Law, Psychology, and Morality

The Role of Loss Aversion

Eyal Zamir

Provides a comprehensive analysis of the intricate relationship between loss aversion and the law
Explains fundamental features of the entire legal system through the notion of loss aversion
Offers a comprehensive, updated introduction to the psychological studies of loss aversion, omission bias, the endowment effect, and related phenomena
Captures new insights into the evolutionary theories of the efficiency of the common law
Highlights an intriguing correspondence between loss aversion, commonsense and deontological morality, and the law
Introduces new normative insights into general questions of lawmaking, and into specific legal debates

Law, Psychology, and Morality

The Role of Loss Aversion

Eyal Zamir

Description

Kahneman and Tversky's Prospect Theory posits that people do not perceive outcomes as final states of wealth or welfare, but rather as gains or losses in relation to some reference point. People are generally loss averse, meaning that the disutility generated by a loss is greater than the utility produced by a commensurate gain. Loss aversion is related to psychological phenomena such as the status quo and omission biases, the endowment effect, and escalation of commitment.

Law, Psychology, and Morality: The Role of Loss Aversion systematically analyzes the complex relationships between loss aversion and the law weaving together insights from cognitive and social psychology, neuropsychology, behavioral economics, experimental legal studies, economic analysis of law, normative ethics, moral psychology, and comparative law. It discusses diverse legal issues in private and public law, national and international law, and substantive and procedural law. Eyal Zamir provides an overview of the psychological studies of loss aversion to examine its effect on human behavior in the contexts of particular interest to the law, while discussing the impact of the law on people's behavior through the framing of the choices they encounter. The book further highlights an intriguing compatibility between loss aversion and fundamental features of the law and various legal doctrines, while theorizing about the causes of this compatibility by drawing on insights from the economic analysis of law and evolutionary psychology. The book points to the correlation between loss aversion, deontological and commonsense morality, and the law, while proposing many normative implications.

Law, Psychology, and Morality

The Role of Loss Aversion

Eyal Zamir

Acknowledgments
Introduction
Part I: The Psychology of Loss Aversion
Chapter 1. Loss Aversion: An Overview
A. Introduction
B. A Brief History
C. Prospect Theory
D. Reference Points
E. Alternative Theories, Limitations, and Critique
F. Empirical Studies
G. Loss Aversion and Emotions
H. Related Phenomena
I. Professional Decisionmaking
J. Group Decisionmaking
K. Debiasing Loss Aversion?
L. Evolutionary Roots and Neural Basis
M. Impact on Other Disciplines
N. Conclusion
Part II: Understanding Human Behavior in Legal Contexts
Chapter 2. Consumer Behavior
A. Introduction
B. Framing Prices and Other Attributes
C. Limited Availability
D. Escalation of Commitment
E. Lenient Return Policies and the Endowment Effect
F. Status Quo and Omission Biases
G. Conclusion Impact on Other Disciplines
Chapter 3. The Market for Legal Services: Contingent Fees
A. Introduction
B. The Puzzle
C. Loss Aversion and Plaintiffs' Preferences
D. Loss Aversion and Defendants' Preferences
E. Conclusion
Chapter 4. Litigation and Settlement
A. Introduction
B. Standard Economic Analysis
C. Framing Litigation Outcomes and Risk Attitude
D. Settlement, Regret, and Loss Aversion
E. Default Effect and Alternative Dispute Resolution
F. A Note on Plea Bargains
G. Conclusion
Part III: Framing by the Law
Chapter 5. Legally Induced Reference Points
A. Introduction
B. Default Rules
C. Burden of Persuasion
D. Legal Reforms and Temporary Legislation
E. Conclusion
Part IV: Loss Aversion and Basic Features of the Law
Chapter 6. Correspondence between Loss Aversion and the Law
A. Introduction
B. Private Law: Tort vs. Unjust Enrichment
C. Contract Remedies: Expectation vs. Disgorgement
D. Constitutional Property Law: Takings vs. Givings
E. Criminal Law: Necessity and Bad Samaritan Laws
F. Human Rights: Civil and Political vs. Social and Economic
G. Civil Rights: Affirmative Action
H. Refugee and Immigration: Denying Entrance vs. Expelling
I. Tax Law: Tax Exemptions and Tax Withholding
J. Evidence Law: Burden of Proof in Civil Litigation
K. Civil Procedure: Preliminary Injunctions
L. Conclusion
Chapter 7. Evolutionary Theories
A. Introduction
B. Efficiency-of-the-Common-Law Theories
C. Loss Aversion and the Plaintiffs' Role
D. Assessment and Conclusion
Chapter 8. Cognitive Psychology, Commonsense Morality, and the Law
A. Introduction
B. Deontology
C. Moderate Deontology and Commonsense Morality
D. Deontology, Commonsense Morality, and Loss Aversion
E. Commonsense Morality and Law
F. Moral and Evolutionary Psychology
G. Conclusion
Part V: Normative Analysis
Chapter 9. Loss Aversion: Normative Implications
A. Introduction
B. Preliminary Issues
C. Justifying Basic Features of Extant Law
D. Legal Policymaking
E. Legal Decisionmakers' Loss Aversion
F. Conclusion
Conclusion
Index

