Adv Behav Econ pdf

particularly influenced by limits on cognition because they are often made by 
individuals (e.g., judges) or groups (e.g., juries), without the influences of organi-
zational aggregation or market discipline. In one of the earliest contributions, 
McCaffrey (1994) shows how cognitive framing by voters influences the structure
of taxation. Guthrie, Rachlinski, and Wistrich (2001) find that judges exhibit 
biases in decision making (e.g., overconfidence about whether decisions will be
overturned on appeal) similar to those of student subjects. Applying concepts
from psychophysics, Kahneman, Schkade, and Sunstein (1998) show that hypo-
thetical jurors’ awards of punitive damages are very similar when expressed on a
numerical six-point scale of outrage. But awards are highly variable when
mapped to dollars, because there is no natural “modulus” for mapping outrage to
money and different jurors use different mappings.
Applications of behavioral economics also thrive because the economic ap-
proach to law provides a useful source of benchmark predictions against which
behavioral approaches can be contrasted. A good example is the Coase theorem.
Coase noted that if two agents can bargain to efficiency, the assignment of prop-
erty rights to one agent or another will not affect what outcome will occur after
the bargaining (though it will affect which party pays or gets paid). From an effi-
ciency perspective, this principle reduces pressure on the courts to “get it right.”
Whatever judgment the court arrives at, parties will quickly and efficiently nego-
tiate to transfer property rights to the party that can make the best use of them.
But if preferences are reference-dependent, and the legal assignment of property
rights sets a reference point, then the Coase theorem is wrong: The unassigned
party will often not pay as much as the property right-owner demands, even if the
unassigned party would have done so 
ex ante
, or would have benefited more from
having been assigned the property right.
Jolls et al. note that behavioral concepts provide a way to address construc-
tively concerns that laws or regulations are paternalistic. If people routinely make
an unconscious error or one that they regret, then rules that inform them of errors
or protect them from making them will help. This line of argument suggests a
form of paternalism that is “conservative”—a regulation should be irresistible if it
can help some irrational agents, and does little harm to rational ones (see Camerer
et al. 2003). An example is “cooling-off ” periods for high-pressure sales: 
People who are easily seduced into buying something they regret have a few days