Uncertainty revisited: Legal prediction and legal postdiction

Michigan Law Review

Volumn 107, Issue 3, 2008, Pages 467-499

  Guttel, Ehud ^a,b   Harel, Alon ^a,c  

^a HEBREW UNIVERSITY OF JERUSALEM   (Israel)

^b Duke Law School ^*

^c UNIVERSITY OF TEXAS   (United States)

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[No Author keywords available]

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EID: 58049217120     PISSN: 00262234     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Conference Paper

References (233)

1. See, e.g., John E. Calfee & Richard Craswell, Some Effects of Uncertainty on Compliance with Legal Standards, 70 VA. L. REV. 965 (1984) (showing how uncertainty may influence parties' incentives to invest in harm prevention);
2. Richard Craswell & John E. Calfee, Deterrence and Uncertain Legal Standards, 2 J.L. ECON. & ORG. 279 (1986) (exploring the effects of uncertainty under various penalty regimes);
3. Mark F. Grady, A. New Positive Economic Theory of Negligence, 92 YALE L.J. 799 (1983) (discussing the risk of inefficient precautions if parties are uncertain about the standard of care);
4. Gillian K. Hadfield, Weighing the Value of Vagueness: An Economic Perspective on Precision in the Law, 82 CAL. L. REV. 541 (1994) (discussing the possible benefits of uncertainty in encouraging legal compliance);
5. Jason S. Johnston, Bayesian Fact-Finding and Efficiency: Toward an Economic Theory of Liability Under Uncertainty, 61 S. CAL. L. REV. 137 (1987) (examining how the legal system can provide incentives for optimal behavior where parties are uncertain about liability). These articles assume that the specific source of uncertainty is insignificant and that individuals who face uncertainty consider their alternatives only on the basis of expected costs and benefits.
6. Professors Calfee and Craswell, for example, note that "uncertainty occurs whenever people cannot be sure what legal consequences will attach to each of their possible courses of action" and that "[s]uch uncertainty arises from a number of sources." Calfee & Craswell, supra note 1, at 968. Professors Calfee and Craswell then provide examples of uncertainties that can result from either past or future contingencies (the size of damages, the likelihood a plaintiff files a claim, or the persuasiveness of witnesses), without distinguishing between the two types of uncertainty.
7. Id. at 968-69;
8. see also, Hadfield, supra note 1, at 541-42 ("[Assuming] that each person attaches a certain probability of being held liable for violating the law to a given behavior or activity ... these probabilities might range between one and zero for numerous reasons, including imperfect enforcement (not all violators are caught or convicted), mistakes in the determination of factual issues, and errors in the identification of the applicable legal rule."). As the following analysis shows, such uncertainties can involve both predictions and postdictions.
9. See infra Section I.A (presenting the results of the prediction-postdiction experiments).
10. See infra Section I.A.
11. See infra Section I.A.
12. See, e.g., Christine Jolis et al., A Behavioral Approach to Law and Economics, 50 STAN. L. REV. 1471 (1998) (emphasizing the importance of incorporating the results of experimental and empirical studies into the conventional analysis);
13. Russell B. Korobkin & Thomas S. Ulen, Law and Behavioral Science: Removing the Rationality Assumption from Law and Economics, 88 CAL. L. REV. 1051. (2000) (demonstrating the contributions of behavioral studies to the understanding of decision making).
14. For an overview of legal scholarship that draws from behavioral studies, see, for example, Donald C. Langevoort, Behavioral Theories of Judgment and Decision Making in Legal Scholarship: A Literature Review, 51 VAND. L. REV. 1499 (1998), and Christine Jolls, Behavioral Law and Economics, in BEHAVIORAL ECONOMICS AND ITS APPLICATIONS 115, 115-40 (Peter Diamond & Hannu Vartiainen eds., 2007).
15. Experimental studies pioneered by Amos Tversky and Daniel Kahneman have established a widely accepted model of decision making under conditions of uncertainty called "prospect theory." The most important finding of this theory is that individuals exhibit a "fourfold pattern of risk attitudes" when making risky decisions: (1) risk aversion for moderate-to-high-probability gains, (2) risk seeking for moderate-to-high- probability losses, (3) risk seeking for low-probability gains, and (4) risk aversion for low-probability losses. Amos Tversky & Daniel Kahneman, Advances in Prospect Theory: Cumulative Representation of Uncertainty, 5 J. RISK & UNCERTAINTY 297, 306 (1992). Legal scholarship has applied prospect theory across many areas of law.
16. See, e.g., John M.A. DiPippa, How Prospect Theory Can Improve Legal Counseling, 24 U. ARK. LITTLE ROCK L. REV. 81 (2001) (legal counseling);
17. Larry T. Garvin, Disproportionality and the Law of Consequential Damages: Default Theory and Cognitive Reality, 59 OHIO ST. L.J. 339, 406-10 (1998) (contracts);
18. Chris Guthrie, Framing Frivolous Litigation: A Psychological Theory, 67 U. CHI. L. REV. 163 (2000) (civil procedure);
19. Gail D. Hollister, Using Comparative Fault To Replace the All-or-Nothing Lottery Imposed in Intentional Tort Suits in Which Both Plaintiff and Defendant Are at Fault, 46 VAND. L. REV. 121, 170-72 (1993) (torts);
20. Henry T.C. Hu, Risk, Time, and Fiduciary Principles in Corporate Investment, 38 UCLA L. REV. 277, 330-31. (1990) (corporate law);
21. Donald C. Langevoort, Selling Hope, Selling Risk: Some Lessons for Law from Behavioral Economics About Stockbrokers and Sophisticated Customers, 84 CAL. L. REV. 627, 637-39 (1996) (corporate law);
22. Jeffrey J. Rachlinski, Gains, Losses, and the Psychology of Litigation, 70 S. CAL. L. REV. 113 (1996);
23. Kent W. Smith & Karyl A. Kinsey, Understanding Taxpaying Behavior: A Conceptual Framework with Implications for Research, 21 LAW & SOC'Y REV. 639, 649-50 (1987) (taxation);
24. Robert B. Thompson, Securities Regulation in an Electronic Age: The Impact of Cognitive Psychology, 75 WASH. U. L.Q. 779, 782 (1997) (securities law). For a comprehensive survey,
25. see Chris Guthrie, Prospect Theory, Risk Preference, and the Law, 97 NW. U. L. REV. 1115 (2003) [hereinafter Guthrie, Prospect Theory].
