_6

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shortcomings of judges. Chapter 4 argues that the common law doctrine of stare decisis, echoed in the civil law’s jurisprudence constante doctrine, has an inherent ability to suppress irrational behavior among judges, that a long train of previous decisions applying a particular rule of law is rebuttably presumed determinative in the instant case [52]. Chapter 5 concludes.

6.2 Standard Accounts of Judicial Behavior It is common sense to assume that judges, even those sitting on apex courts, might feel obligated to adhere to precedent and legal doctrine even when doing so would defeat their own sincerely held ideological and policy preferences [35]. Indeed, that seems to be what classical, doctrinal legal scholarship assumes: supreme and constitutional courts retain the last word in the public law adjudication process under any political circumstances, as constitutional and administrative law is assumed to serve as an exogenous constraint on political action, and also the most decisive determinant of judicial behavior [30]. But a political economy perspective deems such assumptions self-defeating (see [23]): virtually any judgment can be praised or blamed under pre-existing legal norms, and the proposition that a given interpretation of the constitution boils down to pre-existing legal doctrine may be unfalsifiable ([46], 433). The standard model therefore makes too small a contribution to our understanding of actual judicial behavior in constitutional politics [56]. Money is no longer a critical component of the utility functions of most senior appellate judges, who intend to stay in their current employments until retirement [37]. An economic incentives model for explaining judicial behavior, therefore, is weakened by judicial independence. It seems that independent judges are free to follow whatever options they desire [13]. Attitudinalism is the dominant explanatory model of Supreme Court decision-making in the United States. In the words of two leading exponents of that school, Jeffrey Segal and Harold Spaeth ([46], 111): Attitudinalists argue that because legal rules governing decision making (e.g., precedent, plain meaning) in the cases that come to the Court do not limit discretion; because the justices need not respond to public opinion, Congress, or the president; and because the Supreme Court is the court of last resort, the justices, unlike their lower court colleagues, may freely implement their personal policy preferences as the attitudinal model specifies.

In short, attitudinalism holds that judicial decisions are nothing but outcomes of judges’ unconstrained preferences: conservative judges make conservative decisions, liberal judges make liberal decisions [35]. The possible panel compositions are four: three Republican appointees, three Democrat appointees; two Republican appointees and one Democrat appointee; or two Democrat appointees and one Republican [48]. One landmark study, which examined 6,408 published three-judge panel decisions and the 19,224 associated votes of individual judges, showed that there was “striking evidence of a relationship between the political party of the appointing President and judicial voting patterns”, especially over matters like “campaign finance, affirmative action, environmental protection” ([49], 147). American federal judges appointed by Presidents from the Democratic Party “show especially liberal voting pattens on

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all-Democratic panels”, and their counterparts who were appointed by Republican Presidents “show especially conservative voting pattens on all-Republican panels” ([48], 9). Attitudinalism might seem to be unavailing outside the United States, given the opacity of judicial appointments, the secrecy of judicial deliberations, and the rarity of dissenting judgments, but Pedro [27] discovered that Portuguese judges are less likely to veto legislation sponsored by the party that appointed them, and in Spain, the Constitutional Tribunal is less likely to strike down a statute the more its judges were appointed by the party in power. An important limitation of the attitudinal model is that, contrary to real life politics, multiple ideological dimensions complicate analysis. It is not impossible for a judge to be pro-free market (economically liberal), pro-abortion (morally liberal), and pro-authoritarianism (politically conservative) at the same time. Not only that, but Lee Epstein, William Landes, and Richard Posner ([8], 70) point out that: Justices of the Supreme Court may sometimes mask their ideological goals in order to promote them more effectively – mask them not only by disingenuous reasoning but also by occasionally voting or even writing against their ideological grain in an attempt to show that they are not ideological.

