George Mason School of Law
Contracts I
Paternalism II
F.H. Buckley
[email protected]
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Next day
 Tuesday, not Monday
 Fraud: assigned Restatement sections
 Casebook: 409-18
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Free bargaining makes people
better off…
 Provided that we assume that their
choices satisfy the assumptions of
rational choice
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Rational Choice: Six Assumptions
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Full Information
Choices are Freely Made
Non-satiation
Completeness or comparability
No third party effects (externalities)
Perfect rationality
Relaxing the rationality assumption:
Paternalism
 Suppose that, lacking perfect
rationality, we knew that our choices
might harm us.
 Might we not, in such cases, wish to
let the paternalist choose for us?
 The state as parens patriae
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Relaxing the rationality assumption:
Paternalism
 So when do we lack perfect
rationality…
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Relaxing the rationality assumption:
Paternalism
 So when do we lack perfect
rationality…
 Infants
 Mental Incompetents
 Broader categories?
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Infants
 The age of majority standard is overand under-inclusive
 Restatement § 14.
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Infants
 The age of majority standard is overand under-inclusive
 The evidence from criminal law
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Infants
 The age of majority standard is overand under-inclusive
 But protects both parties to the contract
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Infants
 The age of majority standard is overand under-inclusive
 The incentive effects of imprecise
standards
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Infants
 The age of majority standard is overand under-inclusive
 What, hypothetically, would the child
want, had it full rationality?
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Hypothetical Bargain Models
Contracts for necessities
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The Limits of Parental Authority
 What did Brooke Shields seek in
Shields v. Gross?
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Shields v. Gross
Brooke Shields
at age 10 in
Sugar and Spice
Magazine
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Brooke Shields two years later
Penthouse Magazine 1978
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Shields v. Gross
Gee
Thanks,
Mom!
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Shields v. Gross
 Should infants never be bound by
contracts entered into on their behalf
by their parents?
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Shields v. Gross
 Should infants always be bound by
contracts entered into on their behalf
by their parents?
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Shields v. Gross
 Should infants always be bound by
contracts entered into on their behalf
by their parents?
 Jasen’s dissent: A general rule or only
where the state has a compelling interest
to protect children?
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Shields v. Gross
 Should infants always be bound by
contracts entered into on their behalf
by their parents?
 Jasen’s dissent
 What if the pictures had been
pornographic?
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Federal Child Pornography Laws
Mandatory Minimum of 15 years
(2)
(A) “sexually explicit conduct” means actual or simulated—
(v) lascivious exhibition of the genitals or pubic area of
any person;
(8) “child pornography” means any visual depiction, including any
photograph, film, video, picture, or computer or computergenerated image or picture, whether made or produced by
electronic, mechanical, or other means, of sexually explicit
conduct, where—
(A) the production of such visual depiction involves the use
of a minor engaging in sexually explicit conduct;
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There is justice, after all…
People Exclusive
Brooke Shields: Tabloid Checked My
Mother Out of Nursing Home
Friday May 15, 2009
Brooke Shields's mother, who suffers from
dementia, was checked out of a New Jersey
nursing home Thursday by a journalist seeking
a "tabloid story," the outraged actress tells
PEOPLE.
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Mental Incompetence
Goya, The sleep
of reason
brings forth
monsters
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Mental Incompetence
 Mental incompetence and the law
 Involuntary committal
 Criminal law
 Civil law
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Mental Incompetence
 Mental incompetence and the law
 The trend: freedom without
responsibility
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Mental Incompetence
 What constitutes mental
incompetence in contract law?
 Restatement § 15(1)(a)
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Mental Incompetence
 What constitutes mental
incompetence in contract law?
 Restatement § 15(1)(a)
 Cf. the M’Naughten Rule of Aldrich v.
Bailey?
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Mental Incompetence
 What constitutes mental
incompetence in contract law?
 What does Restatement § 15(1)(b)
mean?
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Mental Incompetence
 What constitutes mental
incompetence?
 What does Restatement § 15(1)(b)
mean?
 What about a loss of control due to an
insane impulse?

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Newton v. Mutual Benefit
Faber
Abnormal acts performed by a bipolar person
 The evidence of incompetence?
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Faber
Abnormal acts performed by a bipolar person
 So something
was excessive here?
I don’t get it!
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Faber
 Which party was in the better position
to cure the problem?
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Faber
 Which party was in the better position to
cure the problem?
 Would you have applied Restatement §
15(2)?
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Uribe
 Should the Δ have been on notice?
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Uribe
 Should the Δ have been on notice?
 Is fairness of terms relevant to a
determination of competency?
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Uribe
 Should the Δ have been on notice?
 Suppose the contract had been set
aside.