26. Myron Rothbart & Mark Snyder, Confidence in the prediction and postdiction of an uncertain outcome, 2 CAN. J. BEHAV. SCI. 38 (1970).
27. Id. at 39-40.
28. Id.
29. In both groups, the participants themselves rolled the die, which fell to a distance beyond the experimenters' control. Id. at 39.
30. Id. at 39-40.
31. Id. at 40-42.
32. Lloyd H. Strickland et al., Temporal Orientation and Perceived Control as Determinants of Risk-Taking, 2 J. EXPERIMENTAL SOC. PSYCHOL. 143, 149 (1966).
33. Robert Ladouceur & Marie Mayrand, The Level of Involvement and the Timing of Betting in Roulette, 121 J. PSYCHOL. 169 (1987).
34. Id. at 171-72.
35. Id.
36. Id. at 173-76.
37. A "between-subject" design is based on the coexistence of groups that face different tasks. Thus, in the experiments described, some individuals were engaged in predictions while others were engaged in postdictions. A "within-subject" design confronts all subjects with different tasks. Thus, all subjects confronted both predictions and postdictions.
38. Wibecke Bran & Karl H. Teigen, Prediction and Postdiction Preferences in Guessing, 3 J. BEHAV. DECISION MAKING 17 (1990).
39. Id. at 19-20.
40. Id.
41. Id.
42. Id. at 21.
43. Chip Heath & Amos Tversky, Preference and Belief: Ambiguity and Competence in Choice under Uncertainty, 4 J. RISK & UNCERTAINTY 5, 8-9 (1991) (emphasis added).
44. Id. at 9.
45. Brun & Teigen, supra note 21, at 22-23.
46. Id. at 22.
47. Id. at 23.
48. Nehemia Friedland et al., Controlling the Uncontrollable: Effects of Stress on Illusory Perceptions of Controllability, 63 J. PERSONALITY & Soc. PSYCHOL. 923, 926-30 (1992).
49. Id. at 927.
50. Id.
51. Id. at 928.
52. Bran & Teigen, supra note 21, at 22-23.
53. Id.
54. See e.g., David V. Budescu et al., Simultaneous vs. sequential requests in resource dilemmas with incomplete information, 80 ACTA PSYCHOLOGICA 297 (1992) (describing and explaining the structure of resource dilemma games).
55. Id. at 299.
56. Id.
57. Id. Participants in resource dilemma games thus face conflicting interests. On the one hand, a participant who wishes to maximize her payoff should demand a large share. On the other hand, such behavior increases the likelihood that the total sum of participants' demands will exceed the fixed amount.
58. Budescu et al. have noted: In the context of the resource dilemma paradigm ... game theory maintains that in the absence of any information about the requests of the previous players in the sequence, a player who only knows the temporal order of play has no basis for adjusting her requests. Specifically, the simultaneous and positional order protocols of play are taken to be formally identical. David V. Budescu et al., Positional Order and Group Size Effects in Resource Dilemmas with Uncertain Resources, 61 ORG. BEHAV. & HUM. DECISION PROCESSES 225, 228 (1995).
59. Id. at 236.
60. Roberto A. Weber et al., Timing and Virtual Observability in Ultimatum Bargaining and "Weak Link" Coordination Games, 7 EXPERIMENTAL ECON. 25 (2004). The ultimatum game is a much investigated experimental economics game with two players, the "proposer" and the "responder." In the basic form of the game, a sum of money is given to the proposer, who must "propose" how to divide this sum with the responder. Simultaneously, the responder must indicate the minimum amount he is prepared to accept. Neither party knows the other's offer or demand. If the responder's demand exceeds the proposer's offer, neither participant receives anything; however if the responder's demand is within the proposer's offer, the responder receives the amount of the offer, with the proposer receiving the remaining amount.
61. See generally Werner Güth et al., An Experimental Analysis of Ultimatum Bargaining, 3 J. ECON. BEHAV. & ORG. 367 (1982).
62. Weber et al., supra note 43, at 32-33.
63. Id. at 32.
64. Id.
65. See id. at 33.
66. Id. at 34.
67. See infra Section I.B. 1.
68. See infra Section I.B.2.
69. See, e.g., Ellen J. Langer, The illusion of control, in JUDGMENT UNDER UNCERTAINTY: HEURISTICS AND BIASES 231 (Daniel Kahneman et al. eds., 1982).
70. For a detailed survey of the experimental literature, see Paul K. Presson & Victor A. Benassi, Illusion of Control: A Meta-Analytic Review, 11 J. SOC. BEHAV. & PERSONALITY 493 (1996).
