Peter H. Huang

Emotional responses in litigation

I. INTRODUCTION Litigation is, by its very nature, an adversarial process. It can result in parties involved feeling aggrieved in response to both the actions chosen by others and the actions that a priori had been expected of others. Parties often want to have their day in court in order to see justice done or to vent a retributive intent. This paper shows that certain emotions can result in a higher frequency of trials oc- curring in a general class of litigation games than in the absence of such emotional factors. Such emotions usually depend not only on the behavior of another but also on the beliefs over that behavior. Ellickson (1991, 1989, 1987) has criticized law and economics for using a limited notion of what constitutes rational behavior and suggested expanding the rational actor model to incorporate other elements. We begin just such an extension in this paper. There are two central questions about legal disputes: What are the incentives for a plaintiff to sue? What determines the decision of a defendant to settle or go to court? In fact, many suits that could be brought are not, and of those suits that are filed, most do not result in a trial. Theoretical analyses of the litigation process can be divided into three stages. The first stage includes models by Landes (1971), Gould (1973), and Posner (1973), and culminates with Shave11 (1982). Single-per- son decision theory is used in these studies to describe rational choices by poten- tial litigants. The second stage maintains the symmetric information assumption but explicitly models the strategic interaction of multiple decision-makers. A re-

Trust, Guilt, and Securities Regulation

This Article analyzes the importance of trust in securities investing and how guilt about breaching such trust has implications for securities regulation. Both U.S. federal securities laws and the regulations of the National Association of Securities Dealers impose high standards of professional conduct upon securities professionals. But exactly what are and should be the legal responsibilities of securities professionals remain the subject of much debate. In particular, courts disagree over when broker-dealers are fiduciaries of their clients. A legal consequence of a fiduciary relationship is a duty of fair dealing. This Article is the first to analyze the emotional, moral, and psychological consequences of broker-dealers’ being fiduciaries. This Article explains how finding that securities professionals are fiduciaries can alter both expectations about securities professionals’ behavior and that behavior itself, as well as cause those professionals to feel guilt from breaching their clients’ trust or pride from honoring such trust. This insight has implications for the costs and benefits of finding a fiduciary duty. In particular, there is an emotional or psychological deterrence effect, in addition to the deterrence effect of monetary fines or legal sanctions, from finding a fiduciary duty. This Article demonstrates how fiduciary law can affect behavior even without extensive enforcement or severe legal penalties.

International Environmental Law and Emotional Rational Choice

This paper considers how emotions can foster compliance by rational actors with international environmental law. Many environmental issues are highly emotionally charged. Both supporters and opponents of international environmental law often feel very strongly about their positions and views. A psychological game‐theoretic model focuses on the disciplinary role that losing face may play in compliance with international environmental law. This model implies that noncompliance, especially by high‐profile international actors, should be highly and swiftly publicized on detection and verification. The model also explains why actors care so much about soft, that is, nonbinding international environmental law, such as international environmental declarations, protocols, or resolutions.

Lawsuit Abandonment Options in Possibly Frivolous Litigation Games

This paper develops a new theory of possibly frivolous litigation by focusing on a plaintiffs options to unilaterally abandon a lawsuit. Federal Rule of Civil Procedure 41(a)(1)(i) and its various state law counterparts permit, under certain circumstances, a plaintiff to voluntarily dismiss her lawsuit without prejudice. This papers options approach to litigation, including quite possibly, frivolous litigation is placed in the context of the literature of economic models about litigation in general and frivolous litigation in particular. This paper demonstrates that possibly frivolous lawsuits will be filed and settled when the values of a plaintiffs options to unilaterally abandon litigation exceed the costs of purchasing those litigation-abandonment options by continuing the litigation. This paper also addresses some of the limitations of an abandonment options game-theoretic model of litigation. In particular, there is reason to believe that people have cognitive limitations in their abilities to reason backwards in sequential interactions. Empirical and experimental evidence also exists that indicates that emotions affect how people make decisions. Finally, recent psychological experiments indicate that decision makers often overvalue options and over-invest in keeping options alive, even if those options present little intrinsic value. This paper briefly explains how and why many laws and judicial doctrines effectively preclude specific legal options. Appendix A provides an accessible, non-technical, self-contained, and user-friendly primer about options for those unfamiliar with options. Appendix B contains a formal, mathematical game-theoretic analysis of a plaintiffs options to unilaterally abandon a lawsuit.

Emotional Impact Analysis in Financial Regulation: Going Beyond Cost-Benefit Analysis

This Article advocates that financial regulators analyze, measure, and take into account the emotional impacts of their policies and procedures. Examples of emotional impacts are investor confidence, process concerns, and overall market or social mood. Investor confidence or trust in securities markets, process concerns about how much securities regulators actually deliberate over proposed rules, and financial anxiety or investment stress affect and are affected by financial economic variables, such as consumer debt, consumer expenditures, consumer wealth, corporate investment, initial public offerings, and securities market demand, liquidity, prices, supply, and volume. Cost-benefit analysis does not quantitatively consider interdependencies between regulations’ emotional impacts and their financial outcomes. Emotional impact analysis does. This Article addresses general conceptual and measurement issues about emotional impact analysis. Because financial regulations affect investors’ confidence, process concerns, and social moods, this Article analyzes how financial regulators can quantitatively analyze emotional impacts of their regulations.

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.

