Funding irrationality

Duke Law Journal

Volumn 59, Issue 6, 2010, Pages 1105-1176

  Zimmerman, Adam S ^a  

^a NEW YORK UNIVERSITY SCHOOL OF LAW   (United States)

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EID: 77955040285     PISSN: 00127086     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (373)

1. Over 95 percent of plaintiffs join class action settlements-that is, they do not affirmatively opt out of the class-after receiving notice of the class action. But a similar percentage will never claim their awards. Compare Theodore Eisenberg & Geoffrey Miller, The Role of Opt-Outs and Objectors in Class Action Litigation: Theoretical and Empirical Issues, 57 VAND. L. REV. 1529, 1532, 1546 (2004) (finding that "on average, less than 1 percent of class members opt-out" and "[t]he median percentage of class members opting out... is a mere 0.1 percent").
2. with, e.g., DEBORAH R. HENSLER ET AL., CLASS ACTION DILEMMAS: PURSUING PUBLIC GOALS FOR PRIVATE GAIN 427-30 (2000) (finding that class action plaintiffs claimed awards with "considerable variation," from less than 1 percent or 5 percent in some cases, but as much as 100 percent participation in settlements that automatically reimburse claimants).
3. Although average deceased-victim awards from the fund were approximately $2.1 million, nearly 70 percent of victims' families filed claims in the last few months of a two-year filing period. See 1 KENNETH R. FEINBERG ET AL., FINAL REPORT OF THE SPECIAL MASTER FOR THE SEPTEMBER 11TH VICTIM COMPENSATION FUND OF 2001, at 110 tbl.12, 112 tbl.14 (2004).
4. See, e.g., Janet Cooper Alexander, Procedural Design and Terror Victim Compensation, 53 DEPAUL L. REV. 627, 672 (2003) ("Many potential claimants delayed filing claims so as to obtain more information about the size of the awards from the Fund and the possibilities for tort recovery.").
5. Elizabeth M. Schneider, Grief, Procedure, and Justice: The September 11th Victim Compensation Fund, 53 DEPAUL L. REV. 457, 458-59 (2003) (observing that the delay in filings was due to grief and trauma).
6. David W. Chen, Applicants Rush to Meet Deadline for Sept. 11 Fund, N.Y. TIMES, Dec. 23, 2003, at A1.
7. See, e.g., John C. Coffee, Jr., Class Action Accountability: Reconciling Exit, Voice, and Loyalty in Representative Litigation, 100 COLUM. L. REV. 370, 406-17 (2000) (explaining the obstacles to representative and participatory class membership).
8. See, e.g., Richard A. Nagareda, Administering Adequacy in Class Representation, 82 TEX. L. REV. 287, 293 (2003) ("[T]he law of class actions should demand from class counsel and their settling defense counterparts a reasoned explanation for the choices they have made in the settlement agreement as well as for their rejection of relevant alternative approaches.").
9. Martin H. Redish & Nathan D. Larsen, Class Actions, Litigant Autonomy, and the Foundations of Procedural Due Process, 95 CAL. L. REV. 1573, 1616 (2007) (arguing that modern procedural due process in class actions is insufficient to protect the class members' right to litigate autonomously).
10. See Tom R. Tyler, A Psychological Perspective on the Settlement of Mass Tort Claims, 53 LAW & CONTEMP. PROBS. 199, 204 (1990) ("[H]aving one's day in court often leads to a more satisfactory claiming experience than does a swift procedure in which litigants are minimally involved.").
11. For a description of the literature and definition of "rationality," see infra Part I.C-D.
12. Amos Tversky & Daniel Kahneman, Availability: A Heuristic for Judging Frequency and Probability, 5 COGNITIVE PSYCHOL. 207, 227-30 (1973) [hereinafter Tversky & Kahneman, Availability].
13. Amos Tversky & Daniel Kahneman, Judgment Under Uncertainty: Heuristics and Biases, 185 SCIENCE 1124, 1130 (1974) [hereinafter Tversky & Kahneman, Judgment Under Uncertainty].
14. See, e.g., Daniel Kahneman, Preface to CHOICES, VALUES, AND FRAMES, at ix, ix-xi (Daniel Kahneman & Amos Tversky eds., 2000) (discussing history of Kahneman and Tversky's decisionmaking theory).
15. see also Jeffrey J. Rachlinski, The Uncertain Psychological Case for Paternalism, 97 NW. U. L. REV. 1165, 1169-70 (2003) (discussing the history of decisionmaking theory in cognitive psychology).
16. Paul Slovic, Baruch Fischoff & Sarah Lichtenstein, Behavioral Decision Theory, 28 ANN. REV. PSYCHOL. 1, 1-2 (1977) (same).
17. See DAN ARIELY, PREDICTABLY IRRATIONAL: THE HIDDEN FORCES THAT SHAPE OUR DECISIONS 10-15 (2008).
18. This decoy effect captures situations when the same option is evaluated more favorably in the presence of comparable (but inferior) options than in the absence of such options.
19. See, e.g., Chris Guthrie, Panacea or Pandora's Box?: The Costs of Options in Negotiation, 88 IOWA L. REV. 601, 607-38 (2003) [hereinafter Guthrie, Panacea] (analyzing cognitive biases in negotiation and individual settlements).
20. Mark Kelman, Yuval Rottenstreich & Amos Tversky, Context-Dependence in Legal Decision Making, 25 J. LEGAL STUD. 287, 290-303 (1996) (observing cognitive bias in jury verdicts).
21. Russell Korobkin, Bounded Rationality, Standard Form Contracts, and Unconscionability, 70 U. CHI. L. REV. 1203, 1226-27 (2003) (observing that many terms in standard form contract provisions will be "non-salient" to buyers because of cognitive biases designed to reduce effort in decisionmaking).
22. see also Chris Guthrie, Prospect Theory, Risk Preference, and the Law, 97 NW. U. L. REV. 1115, 1120-55 (2003) (describing the application of cognitive psychology to a wide variety of legal doctrines, including tort, contract, property, antitrust law, and professional ethics).
23. There are some exceptions. For example, Francis McGovern briefly notes that "cognitive dissonance" may play a role in claimants' perception of a large settlement fund. Francis E. McGovern, The What and Why of Claims Resolution Facilities, 57 STAN. L. REV. 1361, 1384 (2005).
24. Noting that observers of a large fund would be more or less satisfied with the settlement awards based on "the well-known psychological phenomenon of reference points"-when reference points for an award are high based on an expectation of tort-like compensation, claimants may be less satisfied with "welfare-like" low and uniform payments). Richard Nagareda speculates that cognitive bias may influence plaintiffs' counsel's case selection. He suggests that class counsel choose cases when juries are more likely to return high verdicts because they are affected by "hindsight bias," and thus are unsympathetic to the defendants' tortious conduct in light of the resulting injury.
25. See RICHARD A. NAGAREDA, MASS TORTS IN A WORLD OF SETTLEMENT 31-33 (2007). David Dana partially relies on concepts from cognitive psychology to justify more expansive rights for plaintiffs to bring new challenges to class settlements.
26. See David A. Dana, Adequacy of Representation After Stephenson: A Rawlsian/Behavioral Economics Approach to Class Action Settlements, 55 EMORY L.J. 279, 284-85 (2006). No study appears to have systematically examined the effect of cognitive bias on claimants' selection of options in large settlements.
27. Parties are less susceptible to cognitive bias when there are opportunities to learn from experience, when parties have access to third-party expertise (like lawyers), and when parties are not insulated from the consequences of their decisions. See, e.g., Chris Guthrie, Jeffrey J. Rachlinski & Andrew J. Wistrich, Blinking on the Bench: How Judges Decide Cases, 93 CORNELL L. REV. 1, 13-29 (2007).