71. Camille B. Wortman, Some Determinants of Perceived Control, 31. J. PERSONALITY & SOC. PSYCHOL. 282 (1975).
72. James M. Henslin, Craps and Magic, 73 AM. J. SOC. 316, 319 (1967).
73. Michael W. Morris et al., Time of Decision, Ethical Obligation, and Causal Illusion: Temporal Cues and Social Heuristics in the Prisoner's Dilemma, in NEGOTIATION AS A SOCIAL PROCESS 209, 216 (Roderick M. Kramer & David M. Messick eds., 1995).
74. Brun & Teigen, supra note 21, at 20.
75. Id. at 21.
76. See id. at 20-21.
77. Jerry M. Burger & Harris M. Cooper, The Desirability of Control, 3 MOTIVATION & EMOTION 381, 382-83 (1979).
78. Id. at 389.
79. Burger and Cooper awarded participants $50 as an endowment. Among participants who manifested "low desirability of control," the average total bet in the postdiction condition was $20.90, as compared to $22.80 in the prediction condition; among participants who showed "high desirability of control," the average total bet was $25.30 in the postdiction condition and $37.20 in the prediction condition.
80. Id. at 390.
81. Brun & Teigen, supra note 21, at 20.
82. Id.
83. Id.
84. Heath & Tversky, supra note 26, at 8.
85. For the difference in behavior in the context of subjective and objective uncertainty, see, for example, Karl Halvor Teigen, Variants of Subjective Probabilities: Concepts, Norms and Biases, in SUBJECTIVE PROBABILITY 211 (George Wright & Peter Ayton eds., 1994). In fact, recent neural research has shown that decision making involving subjective and objective uncertainties takes part in different areas of the brain.
86. See Kirsten G. Volz et al., Variants of uncertainty in decision-making and their neural correlates, 67 BRAIN RES. BULL. 403 (2005).
87. Daniel Ellsberg, Risk, Ambiguity, and the Savage Axioms, 75 Q. J. ECON. 643, 650-51 (1961).
88. Id. at 656-69.
89. See, e.g., Brun & Teigen, supra note 21, at 26 ("[T]he contrast between an incorrect answer and an already existing fact may appear greater than to be mistaken about results not yet established. In prediction, no guess is wrong, at least not at the time it is issued ...."); Heath & Tversky, supra note 26, at 9 (arguing that the difference between bets with respect to future and past events is that "[i]n prediction, only the future can prove you wrong; in postdiction, you could be wrong right now").
90. Dale T. Miller & Saku Gunasegaram, Temporal Order and the Perceived Mutability of Events: Implications for Blame Assignment, 59 J. PERSONALITY & SOC. PSYCHOL. 1111 (1990).
91. Id. at 1111.
92. Id.
93. Id.
94. Id.
95. Id. at 1113.
96. Id.
97. Id. at 1113-14 (emphasis added).
98. Id. at 1114.
99. Id.
100. Daniel Kahneman & Amos Tversky, Variants of uncertainty, 11 COGNITION 143, 152 (1982).
101. On the distinction between specified and general legal norms, their relative advantages, and the role of the courts in their application, see, for example, Douglas G. Baird & Robert Weisberg, Rules, Standards, and the Battle of the Forms: A Reassessment of § 2-207, 68 VA. L. REV. 1217, 1227-28 (1982).
102. See Pierre Schlag, Rules and Standards, 33 UCLA L. REV. 379, 380 (1985).
103. For a discussion of the importance that legal theory has given to the ex ante/ex post characteristics of rules and standards, see, for example, Louis Kaplow, Rules Versus Standards: An Economic Analysis, 42 DUKE L.J. 557, 559 (1992) ("Arguments about and definitions of rules and standards commonly emphasize the distinction between whether the law is given content ex ante or ex post.").
104. "Actors seeking to comply with more complex rales may need to expend resources to learn how the rules apply to their contemplated acts .... [And] because acquiring information is costly, some will choose not to learn the rules." Louis Kaplow, A Model of the Optimal Complexity of Legal Rules, 11 J.L. ECON. & ORG. 150, 151 (1995) (footnote omitted).
105. Recent legal scholarship has observed the possible implications of psychological studies on the choice between rules and standards, yet it has not addressed the importance of behavioral findings concerning uncertainty. See, e.g., Russell B. Korobkin, Behavioral Analysis and Legal Form: Rules vs. Standards Revisited, 79 OR. L. REV. 23 (2000);
106. see also Yuval Feldman & Alon Harel, Social Norms, Self Interest and Ambiguity of Legal Norms: An Experimental Analysis of the Rule v. Standard Dilemma, 4 REV. LAW & ECON. 81 (2008) (discussing the impact of social norms on willingness to obey the law and the optimal specificity of legal norms).
107. The two most comprehensive law and economics analyses of rules and standards are Isaac Ehrlich & Richard A. Posner, An Economic Analysis of Legal Rulemaking, 3 J. LEGAL STUD. 257 (1974), and Kaplow, supra note 81.
108. For additional applications of economic analysis to rules and standards, see Colin S. Diver, The Optimal Precision of Administrative Rules, 93 YALE L.J. 65 (1983);
109. Hadfield, supra note 1;
110. Kaplow, supra note 82;
111. Schlag, supra note 81;
112. and Cass R. Sunstein, Problems with Rules, 83 CAL. L. REV. 953 (1995).
