Gregory Klass

Against Endowment Theory: Experimental Economics and Legal Scholarship

Endowment theory holds the mere ownership of a thing causes people to assign greater value to it than they otherwise would. The theory entered legal scholarship in the early 1990s and quickly eclipsed other accounts of how ownership affects valuation. Today, appeals to a generic “endowment effect” can be found throughout the legal literature. More recent experimental results, however, suggest that the empirical evidence for endowment theory is weak at best. When the procedures used in laboratory experiments are altered to rule out alternative explanations, the “endowment effect” disappears. This and other recent evidence suggest that mere ownership does not affect willingness to trade or exchange. Many experimental economists no longer ascribe to endowment theory. Legal scholars, however, continue to rely on endowment theory to predict legal entitlements’ probable effects on expressed valuations. That reliance is no longer warranted. Endowment theory’s influence in legal scholarship provides important lessons about how legal scholars and policymakers should, and should not, use results from experimental economics.

A Conditional Intent to Perform

No promisor intends to perform come what may. Yet some undisclosed conditions on a promisors intent are so material that they can support a claim of fraud. A theory of promissory fraud should be able distinguish such foreground conditions on a promisors intent to perform from the background conditions that attach to all intentions. Michael Bratmans planning theory of intention provides resources to explain the difference. A background condition is one that the agent accepts as satisfied or not satisfied in her practical reasoning; a foreground condition is one whose satisfaction she treats as an open question. Foreground conditions permit an agent to plan for futures in which she does not perform the act in question and reduce the rational pressure to adopt necessary means of performing it. Background conditions do neither. This planning theory of conditional intentions provides a more complete account of why a promisee should care about foreground conditions on the promisors intent to perform. An undisclosed foreground condition is likely material not only because it reduces probability of performance (background conditions do that too), but also because it is likely to affect the promisors preperformance deliberations and behavior. The promisor is more likely to continue planning for possible futures in which she does not perform and less likely to invest in necessary means of performance. A foreground condition on the promisors intent to perform also reduces the rational pressure to fill contract gaps in ways that accord or mesh with the promisees plans and preferences, as described by the theory of shared intentions. These conclusions suggest revisions to the analysis of what a promise says about the promisors intent to perform and any conditions on it. They also supply the beginning of a philosophical account of the relationship-based, extralegal expectations and obligations that attend agreements for consideration, and of the laws proper response to them.