As much as the deterrent function of civil liability seeks to prevent unlawful conduct, from a psychological standpoint, the fact that we witness “thousands” of instances of unlawful behavior every day does not strike us as strange or frightening at all. This sounds like a paradox; after all, to effectively prevent unlawful conduct, the law itself should be sufficient. Those subject to the law should be aware of the rules, willing to follow them, and able to align their conduct with legal requirements as they make decisions about the activities in which they should engage, as well as the precautions to be taken.
Unfortunately, as decision-makers, we are not always aware of the applicable rules. Furthermore, the incentives provided by the civil liability system are not straightforward in practice. Add to this the fact that many cases of harmful torts are not brought before the courts, thereby silencing the deterrent signal between behavior and the offense. Furthermore, the significant amount of time it takes for a civil liability case to be resolved, combined with the shield provided by liability insurance, further weakens this link. Finally, it is not merely a matter of people being motivated by incentives provided by the civil liability system. Behavior related to the harmful act is also influenced by social norms, market incentives, and, above all, the offender’s own morality.
In other words, psychology bears the heavy burden of introducing all sorts of complications to the mistaken assumption that decision-makers conform to the cost-benefit analysis defined by law-and-economics models. In fact, our attention span is limited; we use mental shortcuts to make decisions; we rely on habits or other forms of automatic behavior; and we do not always consider risks or costs and benefits in the way economic models predict. Even people who rationally aspire to act in accordance with such decision-making models may encounter difficulties in practice.
Consequently, in seeking to achieve its objectives, the civil liability system must be concerned not only with how norms influence behavior, but also with how the psychology of decision-makers interacts with legal rules and how judges evaluate the behavior of both victims and defendants. What motivates people to pursue claims for damages? How do people determine whether a particular act is accidental or intentional, reasonable or unreasonable? How do people think about which factors caused which damages? How do people decide on compensation for a tort? In short, civil liability involves many of the same phenomena that cognitive and social psychologists study in other fields of human experience.1
At its core, psychology is an empirical discipline—a core science that focuses primarily on understanding how people perceive, think, feel, or make decisions. Rather than relying on intuition, trial and error, or appeals to authority, the science of psychology depends on careful observation, the testing of assumptions, and an emphasis on systematic measurement.
Cognitive psychology has recently been linked to civil liability. According to the theory of rational choice in human behavior—a theory predominant in economics that influences other disciplines, including law—people strive to improve their well-being. Among the available options, they rationally choose the one that will maximize expected utility, determined in absolute terms. According to the von Neumann–Morgenstern theorem, which still serves as the basis for rational choice theory, personal choices and preferences depend not only on the expected value of different outcomes but also on individual risk aversion, which varies depending on each person’s assets.
However, human irrationality and our cognitive weaknesses surface in the way we estimate probabilities based on available stories, project stereotypes onto individuals, seek evidence that confirms our intuitions, and ignore evidence that does not confirm them; fear harm, and reason based on magical similarities rather than classical mechanical cause and effect. That is, we should be rational, yet we are vulnerable to illusions and fallacies. Distortion, concealment of the truth, conspiracy theories, and extraordinary popular illusions are as old as our species. However, if there is one thing psychology knows about cognition, it is that people have an arrogant overconfidence in their intuition and that quantitative criteria for critical comparison are superior to the judgment of judges and experts.2
Perhaps the type of cost-benefit analysis required by standardized economic models of deterrence is too sophisticated for most people, or perhaps this analysis, based on the behavior of rational agents, does not reflect the fundamental concerns of society at large. Recent psychological research on civil liability shows that people have difficulty relying on models. We do not spontaneously think in terms of ideal deterrence when asked about appropriate punishment. Studies show that ordinary people assign punishments based on the outrage generated when someone intentionally harms another; that is, people punish because they believe solely in merit, or, in other words, people are intuitive “retributivists.”3
In 1979, Daniel Kahneman and Amos Tversky4 proposed a thought-provoking theory describing personal preferences and choices in situations involving risk, known as Prospect Theory (PT). This theory differs from rational choice theory in several respects. First, the theory states that people generally do not perceive outcomes as final states of wealth and well-being, but rather as gains and losses, which are defined relative to a baseline or reference point. The value function is typically more pronounced for losses than for gains, indicating loss aversion. In this vein, in 1980, Richard Thaler used “PT” to explain the phenomenon whereby people place great value on the things they already possess, compared to those they have yet to acquire (which he termed “the endowment effect”).5 The status quo ante (the positions of the parties before inflicting the loss or granting the benefit) is the natural reference point for framing changes as losses or gains. Tversky and Kahneman estimated that monetary losses are perceived as 2.25 times greater than gains.16 In short, people view losses and gains differently and have a loss aversion. This explains why “losers” are likely to demand more than “no-gainers.” Furthermore, if a loss is two, three, or four times more painful than a gain not obtained, one would expect that, since “losers” typically file lawsuits for losses exceeding $10,000 —and losses are three times more painful than gains not realized—then plaintiffs are expected to seek restitutionary remedies only when gains exceed $30,000.