28. Russell Korobkin & Chris Guthrie, Psychology, Economics, and Settlement: A New Look at the Role of the Lawyer, 76 TEX. L. REV. 77, 124-29 (1997) (observing that the presence of legal counsel-who may be experienced, repeat players-can mitigate potential biases in decisionmaking in settlement).
29. cf. Jennifer Arlen, Comment, The Future of Behavioral Economic Analysis of Law, 51 VAND. L. REV. 1765, 1784-85 (1998) ("[P]eople advised by third parties-for example, by lawyers-are less prone to underestimate certain risks."). Because claimants to large settlements are generally unassisted laypersons, large settlement funds are particularly compelling settings for examining the adverse impact of cognitive bias.
30. This Article borrows from Louis Kaplow and Steven Shavell's comprehensive definition of well-being. Well-being includes everything that a person may value absent the presence of cognitive bias-"personally held notions of fulfillment," "sympathetic feelings for others," "harms to his or her person," "costs and inconveniences," and "taste[s] for a notion of fairness." LOUIS KAPLOW & STEVEN SHAVELL, FAIRNESS VERSUS WELFARE 18, 21 (2002).
31. "[W]ell-being... [is] an actual rather than an external and conceptual state of existence and... referring to [individual] well-being... suggests that the actual individual in question... is the direct object of concern.").
32. see also, e.g., Colin F. Camerer, Prospect Theory in the Wild: Evidence from the Field, in CHOICES, VALUES, AND FRAMES, (describing the effect of default insurance rules on insurance decisions in New Jersey and Pennsylvania).
33. William Samuelson & Richard Zeckhauser, Status Quo Bias in Decision Making, 1 J. RISK & UNCERTAINTY 7, 7-11 (1988) (describing people's exaggerated preference for the status quo and coining the term "status quo bias").
34. see also, e.g., Eldar Shafir, Itamar Simonson & Amos Tversky, Reason-Based Choice, in CHOICES, VALUES, AND FRAMES, (explaining that an individual faced with a choice of two similar options will commonly look for attributes that make it possible to compare the options).
35. Itamar Simonson & Amos Tversky, Choice in Context: Tradeoff Contrast and Extremeness Aversion, 29 J. MARKETING RES. 281, 282 (1992) ("In deciding whether or not to select a particular option, people commonly compare it with other alternatives that are currently available as well as with relevant alternatives that have been encountered in the past.").
36. see also, e.g., Ted O'Donoghue & Matthew Rabin, Doing It Now or Later, 89 AM. ECON. REV. 103, 118-20 (1999) [hereinafter O'Donoghue & Rabin, Now or Later] (explaining a bias in decisionmaking in favor of the present).
37. Ted O'Donoghue & Matthew Rabin, Procrastination in Preparing for Retirement, in BEHAVIORAL DIMENSIONS OF RETIREMENT ECONOMICS 125, 150 (Henry J. Aaron ed., 1999) [hereinafter O'Donoghue & Rabin, Procrastination] ("[P]eople [planning for retirement] are very sensitive to short-term incentives.").
38. For example, Williams-Sonoma sold more bread-makers priced at $275 only after it introduced an even larger model that sold for $400. ARIELY.
39. Itamar Simonson, Get Closer to Your Customers by Understanding How They Make Choices, 35 CAL MGMT. REV. 68, 70 (1993).
40. see also Simone Moran & Joachim Meyer, Using Context Effects to Increase a Leader's Advantage: What Set of Alternatives Should Be Included in the Comparison Set?, 23 INT'L. J. RES. MARKETING 141, 142 (2006) (stating that a seller can offer an expensive version of a product that "is not expected to sell, but should raise the attractiveness of" the less-expensive version). Or, consider this related example: More people will buy Apple's newest $199 iPhone if it is sold for a limited time or in exclusive locations.
41. Cf. Ravi Dhar & Stephen M. Nowlis, The Effect of Time Pressure on Consumer Choice Deferral, 25 J. CONSUMER RES. 369, 373 (1999) (demonstrating that limiting the availability of a product reduces the likelihood that a consumer will defer the choice to purchase that product).
42. Commentators dispute the extent to which consumers can overcome such biases through reflection, experience, and the assistance of others. Compare, e.g., Richard A. Epstein, Exchange, The Neoclassical Economics of Consumer Contracts, 92 MINN. L. REV. 803, 803, 809 (2008) (recognizing cognitive psychology as a "major new theoretical approach to law and economics" but arguing that "consumers and their advisors, as well as... competitive sellers... close [the] information gap" through learning).
43. with Oren Bar-Gill, Exchange, The Behavioral Economics of Consumer Contracts, 92 MINN. L. REV 749, 751, 753-54 (2008) (arguing that the effects of cognitive bias are evidenced when "sellers strategically respond to consumer misperception by redesigning their products, contracts, and pricing schemes" and calling for appropriate legal intervention). Notably, settlement fund claimants are even more likely to be swayed by bias because, unlike repeat purchasers who can learn from experience, claimants rarely get new chances to improve their settlement decisions.
44. See R. Michael Hoefges & Kent M. Lancaster, The Critical Role of Advertising Media Planning in Federal Rule 23 Class Action Notice, 19 J. PUB. POL'Y & MARKETING 201, 201 (2000) (observing that federal judges frequently use mass media advertising in class actions to meet legal notice requirements). Indeed, some commentators have likened the class action settlement process to large business transactions.
45. See, e.g., William B. Rubenstein, A Transactional Model of Adjudication, 89 GEO. L.J. 371, 419 (2001) (characterizing class action settlements as large business transactions that exchange bundles of legal rights for money).
46. Participants in large settlements are especially vulnerable to biases that have been well documented in studies of consumer behavior. Just like businesses, settlement funds rely on advertising to notify potential participants, and many funds offer the kinds of settlement options that would appear in a generic commercial advertisement for consumers. See FED. R. CIV. P. 23(c), 23(e).
47. MANUAL FOR COMPLEX LITIGATION (FOURTH) § 21.312 (2004) (identifying the following as permissible methods of settlement notice: sent by mail; printed in major dailies; and advertised on television, radio, and the internet). Judge Barbara Rothstein, Chair of the Federal Judicial Center, describes the Center's marketing-like efforts to make such notices more readable, "[w]ith help from linguists, communications specialists, and focus groups." BARBARA J. ROTHSTEIN & THOMAS F. WILLGING, FED. JUDICIAL CTR., MANAGING CLASS ACTION LITIGATION: A POCKET GUIDE FOR JUDGES 19 (2005).
48. (Observing the need to grab the reader and noting that "[a] picture of asbestos insulation products may trigger an association in the reader's mind"). Similarly, the Administrative Procedure Act, which governs many public compensation funds, requires widespread notice of formal adjudication. See Administrative Procedure Act, 5 U.S.C. § 554(b) (2006).
49. Comparing opt-out rates for small, negative-value consumer claims with large mass tort claims.
50. See, e.g., RICHARD H. THALER & CASS R. SUNSTEIN, NUDGE 4-6 (2008).
51. Cass R. Sunstein & Richard H. Thaler, Libertarian Paternalism Is Not an Oxymoron, 70 U. CHI. L. REV. 1159, 1162 (2003).
52. see also, e.g., Colin F. Camerer et al., Regulation for Conservatives: Behavioral Economics and the Case for "Asymmetric Paternalism," 151 U. PA. L. REV. 1211, 1211-14 (2003) (describing a similar approach that would influence irrational decisionmakers through law but that would not penalize rational actors).
53. Christine Jolls & Cass R. Sunstein, Debiasing Through Law, 35 J. LEGAL STUD. 199, 200 (2006) (advocating a legal policy concept that reduces bias in rational decisionmaking and does not insulate decisionmakers from their choices).
54. The most recent data on pending federal class action filings was released in September 2004 by the Administrative Office of the United States Courts. It shows that over 5,179 class action claims were pending in federal court as of September 2004. See LEONIDAS RALPH MECHAM, ADMIN. OFFICE OF THE U.S. COURTS, JUDICIAL BUSINESS OF THE UNITED STATES COURTS: 2004 ANNUAL REPORT OF THE DIRECTOR 400 tbl.X-4 (2004), available at http://www.uscourts.gov/judbus2004/appendices/x4.pdf.
