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European Journal of Law and Economics

, Volume 41, Issue 3, pp 559–574 | Cite as

Optimal liability for optimistic tortfeasors

  • Barbara Luppi
  • Francesco ParisiEmail author
Article

Abstract

As Alicke and Govorun (The self in social judgment, Psychology Press, New York, 2005, p. 85) observed, “most people are average, but few people believe it.” Optimism and other forms of inflated perception of the self lead parties to exercise suboptimal precautions when undertaking risky activities and often undermine the incentive effects of tort rules. In this paper, we show that the presence of optimism undermines several critical assumptions, upon which law and economics scholars have relied when modeling the incentive effects of tort law. We construct a model representing the incentives of “optimistic” tortfeasors and victims, and consider mechanisms for mitigating the effects of biased decision-making. We show that in the presence of optimism, comparative negligence rules are preferable to contributory negligence rules (i.e., the traditional equivalence between contributory and comparative negligence does not hold). Further, we discover the surprising conclusion that the most effective way to correct optimism may often simply be to “forgive” it, shielding optimistic individuals from liability, rather than holding them liable for the harms they cause.

Keywords

Optimism bias Better-than-average effect Blind-spot bias Forgiveness 

JEL Classification

K13 K43 D03 D81 

Notes

Acknowledgments

We are grateful to Theresa Stadheim for her generous research assistance.

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Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of Modena and Reggio EmiliaModenaItaly
  2. 2.Law SchoolUniversity of MinnesotaMinneapolisUSA
  3. 3.Department of EconomicsUniversity of BolognaBolognaItaly

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