113. Feldman & Harel, supra note 83, at 87.
114. See, e.g., Ehrlich & Posner, supra note 84, at 262-69 (discussing the advantages of rules over standards in guiding behavior and in allowing courts to avoid high adjudication costs, while emphasizing that the production costs of standards are typically lower);
115. Kaplow, supra note 81, at 568-85 (elaborating on the factors that determine the actual costs involved in formulation of, enforcement of, and compliance with legal norms with different levels of precision).
116. See Feldman & Harel, supra note 83, at 87.
117. See id. In some contexts, rules and standards may also differ in other economic aspects, such as their influence on the likelihood of settlements or the incentives to purchase legal advice.
118. See Ehrlich & Posner, supra note 84, at 269-70. The behavioral findings concerning the differences between future and past uncertainty may also bear on the analysis of these aspects. But these topics are beyond the scope of this paper.
119. As Kaplow explains: Designing a rule that accounts for every relevant contingency would be wasteful, as most would never arise. Although it might be more difficult and costly for an individual and an enforcement authority to apply a standard in a particular instance, such an application need be made only if its unique set of circumstances actually arises. Thus when frequency is low, a standard tends to be preferable. Kaplow, supra note 81, at 563;
120. .see also Korobkin, supra note 83, at 31-35.
121. Korobkin, supra note 83, at 33.
122. See id.
123. See id.
124. Kaplow, supra note 81, at 572.
125. Id.
126. The more complex a rule is, the more difficult or costly it is to acquire information about it. Hence complex rules are ones which are likely to generate uncertainty.
127. Changing from a rule-based scheme to a standards-based scheme or vice versa is not a rare event. Speed limits could be specified numerically (a rule) or in vague terms such as "reasonable speed" (a standard). In 1995, Montana eliminated its numerical daytime speed limit on its interstate highways and adopted instead a standard of "reasonable and prudent" daytime driving. For a discussion, see Robert E. King & Cass R. Sunstein, Doing Without Speed Limits, 79 B.U. L. REV. 155 (1999). The rule eventually was invalidated on the grounds that it was unconstitutionally vague.
128. See State v. Stanko, 974 P.2d 1132 (Mont. 1998). Drunk driving provides an example for the opposite process, in which standards-based norms have been replaced by rule-based norms.
129. See infra note 97.
130. See Insurance Institute for Highway Safety, Highway Loss Data Institute, DUI/DWI Laws (Aug. 2008), http://www.iihs.org/laws/dui.aspx (presenting laws regarding drunk driving in all states). In the past, drunk driving was regulated under a general norm prohibiting "driving while intoxicated (DWI)." Because this standard was "difficult to prove," once BAC [Blood Alcohol Testing] devices became commercially available in the 1930s, states developed presumptions allowing juries to presume that certain BAC percentages implied intoxication. However, proving intoxication beyond a reasonable doubt was still a difficult task.... State legislatures, with the encouragement of Congress, responded to this enforcement problem by enacting "per se" laws .... Today, nearly every state has enacted a per se law, in addition to retaining the offense of DWI.
131. Jennifer L. Pariser, Note, In Vino Veritas: The Truth About Blood Alcohol Presumptions in State Drunk Driving Law, 64 N.Y.U. L. REV. 141, 142-44 (1989) (footnotes omitted). In 2003, the state of Massachusetts was among the last states to adopt a rule-like regime to regulate drunk driving.
132. See Kelsey P. Black, Note, Undue Protection Versus Undue Punishment: Examining the Drinking and Driving Problem Across the United States, 40 SUFFOLK U. L. REV. 463, 476 (2007) ("Prior to 2003 in Massachusetts, the .08% BAC level was not a per se law; it was 'evidence but not proof of drunkenness.' In 2003, however, Massachusetts finally adopted a per se BAC law ...." (footnote omitted)).
133. See, e.g., Alana Semuels, Too Drunk to Drive? Devices May Help Decide, PITTSBURGH POST-GAZETTE, Dec. 31, 2004, at Al (describing attempts to develop devices that would provide drivers with information about their blood alcohol and the "criticism" of such devices).
134. For an overview, see Andrew E. Goldsmith, The Void-for-Vagueness Doctrine in the Supreme Court, Revisited, 30 AM. J. CRIM, L. 279 (2003).
135. See also Symposium: Void for Vagueness, 82 CAL. L. REV. 487 (1994).
136. Connally v. Gen. Constr. Co., 269 U.S. 385, 391 (1926).
137. Grayned v. City of Rockford, 408 U.S. 104, 109 (1972) (alteration in original) (internal quotation marks omitted);
138. see also Hadfield, supra note 1, at 544 (discussing the economic implications of overprotective behavior).
139. See, e.g., Winters v. New York, 333 U.S. 507, 520 (1948) ("To say that a state may not punish by such a vague statute carries no implication that it may not punish circulation of objectionable printed matter ... by the use of apt words to describe the prohibited publications.");
140. see also Note, The Void-for-Vagueness Doctrine in the Supreme Court, 109 U. PA. L. REV. 67, 111 (1960) ("[The vagueness cases] purport to pass upon the legitimacy or illegitimacy of means, invalidating a particular regulation with regard to those as to whom it is indefinite and because it is indefinite, and reserving judgment as to whether the end sought to be achieved is achievable through more definite regulation." (footnotes omitted)).
141. One of the most well, known examples for such an attempt is the proposal of Andrea Dworkin and Catharine MacKinnon to regulate pornography. The proposal included a very detailed set of provisions designed to overcome concerns about vagueness. For a description and a defense of this proposal, see Catharine A. MacKinnon, Pornography, Civil Rights, and Speech, 20 HARV. CR.-CL. L. REV. 1 (1985). The proposal was later adopted by the legislature of Indianapolis. However, the Seventh Circuit found that this proposal violated the First Amendment.
