The rational-actor/cost-benefit model in law

Consider Case I (It was January 2nd, 2014. Out in the rain, I met a neighbor. We deplored the world’s state of play: firework accidents galore, and Paris being glad that a mere thousand cars had been set alight. Less than last Sylvester’s eve, apparently. “I hope,” my neighbor said, “that these assholes will be punished severely.” I agreed. Yet I cnosidered that such punishment might not prevent the asshole behavior from recurring next year. We went our separate ways, rather depressed for a proper new year’s start.)

I

The scene illustrates an attractive and popular scenario for understanding the law and its efficacy. It is constructed from two stories, one on law’s efficacy and one on behavioral choice .

The story on law’s efficacy as implied in the introductory scene is known as functional: design and create a law and enforce punishment (or remedy) for ignoring it. In formula the functional-law model becomes:

l(aa) → ra

or: applying law l to act aa yields remedy ra. No morality in sight. Just interpretation and application. This formula would feel at home in Hart’s (1957) positivism, I think.

The inherent story of behavioral choice is known as rational: not doing an act follows when its cost outweighs its benefit. The rational-actor model becomes (when we combine legal remedy and cost):

(ca + ra) > ba → ¬aa

or: when cost plus legal remedy (ca + ra) for performing act aoutweigh benefit ba, don’t do aa. No morality in sight either – just utility. This formula would feel at home in Oliver Wendell Holmes Jr.’s (1897) realism, I guess.

I expressed the stories in formal models because doing so supports transparency. I adopt five heuristics for reading such models (loosely based on Aumann (1985), Popper (1963), and Kuhn (1962) — these heuristics are not self-evident and will be revisited later):

  1. Formulae can be true or false only within formal games.
  2. Formulae can only be more or less useful for veridicity in description.
  3. Useful description depends on (i) falsifiability and (ii) absence of falsification [Popper (1963)].
  4. Useful description supports comprehension [Aumann (1985)].
  5. Successful description requires forum support [Kuhn (1962)].

Thus understood, the formal rational-actor/cost-benefit model I employed is transparent on its proper limitations: e.g., since there is no possibility  to express time or network dependencies or levels of organisational aggregation in the model just presented, it cannot say anything useful about them.

II

The rational-actor/cost-benefit model is attractive. It is simple, linear and computable. But is it useful?

  • Yes, when the world under observation is in equilibrium and operates in isolation.
  • Perhaps no, when such conditions do not apply.

Equilibrium only applies where disturbing dynamics and evolution have stopped (or are considered to have stopped, for instance by creating lab conditions or invoking the ceteris paribus clause).

As is incontestable, creating and maintaining lab conditions prove and have proven to be exceptionally successful, especially in the sciences. Research, development and production in areas of e.g. computation, medicine and genetics provide ample foundation. Yet there are areas where lab conditions cannot be created: where human autonomy is at work and/or complexity reigns (as in ecologies, economies and legal systems).

III

The economic discipline has for a long time defended that the rational-actor/cost-benefit model is useful, in spite of many and serious falsifications, as economies tend to crash, incomprehensible to the bulk of mainstream economists before it happens. The reasoning/forces that carry the model’s perseverance in the face of such falsifications rely on

  • Occam’s Razor
  • and tend to touch on the impossibility to better understand and mathematically model systems of diverse entities that show emergent non-linear and adaptive behaviour, dismissing the new possibilities of improving our comprehension of such behaviour by agent based modelling (analogous to ensemble weather forecasting),
  • while rational-actor/cost benefit models yield good results most of the time.

I strongly suspect that Kuhn’s submission is at work here, namely that the current elite economic scientific forum is defending its position.

Yet, an “economic coalition of new thinking” has emerged from the last crisis. It congregates in the Institute for New Economic Thinking (INET) and harvests means, models and methods from other disciplines that have studied complex phenomena longer and more seriously (e.g., physics, engineering, math, computer science, genetics, evolution, ecology, neurology, network theory as linked through the SFI).

IV

Now is the moment for law scholars, I think, to investigate whether following INET’s example might be useful. A few intriguing results seem to point that way. Snowden (not Edward) and Boone (2007) showed four types of institutional behaviour with four different useful governance approaches.

Bettencourt et. al. (2007) notice intriguing universal trends that go with urban center size and that are disturbing from an ecologic perspective. Perhaps knowing about the mechanisms that make these trends disturbing may help thinking about effective countermeasures.

Lastly, I think, it may be useful to investigate whether the means, models and methods from complexity and network theories will help legal scholars to better understand role of the law for institutions that have become both counter productive and complex in recent years, like good governance

  • for innovation,
  • for personal-data protection,
  • for patent and copyright protection,
  • for effective ICT-service procurement and
  • for locked-in legislative government.

But this blog considers only the utilitarian side of scientific reasoning. In another I will have to address the deontological side. I wonder whether such can be done with formal models.