Law, Psychology, and Morality

The Role of Loss Aversion

Eyal Zamir

Author Information

Eyal Zamir, Augusto Levi Professor of Commercial Law, Faculty of Law, Hebrew University of Jerusalem

Eyal Zamir is the Augusto Levi Professor of Commercial Law at the Hebrew University, where he served as Dean of the Faculty of Law from 2002 to 2005. He has been a visiting researcher or visiting professor at the law schools of Harvard, Yale, NYU, Georgetown, UCLA, and Zurich. He holds an LL.B. and Dr.Jur. from the Hebrew University of Jerusalem. Professor Zamir has authored or edited thirteen books and published some fifty articles in Israeli and American law journals, including the Columbia Law Review, the Journal of Legal Studies, California Law Review, Virginia Law Review, and the American Journal of International Law. He is co-author with Barak Medina of: Law, Economics, and Morality (Oxford University Press, 2010).

Law, Psychology, and Morality

The Role of Loss Aversion

Eyal Zamir

Reviews and Awards

"Eyal Zamir's book is an astonishing accomplishment of scholarship. It will be an indispensable reference in the discussion of psychology, morality and the law." - Daniel Kahneman, Senior Scholar; Eugene Higgins Professor of Psychology, Emeritus; and Professor of Psychology and Public Affairs, Emeritus, Woodrow Wilson School, Princeton University

"An excellent and eye-opening book, packed with insights into law, policy, morality, and psychology. Loss aversion is one of the very few most important findings in the last decades of behavioral science. Zamir has produced the best treatment, by far, of its relevance to law." - Cass R. Sunstein, Robert Walmsley University Professor, Harvard University

"If a behavioral trait is real and important, chances are the law knew it all along. But without interdisciplinary expertise, the law lacks a language. Doctrine does not establish the links between seemingly remote phenomena that happen to have a common behavioral cause. In his fascinating, thought provoking book, Eyal Zamir demonstrates how many legal institutions react to, exploit or mold the propensity to evaluate outcomes against a reference point, rather than 'objective' values." - Christoph Engel, Max-Planck-Institute for Research on Collective Goods, Bonn

"Eyal Zamir masterfully analyzes and explains how the seminal research by Amos Tverksy and Daniel Kahneman on judgment and choice should affect our understanding of the way law has evolved and how legal rules should be rethought. Law, Psychology, and Morality is a must read for anyone who cares about the relationship between how we humans think and act and the type of rules we create to organize our societies." - Russell Korobkin, Richard C. Maxwell Professor of Law, UCLA