How Behavioral Economics Met Law and Economics and Begat Nudge

It didn’t take long for the insights of behavioral economics to reach the field of law and economics, in which economic principles and analysis are applied to legal issues, and which is now considered a dominant approach to legal studies in law schools across the country and throughout the world. Law and economics uses economic models of choice to study how laws affect human behavior and societal outcomes (such as accident and crime rates), as well as to recommend changes in laws and legal procedures to influence behavior and improve outcomes. Behavioral law and economics was born when behavioral economists and legal scholars began to criticize the use of the shortsighted standard economic models of choice to study the law. When law and economics is enhanced with behavioral research, the resulting models of choice will predict different behavior when cognitive biases and dysfunctions are accounted for, which will change the models’ recommendations for legal policymaking and regulation. For instance, mistaken perceptions of risk will affect people’s decision-making in situations such as accident precaution, which affects their reactions to legal standards regarding negligence and liability, and in turn this may suggest changes in the standards themselves.