55. See Deborah R. Hensler, Alternative Courts? Litigation-Induced Claims Resolution Facilities, 57 STAN. L. REV. 1429, 1433 (2005) (finding a "dizzying array" of fund designs, and observing that there has been no "systematic data collection" regarding the variety of fund designs, the reasons why fund designers have adopted some designs over others, or the "outcomes for claimants and funders of different design decisions").
56. See FED. R. CIV. P. 23(a).
57. THOMAS E. WILLGING, LAURAL L. HOOPER & ROBERT J. NIEMIC, EMPIRICAL STUDY OF CLASS ACTIONS IN FOUR FEDERAL DISTRICT COURTS: FINAL REPORT TO THE ADVISORY COMMITTEE ON CIVIL RULES 61-62 (1996) (noting the large number of settlement class actions in the districts studied).
58. FED. R. CIV. P. 23(e)(2). Although the rule does not include more specific factors to determine that a settlement is fair, federal courts have developed a common set of factors, which include: (1) likelihood of recovery, or likelihood of success; (2) amount and nature of discovery or evidence; (3) settlement terms and conditions; (4) recommendation and experience of counsel; (5) future expense and likely duration of litigation; (6) recommendation of neutral parties, if any; (7) the number of objectors and the nature of objections; and (8) the presence of good faith and the absence of collusion.
59. See 4 ALBA CONTE & HERBERT B. NEWBERG, NEWBERG ON CLASS ACTIONS § 11:43 (4th ed. 2002).
60. FED. R. CIV. P. 23(c)(2).
61. advisory committee's note (observing that Rule 23(b)(3) "encompasses those cases in which a class action would achieve economies of time, effort, and expense, and promote uniformity of decision as to persons similarly situated, without sacrificing procedural fairness").
62. See Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 617 (1997) ("A class action solves this problem by aggregating the relatively paltry potential recoveries into something worth someone's (usually an attorney's) labor." (quoting Mace v. Van Ru Credit Corp., 109 F.3d 338, 344 (7th Cir. 1997))).
63. See David Rosenberg, Adding a Second Opt-Out to Rule 23(b)(3) Class Actions: Cost Without Benefit, 2003 U. CHI. LEGAL F. 19, 27-30 (arguing for aggregative procedures to allow plaintiffs' counsel to make an optimal investment in the litigation).
64. David Rosenberg, Mass Tort Class Actions: What Defendants Have and Plaintiffs Don't, 37 HARV. J. ON LEGIS. 393, 397-400 (2000) [hereinafter Rosenberg, Mass Tort Class Actions] (explaining how aggregating classable claims creates economies of scale favorable to plaintiffs).
65. Judith Resnik, Dennis E. Curtis & Deborah R. Hensler, Individuals Within the Aggregate: Relationships, Representation, and Fees, 71 N.Y.U.L. REV. 296, 382 (1996) (summarizing democratic theories involving access to litigation).
66. Jenkins v. Raymark Indus., Inc., 782 F.2d 468, 473 (5th Cir. 1986) (quoting lower court opinion) (granting certification of a class action involving asbestos). See generally JACK B. WEINSTEIN, INDIVIDUAL JUSTICE IN MASS TORT LITIGATION: THE EFFECT OF CLASS ACTIONS, CONSOLIDATIONS, AND OTHER MULTIPARTY DEVICES 135-36 (1995) (noting that economies of scale reduce discovery and expert fees).
67. William Schwarzer, Settlement of Mass Tort Class Actions: Order Out of Chaos, 80 CORNELL L. REV. 837, 837-38 (1995) (explaining how class actions are seen as a remedy to duplicative litigation activity).
68. Jack B. Weinstein, The Role of Judges in a Government of, by, and for the People, 30 CARDOZO L. REV. 1, 174 (2008) (observing that the procedural benefits include a substantial reduction in costs of "discovery, retention of experts, legal research and legal fees").
69. see also THOMAS E. WILLGING, FED. JUDICIAL CTR., APPENDIX C: MASS TORTS PROBLEMS AND PROPOSALS: A REPORT TO THE MASS TORTS WORKING GROUP 20 (1999) (observing that grouping claims provides "an opportunity to correct more systematically the harms that products have caused, [and] to meet more consistently and completely the compensation goals of the tort system").
70. Rosenberg, Mass Tort Class Actions
71. Nancy Morawetz, Bargaining, Class Representation and Fairness, 54 OHIO ST. L.J. 1, 42-46 (1993) (articulating a "mixed-model" of fairness that balances the utilitarian interest in maximizing the total recovery for the class against the defendants' cost structure and the need to ensure that the settlement does not unfairly exclude individual members of the class). The idea that funds should compensate as many eligible claimants as equitably as possible is also reflected in the claim settlement procedures of many mass tort settlements forged through class actions and bankruptcy.
72. See, e.g., NAT'L GYPSUM CO. BODILY INJURY TRUST, FIRST AMENDED CLAIMS RESOLUTION PROCEDURES 1 (2003) (on file with the Duke Law Journal) ("[T]he NGC Bodily Injury Trust shall treat similar claims with similar circumstances as equivalently as possible.").
73. UNR INDUS. INC. ASBESTOS-DISEASE CLAIMS TRUST, ANNEX B TO THE PROPOSED TRUST AGREEMENT: ASBESTOS-DISEASE CLAIMS RESOLUTION PROCEDURES 134-35 (1990) (on file with the Duke Law Journal) ("The purpose of the Procedures is to provide fair payment to all persons.... [S]ettlements shall be favored over all other forms of claim resolution, and the lowest feasible transaction costs shall be incurred in order to conserve resources and ensure, as much as possible, substantially equal payment for all valid claims.").
74. MANVILLE PERS. INJ. SETTLEMENT TRUST, TRUST DISTRIBUTION PROCESS 1 (1988) (on file with the Duke Law Journal) ("The goal of the Manville Personal Injury Settlement Trust... is to treat all claimants equitably.").
75. See Geoffrey P. Miller & Lori S. Singer, Nonpecuniary Class Action Settlements, 60 LAW & CONTEMP. PROBS. 97, 101-07 (1998) (developing a "typology" of in-kind awards used in class action settlements that includes (1) coupons, (2) securities, (3) medical monitoring for future harm, (4) funds in which unclaimed settlement funds return to the defendant, and (5) "fluid recovery" schemes in which unclaimed settlement funds are distributed to organizations other than injured class members).
76. Observing that the opportunity for claimants to "testify about the consequences of the events and to express their rage, frustration, and sorrow could be a constructive and desirable function of claims administration".
77. Kenneth R. Feinberg, The Dalkon Shield Claimants Trust, 53 LAW & CONTEMP. PROBS. 79, 94 (1990) (recognizing that the range of procedures in a compensation fund may range from a simple, workers' compensation-like system, which issues predetermined awards based on limited characteristics of the claim, to more complex and individualized processes).
78. See FED. R. CIV. P. 23(b)(1)(B).
79. Arthur R. Miller, An Overview of Federal Class Actions: Past, Present, and Future, 4 JUST. SYS. J. 197, 211 (1977) ("The paradigm Rule 23(b)(1)(B) case is one in which there are multiple claimants to a limited fund... [and t]here is a risk, if litigants are allowed to proceed on an individual basis, that those who sue first will deplete the fund and leave nothing for the late-comers.").
80. Many of the goals of class action settlements, particularly in mass tort cases, may also be accomplished in bankruptcy. See Francis E. McGovern, Resolving Mature Mass Tort Litigation, 69 B.U.L. REV. 659, 681-82 (1989) (analyzing the mechanics of estimating total claims and providing different options to claimants).
