Psychology, Economics, and Settlement: A New Look at the Role of the Lawyer

Law and economics models of litigation settlement, based on the behavioral assumptions of rational choice theory, ignore the many psychological reasons that settlement negotiations can fail, yet they accurately predict that vast majority of lawsuits will settle short of formal adjudication. What explains this? We present experimental data that suggests lawyers might evaluate the settlement vs. adjudication decision from a perspective more closely akin to rational choice theory than will non-lawyers and, consequently, increase the observed level of settlement. We then evaluate whether the hypothesized difference between lawyers and non-lawyers is likely to lead to more efficient dispute resolution, concluding that lawyers are efficiency enhancing when differences between lawyers and non-lawyers can be attributed to cognitive error on the part of the latter but not when those differences are due to differences in preference structures and litigation goals. Finally, we suggest a framework that lawyers concerned with efficient dispute resolution should adhere to when counseling clients during settlement negotiations

Property\u27s Morale

A foundational argument long invoked to justify stable property rights is that property law must protect settled expectations. Respect for expectations unites otherwise disparate strands of property theory focused on ex ante incentives, individual identity, and community. It also privileges resistance to legal transitions that transgress reliance interests. When changes in law unsettle expectations, such changes are thought to generate disincentives that Frank Michelman famously labeled demoralization costs. Although rarely approached in these terms, arguments for legal certainty reflect underlying psychological assumptions about how people contemplate property rights when choosing whether and how to work, invest, create, bolster identity, join a community, and make other decisions at property’s core. More precisely, demoralization is predicated on a kind of paralysis flowing from anxieties about instability, unfair singling out, and majoritarian expropriation that can be sparked in legal transitions. This prevailing psychological portrait of expectations has considerable intuitive appeal and is widely influential. It is, however, distinctly incomplete. This Article offers an alternative picture of the expectations with which people approach property and the corresponding anxieties that might cause people to hesitate. From this perspective, stability is less important than assurances that the legal system will respond when external forces threaten to overwhelm the value owners create, that it will provide a fair process of adjustment over time, and that it will ensure inclusion. In short, property law can offer morale benefits that are every bit as critical as demoralization costs. Property theory and doctrine often juxtapose ex ante certainty against ex post flexibility; however, a morale lens underscores that legal transitions can signal responsiveness as easily as instability. Doctrinally, this understanding recalibrates property law’s approach to expectation. Normatively, property’s largely ignored, but absolutely vital, morale function provides a framework for understanding how the legal system can buoy confidence in greater balance, fostering all of the work with which property is so rightly associated

How Improving Decision-Making and Mindfulness Can Improve Legal Ethics and Professionalism

Lawyers who behave unethically and unprofessionally do so for various reasons, ranging from intention to carelessness. Lawyer misconduct can also result from decision-making flaws. Psychologist Chip Heath and his brother Dan Heath, in their best-selling book, Decisive: How to Make Better Decisions in Life and Work, suggest a process to improve people’s decision-making. They introduce the acronym WRAP as the mnemonic for these decision-making heuristics: (1) Widen your options, (2) Reality-test your assumptions, (3) Attain distance before deciding, and (4) Prepare to be wrong. The WRAP process mitigates these cognitive biases: (1) narrow framing of a decision problem, (2) confirmation bias of seeking only supportive information, (3) temptation of short-term emotions, and (4) overconfidence in predicting the future. This Article applies the WRAP process to analyze how lawyers can improve their ethical and professional decision-making. This Article thus proposes teaching law students about how to improve their ethical and professional decision-making in general and the WRAP process as a particular method of doing so. This Article also offers primers about mindfulness and real options theory before applying real options theory to develop eight properties concerning the values of two complementary real options that mindfulness provides, namely the real option to engage in ethical or professional behavior and the real option to engage in unethical or unprofessional behavior. This Article is novel in being the first article to apply real options theory from modern financial economics to analyze the value of mindfulness in legal ethical and professional decision-making. Finally, this Article analyzes some interrelationships among the WRAP process, mindfulness, and positive psychology. By explaining how mindfulness and the WRAP process are related, this Article also connects mindfulness with behavioral economics

