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F.H. Buckley fbuckley@gmu.edu

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 Tuesday, not Monday
 Fraud: assigned Restatement sections
 Casebook: 409-18

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Free bargaining makes people better off…
 Provided that we assume that their choices satisfy the assumptions of rational choice

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 Full Information
 Choices are Freely Made
 Non-satiation
 Completeness or comparability
 No third party effects (externalities)
 Perfect rationality

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Relaxing the rationality assumption:
Paternalism
 Suppose that, lacking perfect rationality, we knew that our choices might harm us.
 Might we not, in such cases, wish to let the paternalist choose for us?
 The state as parens patriae

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Relaxing the rationality assumption:
Paternalism
 So when do we lack perfect rationality…

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Relaxing the rationality assumption:
Paternalism
 So when do we lack perfect rationality…
 Infants
 Mental Incompetents
 Broader categories?

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Infants
 The age of majority standard is overand under-inclusive
 Restatement § 14.

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Infants
 The age of majority standard is overand under-inclusive
 The evidence from criminal law

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Infants
 The age of majority standard is overand under-inclusive
 But protects both parties to the contract

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Infants
 The age of majority standard is overand under-inclusive
 The incentive effects of imprecise standards

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Infants
 The age of majority standard is overand under-inclusive
 What, hypothetically, would the child want, had it full rationality?

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Hypothetical Bargain Models
Contracts for necessities

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 What did Brooke Shields seek in
Shields v. Gross?

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Shields v. Gross
Brooke Shields at age 10 in
Sugar and Spice
Magazine

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Brooke Shields two years later
Penthouse Magazine 1978

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Shields v. Gross
Gee
Thanks,
Mom!

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 Should infants never be bound by contracts entered into on their behalf by their parents?

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 Should infants always be bound by contracts entered into on their behalf by their parents?

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 Should infants always be bound by contracts entered into on their behalf by their parents?
 Jasen’s dissent: A general rule or only where the state has a compelling interest to protect children?

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 Should infants always be bound by contracts entered into on their behalf by their parents?
 Jasen’s dissent
 What if the pictures had been pornographic?

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Federal Child Pornography Laws
Mandatory Minimum of 15 years
(2) (A) “sexually explicit conduct” means actual or simulated—
(v) lascivious exhibition of the genitals or pubic area of any person;
(8) “ child pornography ” means any visual depiction , including any photograph, film, video, picture, or computer or computergenerated image or picture, whether made or produced by electronic, mechanical, or other means, of sexually explicit conduct, where—
(A) the production of such visual depiction involves the use of a minor engaging in sexually explicit conduct ;

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There is justice, after all…
People Exclusive
Brooke Shields: Tabloid Checked My
Mother Out of Nursing Home
Friday May 15, 2009
Brooke Shields 's mother, who suffers from dementia, was checked out of a New Jersey nursing home Thursday by a journalist seeking a "tabloid story," the outraged actress tells
PEOPLE.

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Mental Incompetence
Goya, The sleep of reason brings forth monsters

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Mental Incompetence
 Mental incompetence and the law
 Involuntary committal
 Criminal law
 Civil law

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Mental Incompetence
 Mental incompetence and the law
 The trend: freedom without responsibility

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Mental Incompetence
 What constitutes mental incompetence in contract law?
 Restatement § 15(1)(a)

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Mental Incompetence
 What constitutes mental incompetence in contract law?
 Restatement § 15(1)(a)
 Cf. the M’Naughten Rule of Aldrich v.
Bailey?

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Mental Incompetence
 What constitutes mental incompetence in contract law?
 What does Restatement § 15(1)(b) mean?

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Mental Incompetence
 What constitutes mental incompetence?
 What does Restatement § 15(1)(b) mean?
 What about a loss of control due to an insane impulse?
 Newton v. Mutual Benefit

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Faber
Abnormal acts performed by a bipolar person
 The evidence of incompetence?

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Faber
Abnormal acts performed by a bipolar person
 So something was excessive here?
I don’t get it!

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 Which party was in the better position to cure the problem?

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 Which party was in the better position to cure the problem?
 Would you have applied Restatement §
15(2)?

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Uribe
 Should the Δ have been on notice?

