Institutions, in general, and the law, in particular, can be seen as emerging, as given by history to those living today. This idea has never fully disappeared. Since the advent of legal positivism at the end of the 19th century and since the adoption of written constitutions almost everywhere in the world, this is no longer the dominant view. Formal institutions typically are the result of purposeful design, be it by the legislator or by some other authority under constitutional control. Consequently, the predominant canon for interpreting written law is teleological. It attempts to assess the function of the rule. The rule is assumed to address some true social problem. It is further assumed that the legal intervention into freedom or property is instrumental for social betterment. This functionalist perspective is even more obvious in other formal interventions, like the introduction of tradable permits for the discharge of noxious substances into the environment or the artificial increase in the cost of so doing by imposing a tax on such activities.
Functionalists must get two things right: the analysis of the social problem and the predictions about the effect of intervention on the behavior of its addressees. The second is bound to be a decision under considerable uncertainty. Nobody can claim to truly predict the future. The former, i.e. problem definition, is rarely just speculative. For the legislator to become active, in the public perception, there must be a true social problem. Very often, however, the legislator only vaguely knows by which causal mechanism the socially disliked outcome is produced. Even if the analysis is precise for the past, what the legislator is actually aiming at is impacting on behavior in the future. It depends on many contextual factors whether behavior tomorrow can be expected to be identical to behavior today. For these reasons, a functionalist institutional designer cannot but rely on models about human behavior. This even holds if the social problem ultimately is presented to man by nature, for changing behavior is all that institutions can achieve.
Over the last decades, one conceptual tool has dominated institutional analysis and institutional design: the rational choice model, as developed in economics. In its standard form, it assumes all cognitive problems away (or translates them into motivational ones, as in the analysis of information asymmetries). Moreover, all human action is assumed to be driven by interest (or formally by the terms in the individual's utility function). Psychologists and experimental economists are critical of this view. They have uncovered a whole catalogue of "biases," i.e., systematic deviations from the predictions of the rational choice model. These critics have not been without their own critics. Psychologists claim that the implicit norm underlying the biases approach is inadequate. What looks faulty from the perspective of rational choice analysis turns out, more often than not, to be quite functional for individuals that have to survive in a fundamentally uncertain world. In such an environment, often "less is more." Fast and frugal heuristics turn out to be a smart response, even if they go wrong in occasional highly unusual settings.
This psychological criticism rests on one fundamental assumption about the human mind: human cognitive abilities are highly limited. Only "rational demons" are able to live up to the precepts of rational choice theory, in general, and to its norms for decision making under uncertainty, in particular. Subjective expected utility, or the application of Bayes' rule, do not seem within human reach. Actually, it is not difficult to prove that ordinary individuals make gross statistical errors. Moreover, the sheer complexity of the intellectual task visibly seems mind-boggling. Yet both findings exclusively look at conscious and deliberate decision making. This ignores neuropsychological and neurobiological research, demonstrating that humans as well as animals can intuitively handle a vast amount of information, and that they do so in a way that comes pretty close to the axioms of statistics, and of Bayes' rule. From this, the leading hypothesis of this Forum is derived: institutional analysis and institutional design are misled by neglecting the powerful human ability to handle information subconsciously.Top of page
Fairly small computers are able to outperform untrained humans in conscious logical operations. This fact suffices to demonstrate that human dominance of the world cannot exclusively be explained by the human ability of conscious rational reasoning. One powerful explanation is "smarter, not harder." Instead of going through a nightmare of calculations, humans often use rules of thumb. But this cannot be the entire truth.
There is indeed evidence, both from primates and from humans, which indicates that the brain relies partially on brute computational force. This massive parallel processing, however, does not happen at the conscious but rather at the subconscious level. In addition, it is not disjoint from either rules of thumb or rational reasoning but interacts with both abilities. Specifically, humans rely on a vast knowledge base, and they manipulate large amounts of sensory input, as well as data retrieved from memory, when they engage in judgment and decision making. This helps them, for instance, to assess reliably the ecological validity of rules of thumb, which is what makes them so powerful. It also helps them, when engaged in rational reasoning, to control both process and outcome by way of intuition, which explains, for instance, why the legal profession does a fairly good job, even in contexts that are at best partly understood scientifically.
The mission of this group is to investigate the different strategies of problem solving, i.e., decision making. Can the subconscious abilities come to the rescue of rational choice modeling, rightly attacked by experimental economists on the conscious level? What are the implications for the growing field of behavioral institutional analysis and design? Must the performance of the many mental tools for judgment and decision making be reassessed in the light of their interaction with the subconscious ability of parallel processing?
The goal of this group is to examine what we know about the neuronal mechanisms of decision making in animal models and human subjects. This is currently an active field of research that touches upon numerous fascinating questions of self-organizing principles in complex systems with distributed architectures.
This group should explore to which extent the human ability of exploiting both unconscious and conscious processes for problem solving is reflected in the organization of decision processes. The underlying hypothesis is adaptation. The respective organization would not have evolved, developed, or designed if it ignored the specific strengths of the mental machinery of the organism.
More often than not, the distinctions between intuition and deliberation, between subconscious and conscious machinery, between parallel and serial processing are not categorical. Rather, decision modes may be characterized by how they combine both kinds of inputs. There is considerable variation in the combination of these inputs, depending on the perceived character of the task and on the personality of the decision maker. Individuals may develop an idiosyncratic style of decision making. Yet often they basically adopt the decision mode they observe in others. Institutions, not so rarely, aim to bring about such learning.
A rich illustration of this is legal decision making, and judicial decision making in particular. A court is normally not free in how it decides. It is asked to apply the law as it stands. Exceptions like jury decisions or some Islamic courts notwithstanding, judicial decisions must be justified. The justification is not only addressed to the parties, but to the professional community of lawyers as well. This institutional framework pushes lawyers into deliberation. The deliberate element is even more pronounced in the many legal orders that originated in Roman law. Here, the courts do not have the power to generate new rules openly in the light of the case to be decided. It is their task to apply the existing general rules. Practically speaking, in these legal orders, the degrees of freedom originate in two elements: in the facts of the case and in the richness of the doctrinal framework. One must be fairly astute to exploit these degrees of freedom.
Despite the pronounced deliberate element, judicial decision making is not a mechanical exercise. On the contrary, the primary goal of legal education is to teach young lawyers how to recognize the irregular aspects of the specific case. Often, aspects of a case turn out to be decisive for which no neighboring discipline is able to offer stringent language. In other situations, lawyers feel that the available rigorous conceptions are inadequate for their decision making task, e.g., since the price for rigor is assumptions that are strongly counterfactual. Moreover, legal doctrine has so many degrees of freedom that choosing among them is often more important than applying the chosen one lege artis. For all of these reasons, legal decision making is characterized by the interaction between equally pronounced deliberate and intuitive components.Top of page