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Risk Analysis and Behavioural Law and Economics

Professor Anthony Ogus
University of Manchester and University of Maastricht
Email:  Anthony.Ogus@man.ac.uk|

Date: 30 April 2002
Time: 1:00pm - 2:30pm
Venue
: CARR Seminar Room, H615

Abstract

Traditional law-and-economics has provided major analytical tools for how risks should be assessed and, particularly through cost-benefit analysis, how the forms and institutions of legal interventions should be devised and managed. In theory, subjectivity is admitted into the analysis through the variable of risk-aversion, but in practice either individuals are treated as risk-neutral or some crude homogeneous degree of risk-aversion is assumed. In other respects, the approach is objective and, of course, based on rationality.

"Behavioural law-and-economics" is an intellectual movement which has emerged in the last decade. It seeks to extend the sub-discipline by relaxing some of the key rationalist assumptions of neo-classical analysis and replacing them with predictions drawn from other disciplines, notably social psychology. Its applications to risk assessment and management are particularly important. So, for example, the "hindsight bias" (treating past history as inevitable) and the "availability heuristic" (rating the serious of the risk by how easily it comes to mind) show how individual behaviour diverges from the rational model.

This new interdisciplinary literature has generated major insights which should clearly influence policymaking, but while its predictive dimension is compelling, its normative dimension remains problematic. Proponents of the analysis have not always been too explicit on how its implications are to affect legal principles and decision-making processes. In this paper Professor Ogus offers tentative suggestions as to how the principles and processes should adjust to the insights generated.

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