Edited by Jürgen G. Backhaus
Chapter 21: Cognitive science
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 (Clark, 1977; Simon, 1982). Occasionally, people are rationally ignorant because it helps to simplify a complex world. Likewise people often use heuristics or simple rules of thumb for the same reason (Kahneman, Slovic and Tversky, 1982). Invariably, we are overoptimistic, believing that we will do better than statistics show. Cognitive scientists have shown that defective decision-making...
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