Person:

Hanson, Jon

An important lesson of behavioralist research is that individuals' perceptions and preferences are highly manipulable. This article presents empirical evidence of market manipulation, a previously unrecognized source of market failure. It surveys extensive qualitative and quantitative marketing research and consumer behavioral studies, reviews common practices in settings such as gas stations and supermarkets, and examines environmentally oriented and fear-based advertising. The article then focuses on the industry that has most depended upon market manipulation: the cigarette industry. Through decades of sophisticated marketing and public relations efforts, cigarette manufacturers have heightened consumer demand and lowered consumer risk perceptions. Such market manipulation may justify moving to enterprise liability, the regime advocated by the first generation of product liability scholars

For the past few decades, cognitive psychologists and behavioral researchers have been steadily uncovering evidence that human decisionmaking processes are prone to nonrational, yet systematic, tendencies. These researchers claim not merely that we sometimes fail to abide by rules of logic, but that we fail to do so in predictable ways.

With a few notable exceptions, implications of this research for legal institutions were slow in reaching the academic literature. Within the last few years, however, we have seen an outpouring of scholarship addressing the impact of behavioral research over a wide range of legal topics. Indeed, one might predict that the current behavioral movement eventually will have an influence on legal scholarship matched only by its predecessor, the law and economics movement. Ultimately, any legal concept that relies in some sense on a notion of reasonableness or that is premised on the existence of a reasonable or rational decisionmaker will need to be reassessed in light of the mounting evidence that humans are "a reasoning rather than a reasonable animal."

This Article contributes to that reassessment by focusing on the problem of manipulability. Our central contention is that the presence of unyielding cognitive biases makes individual decisionmakers susceptible to manipulation by those able to influence the context in which decisions are made. More particularly, we believe that market outcomes frequently will be heavily influenced, if not determined, by the ability of one actor to control the format of information, the presentation of choices, and, in general, the setting within which market transactions occur. Once one accepts that individuals systematically behave in nonrational ways, it follows from an economic perspective that others will exploit those tendencies for gain.

That possibility of manipulation has a variety of implications for legal policy analysis that have heretofore gone unrecognized. This article highlights some of those implications and makes several predictions that are tested in other work.