By way of illustration, let us consider the dilemma that pits civil liability against unjust enrichment. A person’s behavior often creates negative and positive externalities for third parties without their consent. From an economic perspective, the agent must internalize both externalities to induce efficient behavior. However, in virtually all legal systems, civil liability—which requires wrongdoers to pay for their negative externalities—is far more developed and effective than the marginal area of unjust enrichment, which allows a plaintiff to recover benefits conferred upon others. Social interactions in which a person suffers losses or injuries due to the conduct of another, without the latter deriving any benefit, give rise to a much broader range of remedies than in interactions where one person receives a considerable benefit at the expense of another, without the latter suffering significant harm. Furthermore, when the same interaction results in harm to one party and benefit to another, the plaintiff’s remedy is usually based on their losses, rather than the defendant’s gains.6
This puzzle can be at least partially explained by the concepts of reference points and loss aversion. Since losses are greater than gains, legal systems are more effective at remedying unjustified losses than at helping people recover gains they failed to obtain, insofar as people consider losses to be more painful than gains not obtained. Furthermore, some plaintiffs are unable to base their claims on the defendants’ gains because they do not consider those gains to be something to which they are entitled.
Furthermore, another explanation is rooted in the mindset of legislators and judges. Legal thinking follows “common-sense morality,” which is deontological. People believe that pursuing good outcomes is desirable, but they also maintain that the pursuit of this goal is subject to moral restrictions, including prohibitions against lying, breaking promises, and, above all, intentionally harming others. Since such behaviors are intrinsically wrong, they are unacceptable as a means of promoting the common good. Deontology does not judge the morality of an action based on its results, but focuses on the morality of the action itself. Deontological morality distinguishes between harming a person and failing to benefit them. Although the distinction between “avoiding pain” and “promoting happiness” may be endorsed by consequentialists, it is primarily embedded in deontology and in common-sense morality.7
As such, the law distinguishes between harming people and failing to assist them, which in turn presupposes the existence of a baseline. If loss-averse claimants are far more concerned with losses than with gains not obtained, the legal system will consequently produce a set of rules reflecting this common perception. Since prevailing moral intuitions incorporate baselines, the prohibition against harming others is perceived much more acutely than a duty to benefit others. From the perspective of an impartial arbiter—such as a judge or a legislator—compensating the injured party for their loss is seen as a far more urgent task than granting the claimant recovery of the unjust enrichment. Hence the asymmetry between civil liability and unjust enrichment. This explanation points to an important correspondence between psychology, morality, and law.
