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74 N.Y.U. L. Rev. 630 (1999)
Taking Behavioralism Seriously: The Problem of Market Manipulation

handle is hein.journals/nylr74 and id is 644 raw text is: TAKING BEHAVIORALISM SERIOUSLY: THE PROBLEM OF MARKET MANIPULATION JON D. HANSON* & DOUGLAS A. KYSAR** In recent years, legal scholars dissatisfied with the behavioral assumptions of the rational actor model have increasingly turned to the findings of cognitive psycholo- gists and decision theorists to enhance the accuracy of efficiency analysis. Jon Hanson and Douglas Kysar review those findings in this Article, concluding that scholars have been well justified in incorporating the behaviorallst account of human behavior into law and economics. Nevertheless, Hanson and Kysar argue that those scholars simultaneously have failed to take the findings of behavioral research to their logical conclusion. Using the scholarly application of behavioral- ist insights to products liability theory as an example, the authors demonstrate that legal scholars thus far have treated cognitive anomalies as relatively fixed and independent influences on individual decisionmaking. Rather than such an exoge- nous analysis, Hanson and Kysar advocate an endogenous examination of behavi- oralist findings that allows for internal, dynamic effects of cognitive biases within the decisionmaking model. By recognizing that cognitive anomalies influence not only the behavior of biased decisionmakers but also the incentives of other eco- nomic actors, Hanson and Kysar reveal the possibility of market manipulation- that is, the possibility that market outcomes can be influenced, if not determined, by the ability of one actor to control the format of information, the framing and pres- entation of choices, and, more generally, the setting within which market transac- tions occur. Again using the field of products liability theory as an example, the authors argue that such market manipulation will come to characterize consumer product markets; powerful economic incentives will drive manufacturers to engage in practices that, whether consciously or not, utilize non-rational consumer tenden- cies to influence consumer preferences and perceptions for gain. The authors con- clude by previewing the evidence from their companion article that demonstrates the seriousness of the problem of market manipulation and the need for corrective legal devices such as enterprise liability. * Professor of Law, Harvard University. B.A., 1986, Rice University; J.D., 1990, Yale University. ** Law Clerk, Hon. William G. Young, United States District Court for the District of Massachusetts. B.A., 1995, Indiana University; J.D., 1998, Harvard University. We are grateful to Carol Igoe for outstanding secretarial assistance and to Carl Bogus, Grant Dixton, Ana C. Reyes, and Paul Slovic for helpful comments. In addition, this Arti- cle has benefited greatly from conversations with Daniel Kahnemann and Neil Weinstein, extended conversations with Baruch Fischhoff and Paul Slovic, and years of conversations and collaboration with Steven Croley and Kyle Logue. We also gratefully acknowledge the Harvard Law School Summer Research Program for funding portions of our research. Fi- nally, we want to extend our deepest thanks to Kathleen, Emily, Erin, and Ian Hanson and to Vicki Kysar, all of whom disprove the self-interest assumption on a daily basis. 630 Imaged with the Permission of N.Y.U. Law Review