Boost: Improving Mindfulness, Thinking, and Diversity

Many important decisions can be difficult; require focused, cognitive attention; produce delayed, noisy feedback; benefit from careful and clear thinking; and quite often trigger anxiety, stress, and other strong, negative emotions. Much empirical, experimental, and field research finds that we often make decisions leading to outcomes we judge as suboptimal. These studies have contributed to the popularity of the idea of nudging people to achieve better outcomes by changing how choices and information are framed and presented (also known as choice architecture and information architecture). Although choice architecture and information architecture can nudge people into better outcomes, choice architecture and information architecture also assume implicitly or explicitly that peoples decision-making competencies are immutable or too costly to improve and therefore, choice architecture and information architecture fail to improve peoples decision-making competencies. This Article advocates boosts to improve mindfulness, thinking, and diversity. Boosts differ from nudges in that boosts aim to improve decision-making competencies, instead of just decision-making outcomes. Mindfulness involves paying attention in an intentional way to life as it unfolds moment to moment. Mindfulness improves decision-making through many pathways, including by reducing stress and negative affect. Recent economic research demonstrates that many cognitive biases exemplify lack of mindfulness about particular aspects of life. Thinking boosts include thinking technologies and diversity. Thinking technologies involve computer or digital technologies to assist people in their thinking. Examples of novel, fun thinking technologies include a financial entertainment computer video game where a player is a vampire managing a blood bar and planning for retirement and video adventure games designed to teach players to recognize and mitigate their cognitive biases. Diversity creates bonuses for organizations by improving decision-making, creativity, innovation, prediction, problem-solving, and productivity.

Adventures in Higher Education, Happiness, and Mindfulness

This Article recounts my unique adventures in higher education, including being a Princeton University freshman mathematics major at age 14, Harvard University applied mathematics graduate student at age 17, economics or finance faculty at multiple schools, first-year law student at the University of Chicago, second- and third-year law student at Stanford University, and law faculty at multiple schools. This Article also candidly discusses my experiences as student and professor and openly shares how I was able to achieve sustainable happiness by practicing mindfulness to reduce fears, rumination, and worry in facing adversity, disappointment, and setbacks. This Article analyzes why law schools should teach law students about happiness and mindfulness. This Article discusses how to teach law students about happiness and mindfulness. Finally, this Article provides brief concluding thoughts about how law students can sustain happiness and mindfulness once they graduate from law school.

Empowering People to Choose Wisely by Democratizing Mindfulness and Thinking Tools

Making choices (wisely) can be difficult; demand focused, cognitive attention; produce delayed, noisy feedback; require careful and clear thinking; and quite often trigger anxiety, stress, or strong, negative emotions. A large body of empirical, experimental, and field research finds that people often make choices resulting in outcomes that are suboptimal as judged by the very people making those choices. These studies have led to the popularity of the idea of nudging people to achieve better outcomes by changing how choices and information are framed and presented. On September 15, 2015, President Obama signed an Executive Order titled Using Behavioral Science Insights to Better Serve the American People. This Executive Order directs executive departments and federal agencies to base the design of policies and programs on research in behavioral economics and psychology about how people make decisions. In particular, the Executive Order specifically directs federal agencies to carefully design how choices are presented and structured (also known as choice architecture) in order to empower people to make the best choices for themselves and their families. The Executive Order also specifically directs federal agencies to improve how the federal government presents information by devoting more consideration to how the format, medium, and timing of information (also known as information architecture) affects the understanding of that information by consumers, borrowers, and federal program beneficiaries.Although choice architecture and information architecture can effectively nudge people into better outcomes, choice architecture and information architecture also assume that people’s decision-making processes are immutable or too costly to improve and so fail to improve people’s decision-making processes. This Article advocates that law and policy can and should empower people to choose wisely by educating people about practicing mindfulness and utilizing thinking tools. Mindfulness involves paying attention in a deliberate way to life as it unfolds moment to moment. Mindfulness is currently very popular in American business, culture, and even sports. Much of that popularity focuses on how mindfulness can improve mental and physical health by reducing stress and negative affect. This Article analyzes how mindfulness offers people real options to choose wisely after processing information concerning their feelings, thoughts, and bodily sensations. This Article analyzes research about how practicing mindfulness can improve people’s decision-making. Thinking tools include thinking architecture and thinking technologies. Thinking architecture offers a systematic procedure to split up a complex problem into a sequence of cognitively easier thinking steps that can result in making better choices. Thinking technologies involve computer or digital technologies to assist people in their thinking. Examples of novel, fun thinking technologies include financial entertainment computer video games, such as one where a player is a vampire managing a blood bar and planning for retirement, and video adventure games designed to teach players to recognize and mitigate their cognitive biases.

Torn Between Two Selves: Should Law Care More About Experiencing Selves or Remembering Selves?

Based upon psychological research and neuroscience studies about subjective well-being, 2002 Nobel Laureate in Economics, Daniel Kahneman, poses a riddle about which of these two selves should count: experiencing selves or remembering selves. Our remembered emotions (memories) are usually rosier than our experienced emotions, and people are motivated by their predicted emotions, which tend to coincide with their emotional memories. This Article advocates that law should care more about experiencing selves than remembering selves if and when experiences result in chronic health or stress consequences that either (1) societies care about more than people do (because of externalities, public bads, or public goods) or (2) people also care about, but are unaware of, do not remember, or are unable to act upon (due to self-control problems). This Article analyzes examples of chronic health or stress effects from such experiences as dense and long commutes, unhealthy eating, lack of regular physical exercise, sedentary behavior, and financial/retirement planning.