142. See Am. Booksellers Ass'n, Inc. v. Hudnut, 771 F.2d 323 (7th Cir. 1985).
143. See, e.g., Kathleen M. Sullivan, The Supreme Court, 1991 Term - Foreword: The Justices of Rules and Standards, 106 HARV. L. REV. 22, 62 (1992) ("[R]ules afford certainty and predictability to private actors, enabling them to order their affairs productively. Standards produce uncertainty, thereby chilling socially productive behavior." (footnotes omitted)).
144. 530 U.S. 703, 707 (2000).
145. Id. at 732-33.
146. Id. at 729.
147. Id.
148. Id. at 707, 773-74. In his opinion, Justice Kennedy discussed another related uncertainty that requires postdiction on the part of potential defendants: Finally, as we all know, the identity or enterprise of the occupants of a building which fronts on a public street is not always known to the public. Health care providers may occupy but a single office in a large building. The Colorado citizen may walk from a disfavored-speech zone to a free zone with little or no ability to discern when one ends and the other begins.
149. Id. at 774.
150. See supra Section I.A.
151. LoJack is a hidden transmitter installed in automobiles. When a vehicle equipped with LoJack is stolen, the transmitter helps police locate the stolen vehicle. For more details, see LoJack Car Security System for Stolen Vehicle Recovery, http://lojack.com (last visited Aug. 24, 2008).
152. For a study investigating the effectiveness of LoJacks, see Ian Ayres & Steven D. Levitt, Measuring Positive Externalities from Unobservable Victim Precaution: An Empirical Analysis of Lojack, 113 Q. J. ECON. 43 (1998).
153. "IRS enforcement activities, coupled with other late payments, recover about $55 billion of the tax gap, leaving a net tax gap of $290 billion ..." Internal Revenue Service, IRS Updates Tax Gap Estimates, Feb. 14, 2006, http://www.irs.gov/newsroom/article/0,id=154496, 00.html. The total federal budget is approximately $1.8 trillion. Office of Mgmt. & Budget, Citizen's Guide to the Federal Budget: Fiscal Year 2001, http://www.gpoaccess.gov/usbudget/fy01/guide02.html (last visited Aug. 30, 2008). These numbers refer to year 2001, currently the most recent year with finalized data.
154. See OFFICE OF MGMT. & BUDGET, HISTORICAL TABLES, BUDGET OF THE UNITED STATES GOVERNMENT, FISCAL YEAR 2006, at 96 (2006), available at http://www.gpoaccess.gov/usbudget/fy06/pdf/hist.pdf.
155. The primary results of the 2006 IRS survey show that the audit coverage of individual return was 0.98%. In the year of 2000, this rate was only 0.49%, although this was after a sharp drop from the previous years (for example, 1.28% in 1997). See INTERNAL REVENUE SERVICE, FISCAL YEAR 2006, ENFORCEMENT AND SERVICE RESULTS 3 (2006), http://www.irs.gov/pub/newsroom/1106-enforcement- stats.pdf.
156. Alex Raskolnikov, Crime and Punishment in Taxation: Deceit, Deterrence, and the Self-Adjusting Penalty, 106 COLUM. L. REV. 569, 590-91 (2006) ("Researchers note that the auditors look for unusual, 'suspicious-looking' items that appear to be 'outliers.' " (footnotes omitted));
157. see also Robert D. Hershey Jr., A Smarter I.R.S. Learns Your Business, N.Y. TIMES, May 14, 1994, at A35 (reporting that IRS auditors typically searched for "red flags, like spikes in income," although the IRS was making an effort look for patterns instead).
158. Tom Herman, The Next Audit Scare, WALL ST. J., June 13, 2007, at Dl (discussing the new IRS process for random auditing of the entire taxpayer population);
159. see also Francine Brevetti, IRS to institute random audit program, OAKLAND TRIB., Aug. 10, 2007, at 1 (Business) (noting the deterrence effect that random auditing has on taxpayers and stating that "the mere prospect of a defined audit program makes some taxpayers nervous").
160. See generally U.S. GEN. ACCOUNTING OFFICE, TAX ADMINISTRATION: IRS' USE OF RANDOM SELECTION IN CHOOSING TAX RETURNS FOR AUDIT (1998), available at http://www.gao.gov/archive/ 1998/gg98040.pdf (describing the historical and current process of random selection among certain subpopulations of taxpayers).
161. Probabilistic auditing is not exclusively restricted to the context of tax collection. Due to budgetary constraints, the strategy of random enforcement is widely applied to areas such as health care and safety in the workplace. See, e.g., Robert J. Jackson, Jr. & David Rosenberg, A New Model of Administrative Enforcement, 93 VA. L. REV. 1983, 2014 (2007) (noting that lessees of federal lands who are required to pay royalties for oil and gas are subject to probabilistic auditing);
162. Timothy Stoltzfus lost & Sharon L. Davies, The Empire Strikes Back: A Critique of the Backlash Against Fraud and Abuse Enforcement, 51 ALA. L. REV. 239, 279 (1999) (explaining that the level of auditing and enforcement in federal health care programs is limited and hence only probabilistic);
163. Anne T. Nichting, OSHA Reform: An Examination of Third Party Audits, 75 CHI.-KENT L. REV. 195, 200 (1999) (noting that there are only 2400 federal and state compliance officers to oversee more than six million regulated workplaces);
164. Clifford Rechtschaffen, Deterrence vs. Cooperation and the Evolving Theory of Environmental Enforcement, 71. S. CAL. L. REV. 1181, 1214 (1998) ("It is certainly true that government resources are constrained .... [E]nforcement agencies have never had sufficient staff to inspect more than a fraction of regulated facilities ...."). To this extent, the suggested practice (first choosing the identities of the parties that will be audited and only then requiring them to provide the information) may serve to decrease the risk of fraud in the various contexts in which probabilistic auditing is used.