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Uribe
 Should the Δ have been on notice?
 Is fairness of terms relevant to a determination of competency?

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 Should the Δ have been on notice?
 Suppose the contract had been set aside.
 How might this change the advice you’d give to one who buys from an elderly seller? Or to the elderly seller?

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Mahan
 It could happen to anyone…

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Mahan
 It could happen to anyone…
 What result under Restatement § 16?

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Paternalism’s questionable history
So you want to help victims? How about…



“The benevolent have a tendency to colonize, whether geographically or legally.”
Unconscionability and the Code—The Emperor’s
New Clause, 115 U.Pa.L.Rev. 485 (1967)
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George Fitzhugh
The mudsill

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Lincoln’s Wisconsin State Fair Speech 1860
By the "mud-sill" theory it is assumed that labor and education are incompatible; and any practical combination of them impossible.
According to that theory, a blind horse upon a tread-mill, is a perfect illustration of what a laborer should be -
- all the better for being blind, that he could not tread out of place, or kick understandingly. According to that theory, the education of laborers, is not only useless, but pernicious, and dangerous.
Lincoln in 1860

Lincoln’s Wisconsin State Fair Speech 1860
But Free Labor says "no!" Free Labor argues that, as the Author of man makes every individual with one head and one pair of hands, it was probably intended that heads and hands should cooperate as friends…
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Lincoln in 1860

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 Unlike the Old Paternalism, the new
Paternalism does not discriminate
 It is also based on better science

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When might our desires misfire?
 When might we agree to let the
Paternalist second-guess our decisions?
 Judgment Biases : Because we miscalculate what is good for us
 Akrasia : Because we lack the strength of will to pursue what we know is good for us

 Do we always calculate correctly?
 We should have to be monsters of calculation, like Laplace’s Demon?

 An intellect which at a certain moment would know all forces that set nature in motion , and all positions of all items of which nature is composed, if this intellect were also vast enough to submit these data to analysis, it would embrace in a single formula the movements of the greatest bodies of the universe and those of the tiniest atom .
 For such an intellect nothing would be uncertain and the future just like the past would be present before its eyes.

 Napoleon: “M. Laplace,
They tell me you have written this large book on the system of the universe, and have never even mentioned its Creator.”
 Laplace: “Sire, I had no need of that hypothesis."

Our brains are not wired like Laplace’s supercomputer
 Instead we get through life by relying on heuristics or mental shortcuts:
 Intuitions
 Hunches
 Emotions

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Gerald Ford

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Some readings
 Vern Smith, Nobel Address 2002
 Sunstein, Behavioral Law and
Economics (2000)

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Judgment Biases
 Even if our heuristics and hunches are satisfactory in average cases, they seem to mislead in anomalous cases.
 The case of judgment biases

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Judgment Biases
 Even if our heuristics and hunches are satisfactory in average cases, they seem to mislead in anomalous cases.
 The case of judgment biases
 The cognitive paternalist would de-bias us.

Judgment Biases

Judgment Biases
You’re a participant in a game show, facing three doors.
Monty tells you that, behind one of three doors, there is a new car, which you’ll get to keep if you pick the right door.
The other two doors have goats behind them.
Let’s say you pick door 3.

Judgment Biases
Monty tells you that, behind one of three doors, there is a new car, which you’ll get to keep if you pick the right door.
The other two doors have goats behind them.
Let’s say you pick door 3.
Monty knows the door behind which the prize is hidden. He now says “I’m going to help you. I’m going to tell you that the prize is not behind door 1.
Do you stay with door 3 or do you switch to door 2?

Judgment Biases
You should always switch.
The probability associated with each door was 1/3. When
Monty opened door 1, he did not change the 1/3 probability associated with door 3.
So the probability associated with door 2 must be 2/3.

Judgment Biases
Look at it this way. Before you picked, the probability that the prize was behind either doors 1 and 2 was 2/3.
Opening door 1 to reveal the goat did not change this.
So after door 1 is eliminated, the probability that the prize is behind door 2 must be 2/3.

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Some Judgment Biases
 The Availability Bias
 Pauline Kael on the 1972 election

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Some Judgment Biases
 The Anchoring Bias
 I spin a roulette wheel and it comes up
25. Now I ask you how many African members there are in the UN
 I spin and it comes up 65. I ask again.