But a deeper problem runs through the attitudinal model: that even an apex court is nested in the political system and so “does not have a completely free hand in policy making” ([34], 42). The strategic model, which entails the separation of powers according to the public choice and positive political theorists who endorse it [4], is in some sense a modified version of the attitudinal model. It, too, assumes that judges are rational, self-interested, utility-maximizers who find much utility to maximize in their sincerely held ideological preferences, though they may suppress or modify these preferences in light of the preferences of other judges, and of wider considerations—the preferences of the executive, the legislature, and the electorate—in order to maintain, for example, the long-term survivability of their judicial independence as well as policy discretion [35]. The strategic model acknowledges judicial review is political [20], and that every judicial institution acts amid a polity of constraints, legal and otherwise [1], including budgetary and resource constraints. Hence judges and the court system are keen on maximizing policy outcomes and minimizing costs [51]. A court that is forward-looking, interested in enhancing its public legitimacy, and in conserving if not expanding its independence, jurisdiction, privileges, and budget, would have an incentive to set policy from time to time not at its own ideal point but at that of the political branches, lest its decisions get reversed by aroused and united opposition [4]. A “strategic” perspective on judicial review implies that courts coexist with other political actors in a nexus of “interdependence” [7], such that courts’ power may be deemed robust only insofar as other actors refrain from taking steps to reverse their judgments. It follows that courts may invalidate legislative acts, but the ultimate effect of judicial imperative rests on whether the political branches are willing to comply with it [55]. In brief, judicial decisions that routinely assault political interests and the general public’s values pose a threat of self-harm to the judiciary branch, regardless

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of their normative or doctrinal merits [54], if they unleash a broad backlash that might subvert the courts’ power or even their existence [41]. Constitutional clauses that legitimize judicial review may do precious little in practice to shield it from political assaults [53]. A strategic perspective theorizes judicial review not as the mechanical application of pre-existing legal principles to fact patterns, but as political choices by judicial actors who are seeking to maximize utility in a social context of interdependent interaction [21, 54]. The strategic model is not without its weaknesses. Its predictions “have not found much empirical support” in the United States ([4], 12). If judges and those they interact with were thoroughly strategic, then they would be able to anticipate each other’s reactions most of the time, avoiding clashes with each other’s preferences, but such clashes occur quite frequently. Another weakness is the difficulty of discerning whether judicial decisions come out of attitudinal or strategic thought, because even under political pressure, the courts must make their strategic acts look principled or else their reputation rendering them of service to the polity and its high officials is lost. The constraint on judicial power of the requirement to give reasons is easily circumvented by judges who may deploy “seemingly justifiable reasoning to rationalize their decision biases, which prevents rather than facilitates accountability” ([26], 634). A still deeper problem plagues the strategic model, its basic assumptions inspired by neoclassical economics: judges are as human as any others, and feel emotions in the course of discharging their responsibilities—though this is denied in the standard account of judging [28]. Moreover, judges labor under the scarcity of cognitive resources, much like everyone else. In most legal systems in the world, they are burdened ever more by an ever-enlarging caseload. In the civil law world, some courts even lack mechanisms for sharing the load, with the upshot that every judge must juggle all the information of all the cases in order to reach any decisions. An explosion of litigation stands to inflict skyrocketing costs on judicial decision-making and increase the likelihood of serious judicial error [52].

6.3 Cognitive Shortcomings of Judges The study of judicial behavior that originated in the 1950s and 1960s has become an established body of knowledge in political science and increasingly in economics and social psychology [9]. Much of the experimental work on legal decision-making focuses on whether judges fall victim to the same biases that have been identified in the laity [2]. The findings are laying the groundwork of a behavioral public choice theory of judicial behavior. System 1 as it is dubbed by mainstream behavioral economists, led by Daniel Kahneman, features the important role of emotions and experiential associations, and coexists with System 2, the more ratiocinative, analytic system. Most acts of cognition, including decisions and the evaluation of perceptions, are essentially unconscious, we take about 95 percent of our cognitive steps on autopilot [42]. Judicial decisions can be analyzed into System 2 reasoning interleaved with some interacting System 1 cognitive biases in processes that seek out, evaluate,