165. As scholars have explained, the large gap between the actual rates of tax compliance and the compliance rates expected under conventional utility-maximization models indicates that behavioral factors play an important part in parties' decision whether to pay taxes. See, e.g., James Andreoni et al., Tax Compliance, 36 J. ECON. LITERATURE 818, 855 (1998) (explaining that the "most significant discrepancy that has been documented between the standard economic model of compliance and real-world compliance behavior is that the theoretical model greatly overpredicts noncompliance" and arguing that the compliance largely depends on behavioral factors).
166. For a recent overview of the psychological literature on tax compliance, see ERICH KIRCHLER, THE ECONOMIC PSYCHOLOGY OF TAX BEHAVIOUR (2007).
167. See also Edward J. McCaffery, Cognitive Theory and Tax, 41 UCLA L. REV. 1961 (1994) (discussing the contributions of cognitive theory in understanding tax compliance).
168. See, e.g., Otto H. Chang et al., Taxpayer Attitudes Toward Tax Audit Risk, 8 J. ECON. PSYCHOL. 299, 301-07 (1987) (conducting an experiment with MBA students that were randomly assigned to either gain (refund) or loss (payment) conditions and finding that the first were substantially less inclined to cheat);
169. Henry S.J. Robben et al., Decision Frame and Opportunity as Determinants of Tax Cheating: An international experimental study, 11 J. ECON. PSYCHOL. 341 (1990) (presenting both experimental and empirical evidence for greater tax compliance among taxpayers entitled to a refund as compared to taxpayers who expect to owe money to the IRS and arguing that behavioral theories can account for these results);
170. ,see also Guthrie, Prospect Theory, supra note 8, at 1143-45 (discussing additional studies exploring the application of prospect theory in the context of tax compliance).
171. Elizabeth F. Loftus, To File, Perchance To Cheat, PSYCHOL. TODAY, Apr. 1985, at 38.
172. Scholars have also expressed doubts about the effectiveness of ideas to use the findings of prospect theory (that is, to increase the number of taxpayers who are entitled to refund) to promote compliance. John S. Carroll, Compliance with the Law: A Decision-Making Approach to Taxpaying, 11. L. & HUM. BEHAV. 319, 327 (1987) ("[T]here are other ways to frame this situation that makes this policy recommendation more risky, such as framing each withholding as a loss, or comparing oneself to other people who may pay less taxes."). The idea of switching the sequence of filing and auditing is not susceptible to such concerns.
173. See, e.g., United States v. Ashley, 876 F.2d 1069, 1072 (1st Cir. 1989) ("Prior to granting authorization for a wiretap, the issuing court 'must satisfy itself that the government has used normal techniques but it has encountered difficulties in penetrating a criminal enterprise or in gathering evidence-to the point where ... wiretapping becomes reasonable.' " (quoting United States v. Abou-Saada, 785 F.2d 1, 11. (1st Cir. 1986))).
174. See, e.g., Vo v. City of Garden Grove, 9 Cal. Rptr. 3d 257, 262-64 (Cal. Ct. App. 2004). In addressing a rise in violent gang crimes, the City of Garden Grove enacted an ordinance to regulate the operation of cyber cafes. Among other provisions, the city required the installation of closed circuit cameras. In his dissent, Judge Sills argued that such cameras violate costumer privacy and are unnecessary for the purpose of deterring crime because "[t]here are any number of substantial means by which the city's interest in protecting against gang violence could be realized without video surveillance. Police patrols could be increased."
175. Id. at 279 (Sills, J., dissenting).
176. Section 1.02 of the Model Penal Code, which is devoted to specifying the Code's purposes, states in subsection 1.02(2)(d) that one of the Code's objectives is "to give fair warning of the nature of the sentences that may be imposed on conviction of an offense." MODEL PENAL CODE § 1.02(2)(d) (1962). Fair warning requirements with respect to the sentences are entrenched in numerous criminal codes.
177. For a list of jurisdictions explicitly requiring fair warning with respect to the size of the criminal sanctions, see 1 AM. LAW INST., MODEL PENAL CODE AND COMMENTARIES: PART I, GENERAL PROVISIONS § 1.02 cmt. 3(d) n.38, at 27 (1985).
178. For a discussion of these concerns from the perspective of the principle of legality, see 1 AM. LAW INST., supra note 126, § 1.02 cmt. 2(d);
179. see also JOSHUA DRESSLER, UNDERSTANDING CRIMINAL LAW 42-43 (4th ed. 2006) (discussing the principle of legality and justifying it on justice-based considerations).
180. See 1 AM. LAW INST., supra note 126, § 1.02 cmt. 2(d), at 19 ("The clarity that is attainable is often limited ... by the complexity of the conflicting elements ...."). As Justice Holmes once observed, "[T]he law is full of instances where a man's fate depends on his estimating rightly, that is, as the jury subsequently estimates it.... If his judgment is wrong, not only may he incur a fine or a short imprisonment... he may incur the penalty of death." Nash v. United States, 229 U.S. 373, 377 (1913).