In a claim for disgorgement, the plaintiff often experiences no adverse effect, or, if they do, it is negligible. And even if some dissatisfaction is felt over lost gains, it is unlikely to be great enough to prompt the plaintiff to seek redress. Thus, the act of suing entails considerable costs: financial, reputational, emotional, and so on. Since the restitution of lost profits is less likely to result in losses large enough to justify initiating litigation, disputes centered on lost profits are considerably reduced. This analysis has important normative implications. First, if, due to loss aversion, the reduction in people’s well-being when they fail to obtain something from others is significantly smaller than when something is taken from them, the law should favor rules aimed at compensating for damages rather than granting people the right to recover unjust enrichment. The recognition that the law not only reflects society’s reference points but also shapes them can lead to even more radical normative conclusions. Lawmakers’ aversion to loss is therefore a cause for concern.8
Conversely, in the case of negative externalities, if an agent must obtain the consent of every potentially harmed person before engaging in a particular activity, then each individual could withhold such consent, thereby thwarting socially desirable activities, such as driving a vehicle. By protecting people’s rights through civil liability, the legislator simultaneously avoids this inefficient outcome and compels wrongdoers to internalize the cost of their behavior. Conversely, in the case of positive externalities, the refusal of any beneficiary to pay for the benefit received can also prevent efficient activities whose costs exceed their benefits to the agent. However, such activities will often take place despite the refusal of one or more beneficiaries to pay for the benefit, as sufficient benefits are generated for those who bore the costs. “Free-rider” behavior on the part of those who enjoy a benefit derived from a good—without having contributed to its production—does not exert veto power over the beneficial activity. This is without even considering the great difficulties the plaintiff will face in proving the defendant’s gains, as opposed to the burden the victim of the harm will face in proving their losses. Thus, the legislative establishment of a general duty to return unsolicited benefits is considerably less crucial than a right to compensation for losses.9
The proposed correspondence between psychology, morality, and law is consistent with recent theories of evolutionary psychology, which postulate that human morality is largely innate—the result of a long process of evolutionary adaptation. To the extent that loss aversion is a universal feature of human psychology, it consequently forms part of most legal systems. There may also be an evolutionary explanation for why the psychological distinction between losses and gains—where losses seem greater than gains—translates into a sharper moral and legal distinction between harming people and failing to help them. Human psychology is relevant to the construction of a normative theory. Basic elements of any normative theory, including the underlying theory of human well-being, are based on assumptions about human psychology. Furthermore, in the current context, once a normative theory has been formulated, policymakers aiming for a specific goal—such as promoting economic equality or deterring antisocial behavior—face pragmatic choices among different means of achieving that goal.
_____
- ROBBENNOLT, Jennifer K; HANS, Valerie. The Psychology of Tort Law (Psychology and the Law Book 2) (English Edition). "Research on the ways in which people attribute liability for damages can shed light on questions such as how and why claims are made and defended—or not—how people think about intent, how people make judgments about causation, and how liability is allocated among the parties. Research on judgment heuristics can help us understand how people make decisions about risk, assess the reasonableness of behavior, and award damages. Research on the decision-making story model can explain how judges use the information presented to them. And research on social interaction, norms, and cues informs us about how people approach decisions regarding whether to pursue or settle civil liability claims.”
- PINKER, Steven. Op.cit, p. 415/8.
- ALLES, Mari'a Guadalupe Marti'nez. Moral Outrage and Betrayal Aversion: The Psychology of Punitive Damages. J. Tort Law 2018; 11(2): 245-303, disponível aqui, Published online September 25, 2018.
- KAHNEMAN, Daniel; TVERSKY, Amos. Prospect Theory: An Analysis of Decision Under Risk, Econometrica 263 (1979). Em 2002, Daniel Kahneman ganhou o prêmio Nobel de economia, primariamente por sua contribuição junto com Amos Tversky (que faleceu em 1996), pela formulação da Prospect Theory.
- THALER, Richard H. Toward a Positive Theory of Consumer Choice, 1 J. Econ. Behav. & Org. 39, 43-47 (1980). O autor introduz o "endowment effect" (efeito da doação), pelo qual as pessoas tendem a valorizar as coisas que elas já possuem, em detrimento daqueles que não têm.
- According to Giuseppe Dari-Mattiacci, the notion of “negative liability” can be usefully introduced in comparison to the traditional concept of tort liability. According to Calabresi, civil liability is viewed as a way to internalize negative externalities in situations where high transaction costs prevent the parties from finding contractual solutions. From an economic perspective, the problem of internalizing negative externalities is perfectly symmetrical to the fundamental problem of internalizing positive externalities. Both types of externalities support social welfare and lead to symmetrical optimal resource allocation: if not internalized, negative externalities result in an excess supply of dangerous activities, while positive externalities result in an insufficient supply of beneficial activities. In: Negative liability, Journal of legal studies, George Mason University Law and Economics Research Paper Series, p. 14.
- ZAMIR, Eyal. Loss Aversion and the Law, Vanderbilt Law Review, Vol. 65:3:829.
- PORAT, Ariel. Private production of public goods. Liability for unrequested benefits, Michigan Law Review, Vol. 108:189.
- PORAT, Ariel. "Como é sabido, não se exige de ofensores, que obtenham o consentimento de vítimas antes da criação do risco, mas se o dano ocorre, posteriormente são demandados a compensá-los. Assim, se um ofensor obtém um benefício de 10 de sua atividade, mas expõe sua vítima a um dano por negligência esperado de 5, frequentemente terá o direito de continuar sua atividade". Private production of public goods. Liability for unrequested benefits, Michigan Law Review, Vol. 108:198.