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and retrieve information. Biased processing leads judges to inadvertently conflate “inevitable” legal outcomes with their own policy preference (see [14]). Judges are presumed to use their expertise, not intuition in making legal judgments, yet a study of 295 circuit judges in the United States, published in 2007, suggested that they make ordinary judgments intuitively, with a few exceptions. When disclaiming that their study is conclusive, the researchers stressed that “judges are less affected by some cognitive illusions than jurors and equally, but no more, affected by others”, and that “these differences seem to persist in actual cases, although to a lesser degree than might be expected from the experimental studies alone” ([6], 114). Suppose boundedly rational judges are “satisficers” in the sense used by Herbert Simon. Their main concern would not be to maximize a given value relentlessly, but to produce “good enough” results, merely, so that they might be freed to pursue other goals. These might, for example, include rent-seeking, political ambitions, leisure time, and so on, depending on the legal system, the idiosyncrasy of the judge, and so on [52]. The best that they can do becomes “the best that they can do under the circumstances”, which is merely good enough, evaluated ex post using criteria like the frequency of judicial errors. But judges are not only “satisficers”; they are also susceptible to a range of biases and heuristics; for instance, the overconfidence heuristic may cause them to unconsciously default to familiar, easy sources of information, ignoring unsentimental empirical data. In an important study, William Eskridge and John Ferejohn ([12], 631) helpfully identified the following judicial cognitive shortcomings: Overconfidence. In areas judges know well, such as discrimination law, civil and criminal procedure, and the common law fields (contracts, torts, property), one would expect judges to be overconfident when reviewing agency decisions. That overconfidence is sometimes exacerbated by a hindsight bias, whereby judges looking back on events will view them as more likely to occur than would have been rational beforehand. Availability and Representativeness Heuristics. Because judicial review frequently occurs in the context of specific facts and hardships suffered by particular plaintiffs, one would expect judges to overvalue and overgeneralize the experience of the litigants before them. Text Fetishism and Path Dependence. In our view, judicial review introduces a variable into agency policymaking that often has an uncertain relationship to optimal policy: the rule-of-law requirement that agencies and judges follow "clear" statutory texts and judicial precedents. Judges take this rule very seriously and often reverse agencies because they disagree with the agency’s interpretation of the words of the statute; 50 less often, they reverse because the agency’s sensible application is inconsistent with an old judicial precedent. Additional judicial biases involve the kinds of mistakes that everyone makes, such as information overload (a particular concern when judges review decisions about technical matters), schema bias (a concern for politicized issues like affirmative action and abortion), and egocentrism (which for some judges becomes an egomania heuristic).

In common law fields such as contracts, torts, and property, and procedural fields such as civil and criminal procedure—areas that judges think they know well—they may be prone to act overconfidently and pratfall to suboptimal outcomes. The overconfidence heuristic can be aggravated by hindsight bias, whereby upon reviewing past events one supposes them likelier to occur than they really are [12]. Years of judicial experience and access ironically seem not to suffice to tame overconfidence

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bias, it may even intensify it, as by inflating the quality and importance of one’s own decisions [45]. With availability bias, judges over-rely on celebrated social facts which, however, are often controversial and liable to be inaccurate [3]. They may extrapolate from their readily memorable litigation experience to the much more sizeable world of cases they never partook in. Judges influenced by the availability heuristic are running the great risk of systemically overestimating the resemblance of previous events to a current event they are facing [43]. Since court cases arise in the context of specific complaints of specific plaintiffs alleging specific facts, affected judges may end up overgeneralizing from the experience of litigants before them [12]. The availability bias has been associated with “petty textualism”, the tendency to narrow interpretation down to certain bits of text to the exclusion of relevant statutory context, even other text that may be construed as inconsistent with the narrow interpretation. Researchers in behavioral economics and cognitive science inform us that such “focus” is really an illusion, or a “cognitive failure of basic rationality” ([33], 68). The representative heuristic may result in unconscious judicial reliance on stereotypes of race, gender, or disadvantage. Additionally, judicial biases can entail the types of cognitive shortcomings that affect everyone, such as information overload, or schema bias, the excessive concern with politicized issues like affirmative action and abortion; and egocentrism, which may become egomania heuristic in some judges [12]. Probability blindness may tempt judges and juries to commit miscarriages of justice that “punish many innocents to convict a few more guilty”, trapped in their own minds by “vivid conjectures and post hoc probabilities” ([36], 321).