81. Alan N. Resnick, Bankruptcy as a Vehicle for Resolving Enterprise-Threatening Mass Tort Liability, 148 U. PA. L. REV. 2045, 2048 (2000) (same).
82. Douglas G. Smith, Resolution of Mass Tort Claims in the Bankruptcy System, 41 U.C. DAVIS L. REV. 1613, 1615 (2008) (describing bankruptcy proceedings as an important tool in mass tort cases).
83. For a comparison of settlement funds accomplished through bankruptcy and class actions, see ELIZABETH GIBSON, FED. JUDICIAL CTR., CASE STUDIES OF MASS TORT LIMITED FUND CLASS ACTION SETTLEMENTS & BANKRUPTCY REORGANIZATIONS (2000), available at http://www.fjc.gov/public/pdf.nsf/lookup/MassTort.pdf/$file/MassTort.pdf. For this reason, this Article refers to "class action settlement funds" and "private settlement funds" interchangeably.
84. Erin G. Holt, Note, The September 11 Victim Compensation Fund: Legislative Justice Sui Generis, 59 N.Y.U. ANN. SURV. AM. L. 513, 513 (2004).
85. See, e.g., 4 ANNALS OF CONG. 1000-02 (1794) (delegating authority to the President to establish a commission for the distribution of relief following the Whiskey Rebellion).
86. Act of April 9, 1816, ch. 40, 3 Stat. 261 (1816) (indemnifying private property losses in the War of 1812).
87. See Michele L. Landis, Note, "Let Me Next Time Be 'Tried by Fire'": Disaster Relief and the Origins of the American Welfare State 1789-1874, 92 NW. U. L. REV. 967, 975-81 (1998) (describing private petitioning of Congress early in American history).
88. tracing the development of disaster relief funds from the 1790s through the Reconstruction Era.
89. Michele Landis Dauber, The War of 1812, September 11th, and the Politics of Compensation, 53 DEPAUL L. REV. 289, 290 (2003) (comparing the administrative efforts to compensate victims in the aftermath of the War of 1812 and September 11, 2001).
90. See, e.g., Black Lung Benefits Act, 26 U.S.C. § 9501 (2006).
91. Longshore and Harbor Workers' Compensation Act, 33 U.S.C. §§ 901-50 (2006).
92. National Flood Insurance Act, 42 U.S.C. §§ 4001-129 (2006).
93. Jack B. Weinstein, Compensation for Mass Private Delicts: Evolving Roles of Administrative, Criminal, and Tort Law, 2001 U. ILL. L. REV. 947, 952 (describing the increasing role of administrative agencies, like the FTC, SEC, and EPA, to provide compensation through "disgorgement, mediation, settlement, and other techniques").
94. Air Transportation Safety and System Stabilization Act, Pub. L. 107-42, §§ 401-07, 115 Stat. 230, 237-41 (2001) (codified at 49 U.S.C. § 40101 (2006)).
95. 42 U.S.C. § 300aa-11 (2006).
96. See Minnesota Emergency Relief Fund, 2008 Minn. Laws, ch. 288 (codified at MINN. STAT. §§ 3.7391-.7395 (2008)). Other examples of such settlement programs include the Ricky Ray Hemophilia Relief Fund Act, 42 U.S.C. § 300c-22 note (2006), establishing a $750,000,000 fund to pay $100,000 worth of "compassionate payments," and the Energy Employees Occupational Illness Compensation Program Act, 42 U.S.C. §§ 7384-85s-15 (2006), compensating Department of Energy nuclear weapons workers who suffered occupational illnesses as a result of exposure.
97. See, e.g., 49 U.S.C. § 40101 note sec. 405(c)(3)(B)(i) (conditioning eligibility on a waiver of "the right to file a civil action (or to be a party to an action) in any Federal or State court for damages sustained as a result of the terrorist-related aircraft crashes of September 11, 2001").
98. See, e.g., September 11 Victim Compensation Fund of 2001, 66 Fed. Reg. 66,274, 66,274 (interim final rule Dec. 21, 2001) (codified at 28 C.F.R. pt. 104) ("The Fund offers the eligible claimant an alternative to litigation. To succeed in the courtroom, a victim of the September 11 tragedy, or his or her representative, would be compelled to litigate, probably for many years at excessive cost, and with all the uncertainty of result which is part of the litigation process.").
99. U.S. Dep't of Health Res. and Servs. Admin., National Vaccine Injury Compensation Program, http://www.hrsa.gov/Vaccinecompensation/ (last visited Jan. 26, 2010) ("The VICP was established to...maintain an accessible and efficient forum for individuals found to be injured by certain vaccines.").
100. See, e.g., September 11 Victim Compensation Fund of 2001, 66 Fed. Reg. at 66,280 ("The Department believes that it is important that this Fund be accessible to potential claimants who have limited resources and who are not trained in the law.").
101. Observing that the source of authority and funding for the facility will affect the choice of "organization, methodology, and payment mechanisms".
102. Gary Becker provides a traditional account of the basic assumptions that underlie rational decisionmaking. See GARY BECKER, THE ECONOMIC APPROACH TO HUMAN BEHAVIOR 14 (1976) ("[A]ll human behavior can be viewed as involving participants who maximize their utility from a stable set of preferences and accumulate an optimal amount of information....").
103. see also Amos Tversky & Daniel Kahneman, Rational Choice and the Framing of Decisions, 59 J. BUS. S251, S251-54 (1986) (summarizing a hierarchy of principles underlying rational choices).
104. see also Joel Huber, John W. Payne & Christopher Puto, Adding Asymmetrically Dominated Alternatives: Violations of Regularity and the Similarity Hypothesis, 9 J. CONSUMER RES. 90, 90 (1982) (describing the basic premises of regularity).
105. Describing the basic premises of context independence.
106. See, e.g., Lucian A. Bebchuk & Richard A. Posner, One-Sided Contracts in Competitive Consumer Markets, 104 MICH. L. REV. 827, 832 (2006) ("Indeed, the costs of becoming informed may exceed the benefit, resulting in rational ignorance of hidden traps in contracts that competition may not dispel.").
107. Melvin Aron Eisenberg, The Limits of Cognition and the Limits of Contracts, 47 STAN. L. REV. 211, 243 (1995) ("For the form taker, any given form contract is normally a one-shot transaction. This is one reason why the costs of searching and deliberating on the terms or of retaining a lawyer to evaluate them will normally far exceed the benefits of search and processing."). Indeed, a substantial body of law and economic literature in the area of consumer contracting is devoted to encouraging rational contracting based on the assumption that consumers will not read standard form contracts.
108. See Shmuel I. Becher, Asymmetric Information in Consumer Contracts: The Challenge that Is Yet to Be Met, 45 AM. BUS. L.J. 723, 725 n.10 (2008) (gathering scholarship critical of standard form contracting).
109. Avery Katz, The Strategic Structure of Offer and Acceptance: Game Theory and the Law of Contract Formation, 89 MICH. L. REV. 215, 273 (1990) (noting how it is rational for individuals to sign standard form contracts without understanding their terms due to the high costs involved).
110. Alan Schwartz & Louis L. Wilde, Intervening in Markets on the Basis of Imperfect Information: A Legal and Economic Analysis, 127 U. PA. L. REV. 630, 636 (1979) (arguing that although many consumers do not read contracts, a minority of "informed consumers" will police suspicious contract terms).
111. See, e.g., Richard A. Epstein, Class Actions: Aggregation, Amplification, and Distortion, 2003 U. CHI. LEGAL. F. 475, 510 ("[A]ll options have some positive value, and the control of one's own litigation cannot be regarded as a small detail within the overall scheme of civil procedure.").
112. For example, securities class action settlements typically only offer these two options. This is because securities class actions do not present the difficult questions of causation and injury as personal injury, antitrust, and consumer protection claims.
113. See Claim Form, Apple Computer, Inc.: iPod Misrepresented Battery Life, http://classactionworld.com/public/showdocument.php?d=10908 (last visited Jan. 26, 2010) (explaining the terms of the iPod Battery Settlement).
