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The Behavioral Divide: A Critique of the Differential Implementation of Behavioral Law and Economics in the US and the EU

December 06, 2016 by Philipp Hacker

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A behavioral divide cuts across the Atlantic. Despite the recent surge of behavioral analysis in European academia, a scrutiny of decisions by courts and regulatory agencies in the US and the EU reveals striking differences. While in the US rulings by courts and regulatory agencies progressively take insights from behavioral economics into account, EU courts and agencies still, and even increasingly, cling to the rational actor model. These inverse trends can be uncovered in the interpretation of legal concepts of human agency, ie, of those elements in a legal order which refer, implicitly or explicitly, to a model of rationality of human actors. More particularly, this paper reviews the concepts of consumers and of users, in consumer law and product liability respectively, to underscore the claim of the behavioral divide. Importantly, the divergence between EU and US private law practice calls for a normative evaluation. In the face of empirical uncertainty about the existence, direction and intensity of biases, the most attractive legal concept of human agency is a pluralistic one, assuming the simultaneous presence of boundedly and fully rational actors. In concrete applications, this paper shows that a pluralistic perspective urges a revision of the concept of the reasonable consumer, both in US and EU consumer law. Furthermore, such a view leads to the adoption of a more boundedly rational user concept in product liability. The pluralistic, yet more boundedly rational concepts thus have far-reaching consequences both for private law theory and its concomitant case law.