6.4 The Behavioral Efficiency of Case Law One of the most celebrated findings in the economic analysis of law is that a system of judge-made doctrines is superior to parliamentary enactments in producing legal rules that are economically efficient (see [18]). Legal doctrines developed by judges in common law jurisdictions establish and enforce property rights by way of remedies such as criminal penalties, restitution, injunction, and punitive damages crafted to prevent coercive transfers of wealth—“all to the end of facilitating the operation of the free market, and where the free market is unworkable of simulating its results” ([37], 316). As Richard Posner ([37], 315) has observed, “doctrines, understood in economic terms, form a coherent system for inducing people to behave efficiently”. This seems to contradict the notion that judges are boundedly rational with bounded self-interest and bounded willpower. One classical explanation of the efficiency of judge-made law ventured by the law and economics movement is that selective litigation tends to drive the law toward efficiency while the contribution of judges is minimal [31]. The Yale antitrust scholar George Priest ([38], 72) argued: The tendency of legal rules to become efficient over time is independent of judicial bias or the method of judicial decisionmaking. It follows rather from the limitations on the opportunity set of cases available for judicial decision, limitations imposed by independent

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economic variables that determine the cases that are litigated. Efficient rules “survive” in an evolutionary sense because they are less likely to be relitigated and thus less likely to be changed, regardless of the method of decision. Inefficient rules “perish” because they are more likely to be reviewed and review implies the chance of change whatever the method of judicial decision.

The common law principle of reasoning from past cases is itself a heuristic device with wide-ranging applicability in judicial decision-making, that is predominant in the courts [52]. A behavioral public choice approach may further illuminate that the cognitive benefits of this heuristic and institution ought not to be underestimated. For instance, the cognitive structure of the common law facilitates the process of identifying sensible rules from a behavioralist perspective.It already consists of trial and error, which does yield legal improvements (see [19]). The self-correcting power of iterated adjudication enables courts continually to narrow the gap between suboptimality and optimality, switching out larger mistakes for smaller ones as it homes in [44]. Judges are positioned to behold, repeatedly, the real consequences of applying judicial doctrines in concrete cases, and this nudges them to make marginal adjustments to doctrine toward efficiency [5]. In the United States, this iteration helps counteract bias in judges’ understanding of the ideal state of the law, for one Circuit Court of Appeal’s determinations can be contradicted by another’s or by the Supreme Court’s. And it is not only judges who can be concerned with discovering better legal rules; lawyers, law professors, and future courts can also participate, and do [40]. Within this precedential process there is hope that judicial biases can be washed out in whole or in part through the evolution of the common law [15]. This is surely why the common law has never been entirely captured by any one ideological system or school of thought [50]. Additionally, judges also exhibit bounded self-interest, like everyone else. Empathy, combined with a distaste of waste, may explain why some judges may consider it suboptimal to brook doctrines that leave people out in the cold of pragmatic inefficiency and its ethical repercussions [47]. The iterated experiment of case-by-case adjudication undoes framing effects on judicial decision-making (see [24]). As Jeffrey Rachlinski ([40], 167–168) correctly put it in these words: The various default conditions that courts face will have two beneficial effects with respect to framing. First, the differences in frame might lead individual courts to adopt different legal rules. As case law accumulates, the courts might select from these rules the most sensible, without regard to frame. Second, the courts might notice that the status quo is having an undesirable effect on the rules that they are adopting. In turn, this might lead courts to be able to step outside of the frame and see the kinds of disputes that they face from a broader perspective than the default presents.