114. Balancing the interest in maximizing the total recovery for the class against the defendants' cost structure and the need to ensure that the settlement does not unfairly exclude individual members of the class.
115. A. Mitchell Polinsky & Daniel L. Rubinfeld, A Damage-Revelation Rationale for Coupon Remedies, 23 J.L. ECON. & ORG. 653, 654 n.6 (2007) ("Intensive iPod users are more likely to experience another battery failure in the future and would value the store credit more than the cash alternative, whereas infrequent users would benefit more from the cash.").
116. See, e.g., In re Diet Drugs Prods. Liab. Litig., 543 F.3d 179, 181 (3d Cir. 2008) (utilizing matrices of injury to determine payout).
117. Observing that the selection of an "appropriate procedural mechanism for distributing money is closely tied to the issue of valuation of claims".
118. see also, e.g., NAT'L GYPSUM CO. BODILY INJURY TRUST, (providing that claimants may seek expedited review and payment ("ER") or individual review and payment ("IR")).
119. "Had the Fund opted to curtail access or failed to offer explanations... some portion of claimants would likely have been sufficiently uncomfortable or uncertain to commit to the Fund.".
120. citing a study of court-annexed arbitration and noting that the most "frequently cited objective of lay litigants... in adjudicatory proceedings was to 'tell my side of the story'".
121. See Kenneth Feinberg, The Building Blocks of Successful Victim Compensation Programs, 20 OHIO ST. J. ON DISP. RESOL. 273, 274-75 (2005) ("If you tell 9/11 families, 'You get an award; that's it, you can't go to court,' every intuitive bone in my body says, 'That won't work....' You must give claimants a sense that they are involved in the process. This idea that an award will come on down from on high and you'll take it and like it doesn't sit well with families or with any consumer of a designed program.").
122. FED. JUDICIAL CTR., "ILLUSTRATIVE" FORMS OF CLASS ACTION NOTICES: PRODUCTS LIABILITY CLASS ACTION CERTIFICATION AND SETTLEMENT: FULL NOTICE 6 (2003), http://www.fjc.gov/public/pdf.nsf/lookup/ClaAct04.pdf/$file/ClaAct04.pdf.
123. Similarly, the September 11 Victim Compensation Fund offered victims' families two procedural alternatives. See 28 C.F.R. § 104.31 (2009) (Procedure for Claims Evaluation). Those who selected "Track A" were entitled to an administrative determination of a wrongful death and estate award based on a limited number of factors in 45 days. (describing the "Track A" process). Those who selected "Track B" were entitled to submit more information and attend a hearing before the Special Master or his designee within 120 days. (describing the "Track B" process).
124. This Figure comes from a Federal Judicial Center sample form. See FED. JUDICIAL CTR.
125. Opt-in class actions also exist in limited contexts, like in employment and labor litigation. See, e.g., Age Discrimination and Employment Act, 29 U.S.C. § 626(b) (2006).
126. Fair Labor Standards Act, 29 U.S.C. § 216 (2006). Since 1966, however, class action settlements generally require that participants affirmatively opt out of most settlements either before or after terms of the settlement have been reached.
127. See FED. R. CIV. P. 23(b)(3), 23(e). Notwithstanding the fact that opt-in class actions are rare under federal and state law, some commentators have recommended that class action rules formally require parties to opt in.
128. See DEBORAH R. HENSLER ET AL., (describing recommendations to change Rule 23 to an opt-in process).
129. Class action settlements may require that claimants file anywhere from sixty days after receipt of a class action notice to two years after receipt of the notice. Compare Claim Form, with In re A.H. Robins Co., 88 B.R. 742, 745 (E.D. Va. 1988) (establishing a nine-month deadline), and In re Holocaust Victim Assets Litig., 319 F. Supp. 2d 301, 302 (E.D.N.Y. 2004) (establishing a lengthy deadline in light of the difficulty of identifying claims).
130. The National Vaccine Injury Compensation Program offers parties the opportunity to opt out of the traditional litigation system, in some cases, as early as 240 days. 42 U.S.C. § 300aa-21(b)(1) (2006).
131. The September 11 Victim Compensation Fund, by contrast, gave claimants two years to opt into the fund. 49 U.S.C. § 40101 note sec. 405(a)(3) (2006).
132. The Ricky Ray Hemophilia Relief Fund gave claimants three years to opt into the fund. See 42 U.S.C. § 300c-22 note sec. 105 (2006).
133. See, e.g., Ortiz v. Fibreboard Corp., 527 U.S. 815, 846-47 (1999) (observing that class actions that do not permit claimants to opt out defy the "day-in-court" ideal).
134. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812 (1985) (observing that due process requires that "at a minimum... an absent plaintiff [must] be provided with an opportunity to remove himself from the class").
135. see also John C. Coffee, Jr., Class Wars: The Dilemma of the Mass Tort Class Action, 95 COLUM. L. REV. 1343, 1447, 1465 (1995) (highlighting the importance of the right to opt out in mass tort cases).
136. See, e.g., Deloach v. Philip Morris Co., No. 1:00CV01235, 2003 WL 230949907, at *11 (M.D.N.C. Dec. 19, 2003) (finding that the small number of claimants who chose to opt out warranted higher than usual compensation for counsel).
137. In re Am. Bank Note Holographics, Inc., 127 F. Supp. 2d 418, 425 (S.D.N.Y. 2001) (observing as significant that out of 5,000 notices "not a single objection... ha[d] been received").
138. Shaw v. Toshiba Am. Info. Sys., Inc., 91 F. Supp. 2d 942, 961 (E.D. Tex. 2000) (taking judicial notice that, "despite a potential class of thousands-if not millions-of owners" of Toshiba laptop computers, fewer than thirty objections were filed in response to the "well-publicized announcement of this proposed Settlement Agreement").
139. Christopher R. Leslie, The Significance of Silence: Collective Action Problems and Class Action Settlements, 59 FLA. L. REV. 71, 87-90 (2007) (gathering cases).
140. Arguing that funds that do not provide an opportunity to opt out "should be found to be unconstitutional" except in limited circumstances.
141. But see Samuel Issacharoff, Governance and Legitimacy in the Law of Class Actions, 1999 SUP. CT. REV. 337, 369 (noting that although the opt-out right has been recently equated with fairer settlements, historically "it has never been clear that the capacity to absent oneself has ever served as the key to due process protections").
142. see also John Bronsteen & Owen Fiss, The Class Action Rule, 78 NOTRE DAME L. REV. 1419, 1441 (2003) (arguing that individuals who opt out are signaling dissatisfaction with the suit and are protecting their own interests).
143. Many commentators considered the September 11 Victim Compensation Fund to be a success because over 97 percent of all potential victims chose to join the fund. The fund, however, would not have successfully attracted families without the unprecedented levels of assistance from lawyers providing free services. See, e.g., LLOYD DIXON & RACHEL K. STERN, COMPENSATION FOR LOSSES FROM THE 9/11 ATTACKS 40 n.46 (2004) (detailing the success of the Fund but observing that over 1,100 attorneys provided free legal services to over 1,700 Fund applicants).
144. Leo Boyle, No Victim Left Behind, TRIAL, July 2004, at 66, 66 (estimating the value of free legal services at $350 million).
145. See John C. Coffee, Jr., Understanding the Plaintiff's Attorney: The Implications of Economic Theory for Private Enforcement of Law Through Class and Derivative Actions, 86 COLUM. L. REV. 669, 726 (1986) (explaining that the goal of class action reform should be to reduce agency costs between class counsel and its members).
146. Jonathan R. Macey & Geoffrey P. Miller, The Plaintiffs' Attorney's Role in Class Action and Derivative Litigation: Economic Analysis and Recommendations for Reform, 58 U. CHI. L. REV. 1, 7-8 (1991) (arguing that class action attorneys operate according to their own personal interests with little oversight).
