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Momentary Lapses of Reason: The Psychophysics of Law and Behavior

2015; RELX Group (Netherlands); Linguagem: Inglês

10.2139/ssrn.2683557

1556-5068

James Ming Chen,

Decision-Making and Behavioral Economics

The conventional capital asset pricing model (CAPM) remains the preferred approach to risk management in a wide range of economic settings. At the same time, the neoclassical assumptions underlying the CAPM have come under severe attack by behavioral economics. In sharp contrast with the purely rational agents of neoclassical economics, real humans make decisions under the constraints imposed by their innate heuristics. The tension between conventional asset pricing theory and behavioral economics puts particular pressure on law. As an applied branch of social science, law purports to subject human conduct to rules that should optimize objective well-being as well as subjective satisfaction.