181. The majority of states punish inchoate crimes less severely than completed crimes. See, e.g., CAL. PENAL CODE § 664 (West 1999) (establishing that the maximum term for an attempt is no more than one half of the maximum term authorized for the completed offense);
182. N.Y. PENAL LAW § 110.05 (McKinney 2004 & Supp. 2008) (establishing that punishment for an attempt is typically one classification below that of the completed crime). However, a substantial minority of states have followed Section 5.05(1) of the Model Penal Code and made the punishment for attempt nearly equal to that of the completed crime.
183. See SANFORD H. KADISH ET AL., CRIMINAL LAW AND ITS PROCESSES 545 (8th ed. 2007). Among the state code provisions that follow the Model Penal Code are 720 ILL. COMP. STAT. 5/8-4 (2006);
184. CONN. GEN. STAT. ANN. § 53a-51 (West 2007);
185. DEL. CODE ANN. tit. 11, § 531 (2007);
186. and 18 PA. CONS. STAT. ANN. § 905 (West 1998).
187. Payne v. Tennessee, 501 U.S. 808, 819 (1991) ("[T]he assessment of harm caused by the defendant as a result of the crime charged has understandably been an important concern of the criminal law, both in determining the elements of the offense and in determining the appropriate punishment.").
188. See generally Paul H. Robinson, A Functional Analysis of Criminal Law, 88 NW. U. L. REV. 857 (1994) (reviewing the correlation between victims' harms and the severity of criminal sanctions).
189. E.g., MODEL PENAL CODE § 211.1(1)-(2) (1962) (defining simple and aggravated assault). For a general overview, see Tracy A. Batemen, Annotation, Sufficiency of bodily injury to support charge of aggravated assault, 5 A.L.R.5th 243 (1992) (discussing the boundaries between simple and aggravated assault).
190. See, e.g., Robert A. Mikos, "Eggshell" Victims, Private Precautions, and the Societal Benefits of Shifting Crime, 105 MICH. L. REV. 307, 326-28 (2006) (examining across various jurisdictions the mens rea necessary for conviction in aggravated assault and indicating that it usually requires only that a risk of serious bodily injury was foreseeable).
191. One of the official aims of the Sentencing Guidelines was to eliminate or at least reduce the disparity in sentencing resulting from judicial discretion. Nevertheless, recent studies have established that despite this effort, great disparities still exist. See, e.g., Kirby D. Behre & A. Jeff Ifrah, Foreword: You Be the Judge: The Success of Fifteen Years of Sentencing Under the United States Sentencing Guidelines, 40 A.M. CRIM. L. REV. 5, 7 (2003);
192. see also David B. Mustard, Racial, Ethnic, and Gender Disparities in Sentencing: Evidence from the U.S. Federal Courts, 44 J.L. & ECON. 285 (2001) (presenting data showing substantial sentencing disparities).
193. For a general discussion of mens rea, see DRESSLER, supra note 127, at 125-53.
194. In an effective critique of the deterioration of the mens rea requirement, Richard Singer recently demonstrated the techniques that allow conviction in circumstances under which the perpetrator was unaware of some of the surrounding relevant circumstances. Under the first technique, courts determine that these (unknown) circumstances are not an element of the crime at all but a sentencing factor. Under the second, courts determine that the relevant circumstances create only a "jurisdictional element" of an offense. By employing such classifications, courts in effect allow conviction despite the fact that the perpetrator was not aware of some of the surrounding circumstances, such as the nature of smuggled drugs or the dollar amount of stolen property. Richard Singer, The Model Penal Code and Three Two (Possibly Only One) Ways Courts Avoid Mens Rea, 4 BUFF. CRIM. L. REV. 139 (2000).
195. See infra text accompanying notes 144-147.
196. See infra text accompanying notes 145-147.
197. See infra text accompanying notes 145-147 (addressing in particular the definition of recklessness in section 2.02(2)(c) of the MPC);
198. see also KADISH ET AL., supra note 129, at 225 (explaining that the common law default-culpability standard requires awareness of the possible existence of the relevant circumstances or results).
199. 2 AM. LAW INST., MODEL PENAL CODE & COMMENTARIES: PART II, DEFINITION OF SPECIFIC CRIMES, § 223.1 cmt. 3, at 138 (1985) ("[M]ost jurisdictions classify thefts according to the monetary value of the property stolen.").
200. The distinction between different types of larceny based on the value of the stolen objects are characteristic of many criminal codes, although the terms used to describe the different larceny offences change. See, e.g., N.Y. PENAL LAW §§ 155.25-155.42 (McKinney 1999 & Supp. 2008) (creating crimes of petit larceny and four degrees of grand larceny, depending, inter alia, on the value of the property stolen).
201. DRESSLER, supra note 127, at 593 n.10 (pointing out that the common law distinguished between grand and petit larceny on the basis of the amount taken by the thief).
202. For a discussion of this practice, see Mikos, supra note 132, at 330-32.
203. See also 2 AM. LAW INST., supra note 139, § 223.1. cmt. 3(c), at 146 (arguing that under the traditional view of common law, "the defendant would be held ... to take the jewels as he found them and thus to be guilty of felony theft even though he held the non-reckless belief that the jewels were worth only $100"). The Model Penal Code, however, recommends regarding the amount stolen as a material element of the offense and therefore requires proof that the thief at least considered the possibility that the sum stolen is higher than the threshold for grand or otherwise aggravated theft.
204. Id. § 223.1 cmt. 3(c), at 144.
205. 420 U.S. 671, 684 (1975). For a review of similar decisions, see Singer, supra note 135, at 143-74.