147. Leslie, Others observe that attorneys lack rational incentives to obtain fair settlements for their clients because attorneys may earn large attorneys' fees by settling quickly.
148. See, e.g., Jack B. Weinstein, Ethical Dilemmas in Mass Tort Litigation, 88 NW. U. L. REV. 469, 529 (1994) (noting criticism and observing that judges should "ensure that the contingency fee system and the incentives that it is founded upon operate properly and are not distorted by the nature and size of the cases").
149. John C. Coffee, Jr., The Regulation of Entrepreneurial Litigation: Balancing Fairness and Efficiency in the Large Class Action, 54 U. CHI. L. REV. 877, 883-89 (1987) (describing the possibility of "sweetheart settlements" arising for the benefit of the defendant and class counsel).
150. See, e.g., Bruce L. Hay, Asymmetric Rewards: Why Class Actions (May) Settle for Too Little, 48 HASTINGS L.J. 479, 479 (1997) (articulating concerns about class counsel "selling out" and settling for less than reasonably possible).
151. Christopher R. Leslie, A Market-Based Approach to Coupon Settlements in Antitrust and Consumer Class Action Litigation, 49 UCLA L. REV. 991, 996 (2002) ("Although the class counsel is supposed to represent the class's interests and be compensated based on how well it does so, coupon settlements decouple the interests of the class and its counsel.").
152. See Alexandra D. Lahav, The Law and Large Numbers: Preserving Adjudication in Complex Litigation, 59 FLA. L. REV. 383, 394-95 (2007) (comparing "capture" by special interest groups of public agencies to collusion between defense and class counsel at the expense of the plaintiff class). Those challenging public settlement funds argue that they are substantively unfair because they are the product of "rent-seeking" legislation-laws that provide benefits to discrete groups of businesses or private interests who have rational incentives to petition the government at the expense of the national interest. The September 11 Victim Compensation Fund, for example, was criticized as a product of airline lobbyists and other interest groups seeking to protect themselves but ignoring other victims of terrorism.
153. Raising questions of fairness in the September 11 Victim Compensation Fund by asking "[w]hat distinguishes the beneficiaries of this program from other similarly situated persons and requires us to treat them differently". Other public settlement schemes have attracted the same kind of controversy. The Price-Anderson Act, 42 U.S.C. § 2210© (2006), which caps damages in any single nuclear accident at $560 million, the National Vaccine Program, 42 U.S.C. §§ 300aa-1 to -33, which imposes limits on the assertion of claims against vaccine manufacturers, and the proposed Fairness in Asbestos Injury Resolution Act of 2003 ("FAIR Act"), S. 1125, 108th Cong. §§ 202-04 (2003), which placed caps on asbestos liability for certain businesses and insurers, have all been criticized as providing unearned benefits to particular interest groups.
154. See, e.g., AM. LAW INST., COMPLEX LITIGATION PROJECT 24 (1993) ("The procedural fairness achieved by processing claims individually may sacrifice the fairness of reaching a just result in a timely fashion.").
155. Resnick, ("[W]hen the principal and agent are client and lawyer, the relationship... has a social and political valence.").
156. See, e.g., Owen M. Fiss, Against Settlement, 93 YALE L.J. 1073, 1084-85 (1984) (arguing that settlement procedures are not adjudicative, but rather, the "products of a bargain between parties rather than of a trial and an independent judicial judgment").
157. Judith Resnick, Failing Faith: Adjudicatory Procedure in Decline, 53 U. CHI. L. REV. 494, 545 (1986) (criticizing the development of large alternative compensation schemes and trusts because they empower private administrators to decide compensation "without providing sufficient justification of why they deserve expanded authority").
158. Judith Resnick, Managerial Judges, 96 HARV. L. REV. 374, 425 (1982) (arguing that the shift to large class action settlements transforms the judge into a manager and creates "opportunities for judges to use-or abuse-their power").
159. See WILLGING, (observing that large settlements involving mass torts "make it more likely that individual cases will be disposed of without trial or hearing, raising questions of procedural unfairness in terms of satisfying litigant interests in participating meaningfully in resolving their cases").
160. Accordingly, some, like Professor Richard Nagareda, have argued that public compensation funds may more legitimately resolve large numbers of claims. See NAGAREDA, (observing that public compensation funds, because they are formed through public legislation, more legitimately resolve large numbers of claims than class action settlements, but are more rare because of the "difficulty of obtaining Congressional action").
161. "With the Fund, the effectiveness of claims resolution has been reduced because of other factors as well, such as the complexity of the process... the discretion of the Special Master and of his decisions, and the fact that his discretion is unreviewable.".
162. See, e.g., Gillian K. Hadfield, Framing the Choice Between Cash and the Courthouse: Experiences with the 9/11 Victim Compensation Fund, 42 LAW & SOC'Y REV. 645, 645 (2008) (evaluating responses of claimants to the September 11 Fund and finding that "the choice to forego litigation required the sacrifice of important nonmonetary, civic values").
163. Tom R. Tyler & Hulda Thorisdottir, A Psychological Perspective on Compensation for Harm: Examining the September 11th Victim Compensation Fund, 53 DEPAUL L REV. 355, 355 (2003) (observing that the Victim Compensation Fund violates perceptions of procedural and distributive fairness because rules creating the Fund were determined without "procedurally fair" mechanisms).
164. But see Brian H. Bornstein & Susan Poser, Perceptions of Procedural and Distributive Justice in the September 11th Victim Compensation Fund, 17 CORNELL J.L. & PUB. POL'Y 75, 96 (2007) (finding that claimants to the September 11 Fund were more satisfied with the procedural than the substantive aspects of the Fund, and that perceptions of justice were correlated with the amount of compensation participants received).
165. See Redish & Larsen, (arguing that the failure to provide opt-out rights generally violates "litigant autonomy," which he describes as the freedom to control litigation).
166. Calling coupons "gravy" when offered in conjunction with cash awards.
167. Observing that the law of aggregate litigation promotes values associated with process and participation by "attend[ing] to varying and potentially incommensurate valuations across a range of litigants".
168. Recommending an enhanced right to withdraw from class actions as a way to improve accountability in class action settlements and comparing the option to the ability of a shareholder to sell into the market.
169. George Rutherglen, Better Late than Never: Notice and Opt Out at the Settlement Stage of Class Actions, 71 N.Y.U.L. REV. 258, 259 (1996) (arguing that notice "can be effective in giving most class members an opportunity to object to the terms of settlement or to obtain individual relief").
170. Alexandra Lahav, Fundamental Principles for Class Action Governance, 37 IND. L. REV. 65, 100 (2003).
171. Describing democratic solutions and values of class action governance.
172. Arguing that "[a]n increased likelihood of settlement cannot come at the expense of [the claimants'] right to control their claims".
173. Arguing that, due to time constraints, claimants to the September 11 Victim Compensation Fund had to balance monetary rewards against civic values that might be won through litigation like obtaining "information," seeking "accountability," and promoting "responsive policy change".
174. See Richard A. Epstein, Second Order Rationality, in BEHAVIORAL PUBLIC FINANCE 355, 356 (Edward J. McCaffery & Joel Slemrod eds., 2006) ("[Rationality] presupposes that individuals have a stable set of preferences concerning what they desire not only in the present, but also in any future state of the world, and that they can choose those courses of action that will maximize their chances of reaching their chosen goals." (emphasis added)).
175. Richard A. Posner, An Economic Approach to Legal Procedure and Judicial Administration, 2 J. LEGAL STUD. 399, 420 (1973) (observing that delay increases the likelihood of settlement because, assuming higher borrowing costs for plaintiffs, the expected value of litigating shrinks more rapidly for the plaintiff than the defendant and thereby causes the plaintiff's minimum settlement offer to shrink more rapidly than the defendant's).
176. Paul Slovic, The Construction of Preference, 50 AM. PSYCHOL. 364, 364 (1991).
177. see also Kahneman, (presenting the four main themes of decision theory).