 How might this change the advice you’d
give to one who buys from an elderly
seller? Or to the elderly seller?
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Mahan
 It could happen to anyone…
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Mahan
 It could happen to anyone…
 What result under Restatement § 16?
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Paternalism’s questionable history
So you want to help victims? How about…
 Restrictions on women
 Slavery
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Arthur Leff
“The benevolent have a
tendency to colonize,
whether geographically
or legally.”
Unconscionability and the Code—The Emperor’s
New Clause, 115 U.Pa.L.Rev. 485 (1967)
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George Fitzhugh
The mudsill
Lincoln’s Wisconsin State Fair Speech 1860
By the "mud-sill" theory it is assumed
that labor and education are
incompatible; and any practical
combination of them impossible.
According to that theory, a blind horse
upon a tread-mill, is a perfect
illustration of what a laborer should be - all the better for being blind, that he
could not tread out of place, or kick
understandingly. According to that
theory, the education of laborers, is not
only useless, but pernicious, and
dangerous.
Lincoln in 1860
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Lincoln’s Wisconsin State Fair Speech 1860
But Free Labor says "no!" Free Labor
argues that, as the Author of man
makes every individual with one head
and one pair of hands, it was probably
intended that heads and hands should
cooperate as friends…
Lincoln in 1860
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The New Paternalism
 Unlike the Old Paternalism, the new
Paternalism does not discriminate
 It is also based on better science
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The New Paternalism:
When might our desires misfire?
 When might we agree to let the
Paternalist second-guess our
decisions?
 Judgment Biases: Because we
miscalculate what is good for us
 Akrasia: Because we lack the strength of
will to pursue what we know is good for
us
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Judgement Biases
 Do we always calculate correctly?
 We should have to be monsters of
calculation, like Laplace’s Demon?
Laplace’s Demon
 An intellect which at a certain moment would
know all forces that set nature in motion, and
all positions of all items of which nature is
composed, if this intellect were also vast
enough to submit these data to analysis, it
would embrace in a single formula the
movements of the greatest bodies of the
universe and those of the tiniest atom.
 For such an intellect nothing would be
uncertain and the future just like the past
would be present before its eyes.
Pierre-Simon Laplace
 Napoleon: “M. Laplace,
They tell me you have
written this large book
on the system of the
universe, and have never
even mentioned its Creator.”
 Laplace: “Sire, I had
no need of that hypothesis."
Our brains are not wired like Laplace’s
supercomputer
 Instead we get through life by relying
on heuristics or mental shortcuts:
 Intuitions
 Hunches
 Emotions
Otherwise we couldn’t walk and
chew gum at the same time
Gerald Ford
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Judgment Biases:
Some readings
 Vern Smith, Nobel Address 2002
 Sunstein, Behavioral Law and
Economics (2000)
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Cognitive Paternalism:
Judgment Biases
 Even if our heuristics and hunches are
satisfactory in average cases, they seem to
mislead in anomalous cases.
 The case of judgment biases
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Cognitive Paternalism:
Judgment Biases
 Even if our heuristics and hunches are
satisfactory in average cases, they seem to
mislead in anomalous cases.
 The case of judgment biases
 The cognitive paternalist would de-bias us.
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Judgment Biases
Probability Theory: Monty Hall
Judgment Biases
Probability Theory: Monty Hall O.C.
You’re a participant in a game
show, facing three doors.
Monty tells you that,
behind one of three doors,
there is a new car, which you’ll get
to keep if you pick the right door.
The other two doors have goats
behind them.
Let’s say you pick door 3.
Judgment Biases
Probability Theory: Monty Hall
Monty tells you that,
behind one of three doors,
there is a new car, which you’ll get
to keep if you pick the right door.
The other two doors have goats
behind them.
Let’s say you pick door 3.
Monty knows the door behind
which the prize is hidden. He
now says “I’m going to help
you. I’m going to tell you that
the prize is not behind door 1.
Do you stay with door 3
or do you switch to door 2?
Judgment Biases
Probability Theory: Monty Hall
You should always switch.
The probability associated
with each door was 1/3. When
Monty opened door 1, he did
not change the 1/3 probability
associated with door 3.
So the probability associated
with door 2 must be 2/3.
Judgment Biases
Probability Theory: Monty Hall
Look at it this way. Before you
picked, the probability that
the prize was behind either
doors 1 and 2 was 2/3.
Opening door 1 to reveal the
goat did not change this.
So after door 1 is eliminated,
the probability that the prize
is behind door 2 must be 2/3.
Paternalism:Some Judgment Biases
 The Availability Bias
 Pauline Kael on the 1972 election
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Some Judgment Biases
 The Anchoring Bias
 I spin a roulette wheel and it comes up
25. Now I ask you how many African
members there are in the UN
 I spin and it comes up 65. I ask again.