Solomonic Bargaining: Dividing a Legal Entitlement to Facilitate Coasean Trade

It is a common argument in law and economics that divided ownership can create or exacerbate strategic behavior. For instance, when several persons own the land designated for a proposed stadium, individual sellers may hold out for a disproportionate share of the gains from trade. Alternatively, when building a public library would benefit multiple residents, individual buyers may free ride on the willingness of others to pay for its construction. Such transaction costs of collective action fall under a variety of analytic rubrics, including the tragedy of the commons and the theory of public goods. Nonetheless, each example of market failure shares a common attribute: The division of a single legal entitlement, or of rivalrous entitlements, among joint sellers or joint buyers may prevent socially efficient transactions, particularly when the parties possess private information about their preferences. This Article explores a different way of dividing an entitlement. Rather than analyzing divisions among buyers or among sellers, we consider the effects of splitting an entitlement between the two groups. Our core insight is Solomonic in character: Dividing a legal entitlement between rivalrous users can facilitate efficient trade. More specifically, we show that when two parties have private information about how much they value an entitlement, endowing each party with a partial claim to the entitlement can reduce the incentive to behave strategically during bargaining, thereby enhancing economic efficiency. Private information is a particularly pernicious form of transaction cost, especially in legal contexts where, for procedural or other reasons, parties must negotiate within thin markets. In such contexts, self-interested bargainers have a strong incentive to misrepresent their private valuations so as to capture a larger share of the bargaining pie. These incentives often lead to predictable opportunistic strategies: Sellers tend to overstate the value they place on the bargained-for item, while buyers tend to understate their desire to purchase it. As a result of such strategic behavior, the parties may fail to detect and exploit a mutually beneficial trade, and even when they can it is usually after considerable and costly delay. In this Article, we argue that divided entitlements can facilitate trade by inducing claim holders to reveal more information than they would under an undivided entitlement regime. Owners of divided, or Solomonic, entitlements must bargain more forthrightly than owners of undivided entitlements, because the entitlement division obscures the titular boundary between buyer\u22 and seller. More precisely, endowing each bargainer with a share of the underlying entitlement creates the possibility of two different types of Coasean trade: A bargainer might buy the other party\u27s claim, or, alternatively, she might sell her own. During negotiation, each party is likely to be uncertain about whether she will ultimately emerge as a seller or a buyer. This strategic identity crisis can strongly mitigate each party\u27s incentive to misrepresent her respective valuation; each party must balance countervailing interests in shading up her valuation, as one would qua seller, and shading down her valuation, as one would qua buyer. This form of rational ambivalence, we argue, can lead the bargainers to represent their valuations more truthfully