178. Jennifer Arlen & Eric Talley, Introduction to EXPERIMENTAL LAW AND ECONOMICS, at xviii (Jennifer Arlen & Eric Talley eds., 2008) (observing that decisions result from the "concurrent operation of distinct cognitive 'programs', some of which affect our conscious deliberation while others are intuitive, non-conscious processes that intervene prior to conscious decision making").
179. Daniel Kahneman & Shane Frederick, Representativeness Revisited: Attribute Substitution in Intuitive Judgment, in HEURISTICS AND BIASES: THE PSYCHOLOGY OF INTUITIVE JUDGMENT 49, 51-60 (Thomas Gilovich, Dale Griffin & Daniel Kahneman eds., 2002). Psychologists have described many different dual-system models of cognition, but they all distinguish between intuitive processes and deliberative processes.
180. See Keith E. Stanovich & Richard F. West, Individual Differences in Reasoning: Implications for the Rationality Debate?, in HEURISTICS AND BIASES: THE PSYCHOLOGY OF INTUITIVE JUDGMENT, (observing the burgeoning dual system models).
181. See generally DUAL-PROCESS THEORIES IN SOCIAL PSYCHOLOGY (Shelly Chaiken & Yaacov Trope eds., 1999) (collecting dual-process theories).
182. Collecting literature suggesting that dual process models of the brain "find support from evolutionary psychology and neuropsychology".
183. Steven G. Sapra & Paul J. Zak, Neurofinance: Bridging Psychology, Neurology, and Investor Behavior 2-3 (Dec. 1, 2008) (unpublished manuscript), available at http://ssrn.com/abstract=1323051 (attributing automatic processes to early stages of evolutionary development).
184. see also ELKHONON GOLDBERG, THE EXECUTIVE BRAIN: FRONTAL LOBES AND THE CIVILIZED MIND 69-72 (2001).
185. There are some cases in which such intuitive judgments can be remarkably accurate. MALCOLM GLADWELL, BLINK: THE POWER OF THINKING WITHOUT THINKING 44 (2005). Some compare System I processes to a basketball player's "court sense" or Patton's "coup d'oeil"-literally, the "power of the glance"-to "see and make sense of the battlefield." (describing the "theory of thin slices"-the ability of unconscious processes to identify accurate patterns based on very narrow slices of experience).
186. See Tversky & Kahneman, (noting that most important decisions are unique and provide little opportunity for learning or overcoming bias).
187. On Amir & Jonathan Levav, Choice Construction Versus Preference Construction: The Instability of Preferences Learned in Context, 45 J. MARKETING RES. 145, 145 (2008) (showing in repeated experiments that learning through repeated decisions is "highly sensitive" to the structure and context of the original choice set).
188. Dan Ariely, George Lowenstein & Drazen Prelec, "Coherent Arbitrariness": Stable Demand Curves Without Stable Preferences, 118 Q.J. ECON. 73, 73, 102-03 (2003) (showing participants' repeated choices were "strongly influenced by arbitrary 'anchors' [prior cues]").
189. Gathering sources showing that System I processes, with appropriate opportunities for feedback, enable expert intuitive thinkers, such as grandmasters at chess, to make better decisions with "a minimum of time, knowledge, and computation".
190. Arguing that System I is not "necessarily less capable" than System II and describing the ability of "chess masters to perceive the strength or weakness of chess positions instantly".
191. Observing that in contrast to System I, which "quickly proposes intuitive answers" to problems as they arise, System II "monitors the quality of these proposals, which it may endorse, correct, or override".
192. Observing that the presence of legal counsel, who may be experienced repeat players, can mitigate potential biases in decisionmaking in settlement.
193. "Experts, such as lawyers, may be able to reduce the [endowment] effect by reducing people's personal attachment to goods.".
194. (summarizing the literature on tests that exploit cognitive biases of "anchoring," "representativeness," and "hindsight bias" and the results of such tests administered to newly appointed judges.
195. Christine Jolls & Cass R. Sunstein, The Law of Implicit Bias, 94 CAL. L. REV. 969, 976 (2006) (describing how race operates as a System I influence on judgment).
196. see also Tversky & Kahneman, Judgment Under Uncertainty, (describing "systematic errors" from intuitive processes).
197. William Samuelson and Richard Zeckhauser originally coined the term "status quo bias." See Samuelson & Zeckhauser,.
198. See, e.g., Daniel Kahneman, Jack L. Knetsch & Richard H. Thaler, The Endowment Effect, Loss Aversion, and Status Quo Bias, 5 J. ECON. PERSP. 193, 198 (1991) [hereinafter Kahneman et al., Endowment Effect]. Another explanation is the endowment effect. An endowment effect describes occasions when people value what they already have more than what they can have; mere possession of something enhances its value. In the now famous "mugs" experiment, a classroom of business students was offered a choice of coffee mugs or chocolate bars.
199. Daniel Kahneman, Jack L. Knetsch & Richard H. Thaler, Experimental Tests of the Endowment Effect and the Coase Theorem, 98 J. POL. ECON. 1325, 1341-42 (1990) [hereinafter Kahneman et al., Experimental Tests]. When asked to choose, half of the students chose coffee mugs, and the other half, chocolate. Another class was made the same offer after the mugs and chocolate were randomly distributed to the class. In the second class, only ten percent of the students traded their mugs and chocolate, far below what should have taken place given a random distribution. The students only possessed the coffee mug or chocolate for a few seconds, not enough time to develop an emotional, habitual, or learned basis for keeping their items. But when polled, those who were given the mugs tended to demand a price two to three times greater than the price that those without mugs were willing to pay.
200. RICHARD H. THALER, THE WINNER'S CURSE: PARADOXES AND ANOMALIES OF ECONOMIC LIFE 66 (1992). In that short time, the subjects' willingness to give up what they had for something of equivalent value had changed.
201. Kahneman et al., Experimental Tests.
202. See Jonathan Baron & Ilana Ritov, Reference Points and Omission Bias, 59 ORG. BEHAV. & HUM. DECISION PROCESSES 475, 478-81 (1994) (examining the possible causes of status quo and other biases).
203. Maurice Schweitzer, Disentangling Status Quo and Omission Effects: An Experimental Analysis, 58 ORGANIZATIONAL BEHAV. & HUM. DECISION PROCESSES 457, 459 (1994) (explaining causes of status quo bias and omission bias). The converse of omission bias is action bias, when people take excessive preventative action to avoid low-probability but high-consequence events, like acts of terrorism or airplane crashes.
204. See Cass R. Sunstein & Richard Zeckhauser, Overreaction to Fearsome Risks 3 (Harv. Univ. Law Sch. Prog. on Risk Regulation. Paper No. 08-17, 2008), available at http://ssrn.com/abstract=1319881.
205. Jonathan Baron & Ilana Ritov, Omission Bias, Individual Differences, and Normality, 94 ORGANIZATIONAL BEHAV. & HUM. DECISION PROCESSES 74, 75-78 (2004) (reviewing the literature on omission bias in vaccinations).
206. Eric J. Johnson & Daniel G. Goldstein, Defaults and Donation Decisions, 78 TRANSPLANTATION 1713, 1715 (2004) (finding donation rates of 98 percent or greater in all but one of the countries requiring people to opt out of organ donation plans, but 27.5 percent or less in countries that required participant's affirmative consent).
207. Some speculate that this effect is the result of "[l]oss aversion." See, e.g., Kahneman et al., Endowment Effect,. People disfavor losses more than they favor gains, and accordingly, risk more to avoid losses than to secure gains. This is one of the reasons why gamblers and stockholders will risk substantial losses to break even, rather than sell shares or stop gambling for a comparatively small but certain loss.
208. See Terrance Odean, Are Investors Reluctant to Realize Their Losses?, in CHOICES, VALUES, AND FRAMES, Omission bias is a natural consequence of loss aversion because the disadvantages of any potential change loom so much larger than the advantages.
