Document Type

Article

Publication Date

2014

Abstract

In this Essay, I take stock (as something of an outsider) of the behavioral economics movement, focusing in particular on its interaction with traditional cost-benefit analysis and its implications for agency structure. The usual strategy for such a project—a strategy that has been used by others with behavioral economics—is to marshal the existing evidence and critically assess its significance. My approach in this Essay is somewhat different. Although I describe behavioral economics and summarize the strongest criticisms of its use, the heart of the Essay is inductive, and focuses on a particular context: financial and securities regulation, as recently revamped by the Dodd-Frank Act and subsequent rule making. To lay the foundation for the Essay, I begin by briefly describing behavioral economics and by surveying the most significant critiques of its use. I then consider how behavioral economics has informed, or might inform, the work of the Consumer Financial Protection Bureau; SEC rulemaking on proxy access; and the efforts of the new financial legislation to ban bailouts. I suggest, among other things, that behavioralism’s implications are quite different for rules and rulemaking than for questions of regulatory structure.

Comments

21 Sup. Ct. Econ. Rev. 77