Solomonic Bargaining: Dividing a Legal Entitlement to Facilitate Coasean Trade

It is a common argument in law and economics that divided ownership can create or exacerbate strategic behavior. For instance, when several persons own the land designated for a proposed stadium, individual sellers may hold out for a disproportionate share of the gains from trade. Alternatively, when building a public library would benefit multiple residents, individual buyers may free ride on the willingness of others to pay for its construction. Such transaction costs of collective action fall under a variety of analytic rubrics, including the tragedy of the commons and the theory of public goods. Nonetheless, each example of market failure shares a common attribute: The division of a single legal entitlement, or of rivalrous entitlements, among joint sellers or joint buyers may prevent socially efficient transactions, particularly when the parties possess private information about their preferences. This Article explores a different way of dividing an entitlement. Rather than analyzing divisions among buyers or among sellers, we consider the effects of splitting an entitlement between the two groups. Our core insight is Solomonic in character: Dividing a legal entitlement between rivalrous users can facilitate efficient trade. More specifically, we show that when two parties have private information about how much they value an entitlement, endowing each party with a partial claim to the entitlement can reduce the incentive to behave strategically during bargaining, thereby enhancing economic efficiency. Private information is a particularly pernicious form of transaction cost, especially in legal contexts where, for procedural or other reasons, parties must negotiate within thin markets. In such contexts, self-interested bargainers have a strong incentive to misrepresent their private valuations so as to capture a larger share of the bargaining pie. These incentives often lead to predictable opportunistic strategies: Sellers tend to overstate the value they place on the bargained-for item, while buyers tend to understate their desire to purchase it. As a result of such strategic behavior, the parties may fail to detect and exploit a mutually beneficial trade, and even when they can it is usually after considerable and costly delay. In this Article, we argue that divided entitlements can facilitate trade by inducing claim holders to reveal more information than they would under an undivided entitlement regime. Owners of divided, or Solomonic, entitlements must bargain more forthrightly than owners of undivided entitlements, because the entitlement division obscures the titular boundary between buyer\u22 and seller. More precisely, endowing each bargainer with a share of the underlying entitlement creates the possibility of two different types of Coasean trade: A bargainer might buy the other party\u27s claim, or, alternatively, she might sell her own. During negotiation, each party is likely to be uncertain about whether she will ultimately emerge as a seller or a buyer. This strategic identity crisis can strongly mitigate each party\u27s incentive to misrepresent her respective valuation; each party must balance countervailing interests in shading up her valuation, as one would qua seller, and shading down her valuation, as one would qua buyer. This form of rational ambivalence, we argue, can lead the bargainers to represent their valuations more truthfully

The Problem of Resource Access

The Caosean insight that transaction costs stand between the world as we know it and an ideal of perfect efficiency has provided generations of law and economics scholars with an analytic North Star. But for legal scholars interested in the efficiency implications of property arrangements, transaction costs turn out to constitute an unhelpful category. Transaction costs are related to property rights in unstable and contested ways, and they comprise a heterogeneous set of impediments, not all of which are amenable to cost-effective reduction through law. Treating them as focal confuses the cause of our difficulties in structuring access to resources (positive transaction costs) with the solution to the problem presented by a world featuring scarce resources and positive transaction costs. A broader notion of resource access costs, appropriately subdivided, can correct problems of overinclusion, underinclusion, and all insufficient specification in the transaction cost concept. The resulting analytic clarity will allow property theorists to contribute more usefully to solving resource problems

Understanding Deregulated Retail Electricity Markets in the Future: A Perspective from Machine Learning and Optimization

On top of Smart Grid technologies and new market mechanism design, the further deregulation of retail electricity market at distribution level will play a important role in promoting energy system transformation in a socioeconomic way. In today’s retail electricity market, customers have very limited ”energy choice,” or freedom to choose different types of energy services. Although the installation of distributed energy resources (DERs) has become prevalent in many regions, most customers and prosumers who have local energy generation and possible surplus can still only choose to trade with utility companies.They either purchase energy from or sell energy surplus back to the utilities directly while suffering from some price gap. The key to providing more energy trading freedom and open innovation in the retail electricity market is to develop new consumer-centric business models and possibly a localized energy trading platform. This dissertation is exactly pursuing these ideas and proposing a holistic localized electricity retail market to push the next-generation retail electricity market infrastructure to be a level playing field, where all customers have an equal opportunity to actively participate directly. This dissertation also studied and discussed opportunities of many emerging technologies, such as reinforcement learning and deep reinforcement learning, for intelligent energy system operation. Some improvement suggestion of the modeling framework and methodology are included as well.Ph.D.College of Engineering & Computer ScienceUniversity of Michigan-Dearbornhttps://deepblue.lib.umich.edu/bitstream/2027.42/145686/1/Tao Chen Final Dissertation.pdfDescription of Tao Chen Final Dissertation.pdf : Dissertatio