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Some Judgment Biases
 The Gambler’s Fallacy
 You are at a casino. At the roulette table, the numbers are either red or black.
Black has come up six times in a row.
What is the probability that it will come up black on the next turn? (Assume a fair table.)

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 The Gambler’s Fallacy
 You are at a casino. At the roulette table, the numbers are either red or black.
Black has come up six times in a row.
What is the probability that it will come up black on the next turn? (Assume a fair table.) 50%. (You thought the table had a memory?)

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 The Hindsight Bias
 You watch a baseball game. The pitcher
(ERA of 2.11) has given up two walks in the eighth inning. The manager leaves him in. The next batter up hits a home run. “Idiot!,” you say. “I would have taken the pitcher out.”

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Do judgment biases justify Paternalism?
 Do we underestimate small probability events?
 Mandatory seat belt laws
 Mandatory catastrophic medical insurance

 Gigerenzer’s fast and frugal heuristics
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Gerd Gigerenzer

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 Ecological rationality : how well do our heuristics fit in the world we inhabit.
Gerd Gigerenzer

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Do judgment biases justify Paternalism?
 Are some biases corrected through learning ?
 How to hit a curve ball.

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Do judgment biases justify Paternalism?
 Can market processes help?
 Would inefficient heuristics tend to get excluded in markets?

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 Our reaction to evil is unthinking and immediate.
 Our moral judgments are coded with an emotional response
 We don’t have to calculate cost vs benefit

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Gerd Gigerenzer, Gut Feelings
Police Battalion
101 in 1942.
Goldhagen,
Hitler’s Willing
Executioners

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Do judgment biases justify Paternalism?
 What about the Paternalist’s judgment biases?
 The hindsight bias and negligence liability?

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Do judgment biases justify Paternalism?
 What about the Paternalist’s judgment biases?
 The availability bias and inefficient pollution regulations.

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Paternalism:
Now
Doré, St. Peter denies
Christ for the third time

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Varieties of Akrasia
Racine, Phèdre III.v
Phèdre, Thesée, Hippolyte

Varieties of Akrasia
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Days of Wine and Roses, 1962, Jack Lemmon & Lee Remick
They are not long, the days of wine and roses:
Out of a misty dream
Our path emerges for a while, then closes
Within a dream.
Ernest Dowson

Varieties of Akrasia
I was neither wholly willing not wholly unwilling. So I was in conflict with myself and was dissociated from myself.
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Gozzoli, St. Augustine departing for Milan

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Varieties of Akrasia

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Varieties of Akrasia
Self-deception
I’m going to have just one cookie and then I’ll have the strength of will to stop …

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Varieties of Akrasia
Discounting the Future
 You have a choice between immediate consumption and saving for deferred consumption. How do you decide?

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Varieties of Akrasia
Discounting the Future
 You have a choice between immediate consumption and saving for deferred consumption. How do you decide?
 Do you prefer today’s person to that of tomorrow?

Varieties of Akrasia
Excessive Present Consumption
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Doré, The Prodigal Son

Varieties of Akrasia
Excessive saving for future consumption
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Hughes, The Long Engagement

The Constant Discounter
No preference as between today’s person and tomorrow’s person
Discount
Factor
Time

The Constant Discounter
Is that rational? Or wise?
Discount
Factor
Time

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The Hyperbolic Discounter strongly prefers today’s person
Note that period 0 pleasures are heavily discounted relative to period 1; and that period 9 pleasures are discounted at a rate similar to period
10.

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The Hyperbolic Discounter strongly prefers today’s person
Suppose I offer you a choice between:
(1) $1000 now and
(2) $1010 tomorrow.

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The Hyperbolic Discounter strongly prefers today’s person
Suppose I offer you a choice between:
(1) $1000 now and
(2) $1010 tomorrow.
Suppose that next I offer you a choice between
(3) $1000 in 365 days and
(4) $1010 in 366 days.

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The Hyperbolic Discounter strongly prefers today’s person
Suppose I offer you a choice between:
(1) $1000 now and
(2) $1010 tomorrow.
Suppose that next I offer you a choice between
(3) $1000 in 365 days and
(4) $1010 in 366 days.
Are you irrational if you pick (1) and (4)?