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Some Judgment Biases
 The Gambler’s Fallacy
 You are at a casino. At the roulette table,
the numbers are either red or black.
Black has come up six times in a row.
What is the probability that it will come
up black on the next turn? (Assume a
fair table.)
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Some Judgment Biases
 The Gambler’s Fallacy
 You are at a casino. At the roulette table,
the numbers are either red or black.
Black has come up six times in a row.
What is the probability that it will come
up black on the next turn? (Assume a
fair table.) 50%. (You thought the table
had a memory?)
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Some Judgment Biases
 The Hindsight Bias
 You watch a baseball game. The pitcher
(ERA of 2.11) has given up two walks in
the eighth inning. The manager leaves
him in. The next batter up hits a home
run. “Idiot!,” you say. “I would have
taken the pitcher out.”
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Do judgment biases justify Paternalism?
 Do we underestimate small
probability events?
 Mandatory seat belt laws
 Mandatory catastrophic medical
insurance
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Are our heuristics dumb?
 Gigerenzer’s fast and frugal heuristics
Gerd Gigerenzer
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Are our heuristics dumb?
 Ecological rationality: how well do our
heuristics fit in the world we inhabit.
Gerd Gigerenzer
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Do judgment biases justify Paternalism?
 Are some biases corrected through
learning?
 How to hit a curve ball.
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Do judgment biases justify Paternalism?
 Can market processes help?
 Would inefficient heuristics tend to get
excluded in markets?
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Moral Heuristics
 Our reaction to evil is unthinking and
immediate.
 Our moral judgments are coded with an
emotional response
 We don’t have to calculate cost vs benefit
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Moral Heuristics
Police Battalion
101 in 1942.
Goldhagen,
Hitler’s Willing
Executioners
Gerd Gigerenzer, Gut Feelings
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Do judgment biases justify Paternalism?
 What about the Paternalist’s
judgment biases?
 The hindsight bias and negligence
liability?
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Do judgment biases justify Paternalism?
 What about the Paternalist’s
judgment biases?
 The availability bias and inefficient
pollution regulations.
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Paternalism:
Now Akrasia: the “non-ruled”
Doré, St. Peter denies
Christ for the third time
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Varieties of Akrasia
Overwhelming passion: Phèdre
Racine, Phèdre III.v
Phèdre, Thesée, Hippolyte
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Varieties of Akrasia
Addiction
They are not long,
the days of wine and
roses:
Out of a misty dream
Our path emerges for a
while,
then closes
Within a dream.
Ernest Dowson
Days of Wine and Roses, 1962, Jack Lemmon & Lee Remick
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Varieties of Akrasia
The Divided Self
I was neither wholly willing not wholly
unwilling. So I was in conflict with myself
and was dissociated from myself.
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Gozzoli, St. Augustine
departing for Milan
Varieties of Akrasia
Reversal of preferences
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Varieties of Akrasia
Self-deception
I’m going to have just
one cookie and then I’ll
have the strength of will
to stop …
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Varieties of Akrasia
Discounting the Future
 You have a choice between immediate
consumption and saving for deferred
consumption. How do you decide?
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Varieties of Akrasia
Discounting the Future
 You have a choice between immediate
consumption and saving for deferred
consumption. How do you decide?
 Do you prefer today’s person to that of
tomorrow?
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Varieties of Akrasia
Excessive Present Consumption
Doré, The Prodigal Son
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Varieties of Akrasia
Excessive saving for future consumption
Hughes, The Long Engagement
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The Constant Discounter
No preference as between today’s
person and tomorrow’s person
Discount
Factor
Time
The Constant Discounter
Is that rational? Or wise?
Discount
Factor
Time
The Hyperbolic Discounter
strongly prefers today’s person
Note that period 0
pleasures are heavily
discounted relative to
period 1; and that
period 9 pleasures
are discounted at a
rate similar to period
10.
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The Hyperbolic Discounter
strongly prefers today’s person
Suppose I offer you a
choice between:
(1) $1000 now and
(2) $1010 tomorrow.
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The Hyperbolic Discounter
strongly prefers today’s person
Suppose I offer you a
choice between:
(1) $1000 now and
(2) $1010 tomorrow.
Suppose that next I offer
you a choice between
(3) $1000 in 365 days and
(4) $1010 in 366 days.
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The Hyperbolic Discounter
strongly prefers today’s person
Suppose I offer you a
choice between:
(1) $1000 now and
(2) $1010 tomorrow.
Suppose that next I offer
you a choice between
(3) $1000 in 365 days and
(4) $1010 in 366 days.
Are you irrational if you
pick (1) and (4)?
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