Table of Contents

The Elgar Companion to Law and Economics, Second Edition

The Elgar Companion to Law and Economics, Second Edition

Elgar original reference

Edited by Jürgen G. Backhaus

This thoroughly updated and revised edition of a popular and authoritative reference work introduces the reader to the major concepts and leading contributors in the field of law and economics. The Companion features accessible, informative and provocative entries on all the significant issues, and breaks new ground by bringing together widely dispersed yet theoretically congruent ideas.

Chapter 31: Cognitive Science

John N. Drobak

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


John N. Drobak Economists have looked to cognitive science and psychology to help understand the rational actor assumption in neoclassical theory. Much of legal theory, like economics, assumes that people act rationally or at least can be induced to act rationally by the correct rules. The ‘reasonable person’ standard is a hallmark of tort law. A natural extension of the economic rationality scholarship has been the re-examination of legal rules using cognitive science (see Langevoort, 1998). Sometimes the use of cognitive science has complemented the neoclassical law and economics literature and reinforced the conclusions reached under neoclassical theory. In connection with contract law, however, the teachings of cognitive science raise the question of whether some parties can truly assent to some contracts. This undercuts a basic premise of both contract law and law and economics theory. Cognitive scientists have reached a consensus on many aspects of human decision making that are useful for analysing the law. The following brief summary highlights a few of these findings. Humans have bounded rationality, sometimes inherently as a result of limitations in information processing or lack of adequate information, and sometimes intendedly as a way to simplify complexity (Simon, 1982; Clark, 1997). Occasionally, people are rationally ignorant because it helps to simplify a complex world. Likewise people often use heuristics or simple rules of thumb (Kahneman et al., 1982). Invariably, we are overoptimistic, believing that we will do better than statistics show. Cognitive scientists have shown that defective decision-making capabilities stem from a number...

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