In other words, common law adjudication enables judges to see the same administrative malfeasance from multiple perspectives, inducing them to transcend the frame of the status quo for a broader perspective by default. From the cumulative corpus of the common law of administration judges select those doctrines they find most behaviorally sound for the case, without regard to frames and biases. As alluded to in Chap. 4, Eric Ip ([22], 188) argued in the context of American federal administrative common law that:

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6 Behavioral Courts and Judicial Doctrines The cost-benefit logic that informs this doctrine helps courts and agencies overcome misgivings and the availability heuristic, which spring from powerful interest groups’ often undue influence. Consistent with the wisdom of debiasing, the hard look doctrine, strictly speaking, does not license judges to aggressively replace agency judgments with their own. The Chevron doctrine, as refined by Mead, shields agency updates and elaborations of ambiguous regulatory statutes, which have undergone other debiasing procedures like notice and comment, from the overconfidence and biases of generalist judges, who might presume that their technical expertise in the common law can be transferred to the resolution of policy questions.

In the United States, this advantage is buttressed by the fact that federal courts are decentralized and relatively immune to pressure groups. And generalists are less likely to be committed epistemically to any particular policy, hence they can bring a more balanced approach to bear on regulatory behavior [37]. Though such arguments are advancing, this is not to deny that the common law was a framework socially constructed by boundedly rational mediaevals which has had its own share of cognitive problems (see [25]), or that behaviorally efficient rules may be found in other sources of administrative law, such as statutes (see [39]), rather, administrative common law may best be understood as conducive to debiasing as if judges had intended it, whether they did or not ([22], 173).

6.5 Conclusion We are used to thinking that judges are keen to “reach their decisions utilizing facts, evidence, and highly constrained legal criteria, while putting aside personal biases, attitudes, emotions, and other individuating factors” ([17], 43). The legitimate authority of the courts, with their usually unelected judges, is a “perennial concern” across the world ([26], 658). The motivations underlying judicial behavior have been a subject of deep investigation by economists, political scientists, and jurists throughout the twentieth century and in the twenty-first. Each mainstream theory proposed has captured aspects of the reality of judicial decision-making, always with shortcomings. Doubtless, there is substantial empirical evidence backing up the suspicion that “judges desire to bring the law in line with their own policy or ideological values” ([10], 126). It is equally obvious that ideology cannot be the sole determinant of judicial behavior in any highly complex and interdependent polity. As Wendy Martinek ([29], 83), who advocated closer study of judges as members of small groups, rightly noted, [t]he attitudes of at least some judges certainly matter at least some of the time; and at least some judges can and do engage in strategic calculations in at least some circumstances. The evidence is too overwhelming to assert the contrary without being, at best, naive or, at worst, disingenuous. But paying attention to the small group context within which appellate court adjudication takes place will enrich our understanding of judicial choice well beyond the confines of the attitudinal and strategic paradigms by offering a more realistic view of the psychology of judicial behavior.

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This chapter argued that due recognition of the cognitive shortcomings of judges is critical to any serious political-economic account of judicial behavior. Experimental research has consistently found that American judges, like all other homines sapientes, appear to disfavor out- and favor in-groups; exhibit implicit bias against defendants of certain ethnicities; are affected by the affect heuristic; rule more favorably for the litigants with whom they sympathize; are susceptible to “belief perseverance” when evaluating old and new evidence; succumb to hindsight bias when assessing probability; and rely on the anchoring heuristic in making numerical estimates ([11], 240). This chapter asked how the common law could have emerged efficient, albeit gradually and without any centralized guidance [31], in spite of the biases and heuristics of judges and litigants. In response, it has demonstrated that the system of precedent contains a built-in cognitive structure that can mitigate some judicial cognitive failures, and correct inefficient legal doctrines that have resulted from biased and irrational judicial decision-making [57].

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