206. Feola, 420 U.S. at 684.
207. Commentators have suggested that several decisions of the Supreme Court might indicate a potential shift in the scope of the mens rea requirement. Under the rules of evidence and procedure, material elements of the offense - as opposed to sentencing factors - must be proven beyond reasonable doubt and be decided by juries rather than by a judge. See Singer, supra note 135, at 174-75. In recent years, the Court has stiffened the evidential and procedural requirements and extended the scope of what constitutes material elements for these purposes. Apprendi v. New Jersey, 530 U.S. 466, 490 (2000) ("Other than the fact of a prior conviction, any feet that increases the penalty for a crime beyond the prescribed statutory maximum must be submitted to a jury, and proved beyond a reasonable doubt.");
208. Blakely v. Washington, 542 U.S. 296, 303-04 (2004) (extending Apprendi and arguing that the "statutory maximum" in Apprendi was "the maximum sentence a judge may impose ... without any additional findings"); United States v. Booker, 543 U.S. 220 (2005) (extending the previous decisions to cover sentencing based on the Federal Sentencing Guidelines). Scholars have argued that this trend might eventually also affect the definition of "material elements" in the context of mens rea.
209. See Singer, supra note 135, at 174-76. To this extent, if the Court applies the requirement with respect to factors that determine the size of the sanction, potential offenders will face less past uncertainty. As our analysis suggests, such a change is likely to decrease deterrence.
210. MODEL PENAL CODE § 2.02(3) (1962) (emphasis added). The general framework of the mens rea requirement of the MPC "has been adopted explicitly in more than half of American jurisdictions." KADISH ET AL., supra note 129, at 222.
211. MODEL PENAL CODE § 2.02(2)(c) (emphasis added).
212. The commentaries to the Model Penal Code clarify this point, explaining that "[a]s the Code uses the term, recklessness involves conscious risk creation. It resembles acting knowingly in that a state of awareness is involved, but the awareness is of risk, that is of a probability less than substantial certainty ...." 1. AM. LAW INST., supra note 126, § 2.02, at 236.
213. See, e.g., Tom Baker et al., The Virtues of Uncertainty in Law: An Experimental Approach, 89 IOWA L. REV. 443 (2004);
214. Alon Harel & Uzi Segal, Criminal Law and Behavioral Law and Economics: Observations on the Neglected Role of Uncertainty in Deterring Crime, 1 AM. L. & ECON. REV. 276 (1999).
215. See, e.g., Harel & Segal, supra note 148, at 279-80 (maintaining that efficiency requires determining "[w]hat is worse from the potential criminal's point of view: a scheme that reinforces certainty or a scheme that reinforces uncertainty" and choosing a scheme that is disfavored by the potential criminal).
216. See, e.g., Baker et al., supra note 148, at 471-72.
217. Pinkerton v. United States, 328 U.S. 640 (1946).
218. Neal Kumar Katyal, Conspiracy Theory, 112 YALE L.J. 1307, 1372-75 (2003) (discussing the effects of the Pinkerton rule on individuals' incentives to take part in a criminal conspiracy).
219. Id. at 1372-73.
220. Id. at 1375.
221. Id. For a similar recent approach concerning the possible advantages of uncertainty in enhancing deterrence, see Dru Stevenson, Toward a New Theory of Notice and Deterrence, 26 CARDOZO L. REV. 1535, 1545-47 (2005). Stevenson noted: Instead of eliminating the deterrent effect of laws, as the classic law and economics writers have assumed, uncertainty functions as a deterrent on its own....The "information gap" created by widespread ignorance of the law, which is an inevitable and natural result of laws ... is not necessarily an insurmountable obstacle to deterring harmful activities. Rather, an optimal level of uncertainty may generate an appropriate equilibrium of deterrence and personal liberty.
222. Id. (citation omitted).
223. See Baker et al., supra note 148.
224. Id. at 457.
225. Id. at 458.
226. Id. at 464.
227. Id. at 461-64.
228. See id. at 471-72. Arguably, these results seem to conflict with prospect theory, which predicts that individuals will be risk loving with respect to losses. Baker and his colleagues suggest that a possible explanation might be the way in which the participants (and criminals in the real world) frame the payoff scheme that involves a certain gain and risk for loss: It appeal's that the participants did not evaluate the sanction in isolation, but rather in conjunction with the benefit derived from making the risky choice.... In this way, the participants appear to have framed [the payoff scheme] as presenting the possibility of a gain, with the resulting risk averse behavior that prospect theory predicts with regard to gains.
229. Id. at 466.
230. See Sara Sun Beale, Too Many and Yet Too Few: New Principles to Define the Proper Limits for Federal Criminal Jurisdiction, 46 HASTINGS L.J. 979, 997 (1995) (noting that individuals indicted in federal courts are usually "subjected to much harsher sentences").
231. Id. at 1000 (alteration in original) (citation omitted).
232. See William Glaberson, Giuliani's Powerful Image Under Campaign Scrutiny, N.Y. TIMES, July 11, 1989, at Al.
233. For a proposal similar to Giuliani's in the context of corporate law, see Ashwini Jayaratnam, Prosecuting Stock-Option Backdating: The Ethics of Enforcement Techniques, 20 GEO. J. LEGAL ETHICS 755, 763-64 (2007). Jayaratnam noted: Another method of achieving optimal deterrence ... is for prosecutors to randomly select a specified number of companies to prosecute. This would be akin to a lottery where the companies chosen for prosecution are essentially picked out of a hat, or chosen on some other random basis.... [T]he arbitrariness of a lottery is likely to keep companies on their toes when it comes to issues like option backdating .... Id.