Economic Methods for Lawyers

Economic Methods for Lawyers

Emanuel Towfigh and Niels Petersen

Responding to the growing importance of economic reasoning in legal scholarship, this innovative work provides an essential introduction to the economic tools, which can usefully be employed in legal reasoning. It is geared specifically towards those without a great deal of exposure to economic thinking and provides law students, legal scholars and practitioners with a practical toolbox to shape their writing, understanding and case preparation.

Chapter 8: Behavioral law and economics

Markus Englerth

Subjects: economics and finance, law and economics, law - academic, law and economics

Extract

The rational investor, as we encounter him in most traditional economics textbooks, is a rather prudent fellow. He knows the financial markets inside out, dispassionately pursuing his well-understood self-interest by weighing the potential and risk of each product he buys or sells. Most observers of the latest financial crisis, however, will find it hard to square this image with the revelations following the great meltdown. What they were confronted with in the daily newscasts of that time were reckless types driven by excessive greed, exuberance and sometimes fear, who frantically traded complex financial products they often barely understood. It has been said that the crisis of 2007–08 not only shook the worldwide financial system; it also rattled the science of economics. Reality suddenly seemed to fly in the face of some of its most fundamental assumptions, leading to an outright crisis of the discipline itself. Yet every crisis generates some profiteers. Accordingly, the slump for conventional economic wisdom created a ‘bull market’ for a group of economists who had long doubted some tenets of their discipline – most importantly, the theory of rational choice. The critique focused primarily on the behavioral model underlying conventional economics. Such critique is, in particular, voiced by a relatively new movement in legal studies, most often referred to as behavioral law and economics.

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