209. See Russell Korobkin, Inertia and Preference in Contract Negotiation: The Psychological Power of Default Rules and Form Terms, 51 VAND. L. REV. 1583, 1587 (1998); Russell Korobkin, The Status Quo Bias and Contract Default Rules, 83 CORNELL L. REV. 608, 664-65 (1998).
210. Russell Korobkin, The Status Quo Bias and Contract Default Rules, 83 CORNELL L. REV. 608, 664-65 (1998).
211. See James M. Poterba, Individual Decision Making and Risk in Defined Contribution Plans, 13 ELDER L.J. 285, 298-301 (2005) (discussing methods to encourage saving).
212. see also Shlomo Benartzi & Richard H. Thaler, Naive Diversification Strategies in Defined Contribution Saving Plans, 91 AM. ECON. REV. 79, 95-96 (2001) (discussing the role of default options in diversification). Absent automatic enrollment, studies demonstrate that only 20 percent of all employees take advantage of 401(k) plans in the first month, and that figure steadily increases to 65 percent over the course of three years. In contrast, automatic enrollment encourages 90 percent of all employees to enroll, and that number steadily increases to 98 percent over the course of the year.
213. See THALER & SUNSTEIN, (citing Brigitte C. Madrian & Dennis F. Shea, The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior, 116 Q.J. ECON. 1149, 1149-225 (2001)). Automatic enrollment options are solutions commonly associated with "libertarian paternalism" and described in more detail in Part III, infra.
214. THALER, (finding that the costs of departing from the default, in some cases, double the value of obtaining a good). Notably, the strength of the endowment effect and the status quo bias is not free from debate.
215. See Arlen & Talley, (summarizing the debate over the scope of the endowment effect).
216. See generally Charles R. Plott & Kathryn Zeiler, The Willingness to Pay-Willingness to Accept Gap, the "Endowment Effect," Subject Misconceptions, and Experimental Procedures for Eliciting Valuations, 95 AM. ECON. REV. 530 (2005) (contesting the existence of the endowment effect). For example, studies have shown that subjects who are only given a voucher that can later be exchanged for a mug-and not the actual mug-exhibit only a weak endowment effect.
217. See Kahneman et al., Experimental Tests,. Substantial evidence, however, also demonstrates that such effects may be prominent for rare decisions, when valuation is difficult.
218. See Leaf Van Boven, George Loewenstein & David Dunning, Mispredicting the Endowment Effect: Underestimation of Owners' Selling Prices by Buyer's Agents, 51 J. ECON. BEHAV. & ORG. 351, 362-64 (2003).
219. Eric Johnson et al., Framing Probability Distortions, and Insurance Decisions, in CHOICES, VALUES, AND FRAMES,.
220. See Redish & Larsen, (arguing that funds that do not provide an opportunity to opt out "should be found to be unconstitutional," except in limited circumstances).
221. But see Samuel Issacharoff, Governance and Legitimacy in the Law of Class Actions, 1999 SUP. CT. REV. 337, 369 (noting that, although the opt-out right has been recently equated with fairer settlements, historically "it has never been clear that the capacity to absent oneself has ever served as the key to due process protections").
222. Eisenberg & Miller,. In 2003, the Supreme Court amended the Federal Rules of Civil Procedure to provide district courts with discretion to reject a settlement "unless it affords a new opportunity to request exclusion to individual class members who had an earlier opportunity to request exclusion but did not do so." FED. R. CIV. P. 23(e)(2).
223. see also Eisenberg & Miller, (discussing the commentator's opinions on opt-out rights).
224. For a detailed discussion of so-called "back-end" opt-out rights, see generally Rhonda Wasserman, The Curious Complications with Back-End Opt-Out Rights, 49 WM. & MARY L. REV. 373 (2007).
225. Surveying class action settlement funds and finding the fraction of funds actually disbursed was "modest to negligible" in so-called "claims-made" settlements, in which class members are asked to come forward and claim compensation.
226. The litigation system itself depends on a certain amount of underclaiming to function. A system in which everyone filed claims for their legal grievances, it has been argued, would overwhelm the court system. See, e.g., SHAVELL & KAPLOW,. Whatever the merits of this argument, it has less weight in the context of a class action settlement or large public settlement fund because such funds are designed to promote equitable and efficient access for a discrete class of potential litigants.
227. See Mathews v. Eldridge, 424 U.S. 319, 335 (1976) (listing the three factors considered in the due process analysis).
228. See, e.g., Ortiz v. Fibreboard Corp., 527 U.S. 815, 846-47 (1999).
229. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812 (1985) (holding that assertion of jurisdiction over absent plaintiffs is consistent with the Due Process Clause because plaintiffs received notice and the right to opt out of class settlement).
230. Observing that "[o]n a number of occasions, the Court has rejected implied waiver in the civil context"). On the other hand, the status quo bias means that the governmental interest in encouraging large settlements-collectively providing more access, efficiency, and equity than traditional litigation-is also higher than has been previously acknowledged. Status quo bias means that when a fund requires people to opt in to participate, people may systematically undervalue the benefits of a group settlement. Thus, opt-in funds may steer litigants away from settlements that they otherwise would like to join. Such effects may also punish those claimants who, although unaffected by status quo bias, are unable to obtain counsel: Attorneys may not undertake the risks of aggregate litigation when, because of the status quo bias, there are not enough claimants to make group litigation worthwhile. See Issacharoff, (describing plaintiff attorney investment costs in aggregate litigation).
231. Arguing that "members of [a] future claimant class can be expected to be rationally apathetic about their future legal rights".
232. Observing that class members "appear to be rationally ignorant about the qualifications of their representatives and accordingly tend to do nothing when offered the opportunity to opt-out or object".
233. See, e.g., Todd B. Hilsee, Shannon R. Wheatman & Gina M. Intrepido, Do You Really Want Me to Know My Rights? The Ethics Behind Due Process in Class Action Notice Is More than Just Plain Language: A Desire to Actually Inform, 18 GEO. J. LEGAL ETHICS 1359, 1373-75 (2005) (describing cases in which claimants never received notice).
234. Some savings plans have experimented with "forced-choice" rules, plans that force parties to choose to opt into the fund or opt out of a fund. SUNSTEIN & THALER,. Such a system, however, is not practical for large settlements. Unlike employers, who can withhold pay until an employee chooses a particular option in a 401(k) plan, no similar incentives exist for claimants to complete forms for a large public or private settlement.
235. More recently, commentators have demonstrated that institutions can encourage greater personal savings by using framing effects. See Emmanuel Saez, Details Matter: The Impact of Presentation and Information on the Take-up of Financial Incentives for Retirement Saving, 1 AM. ECON. J.: ECON. POL'Y 204, 204 (2009) (finding, in a study involving sixty branch offices of H&R block, tax filers were more likely to contribute to IRA plans when an employer subsidy was characterized as a "matching contribution" than as an equivalent "tax credit").
236. see also Lisa Meulbroek, Company Stock in Pension Plans: How Costly Is It? 27-28 (Harv. Bus. Sch. Working Papers Collection, Paper No. 02-058, 2002), available at http://www.hbs.edu/research/facpubs/workingpapers/papers2/0102/02-058.pdf (estimating that owning stock in one's own employer is worth about half that of a diversified portfolio).
237. (describing plans that default participants into funds and managed accounts based on the participants' age and other information).
238. (describing contrast effects in magazine, real estate, and consumer sales).
239. (describing ways in which decoy effects can increase relative attractiveness of dominant brands).
240. (describing increased sales of a Williams-Sonoma bread-maker resulting from the introduction of a new, more expensive one).
241. Of course, if the new option conveys relevant information about the other options, it is reasonable for people to change their assessments of the other options in the choice set. A person who prefers chicken over pasta might rationally change her preference upon learning that veal parmesan is on the menu because the restaurant may specialize in Italian food. But if the new option does not convey relevant information about the food, people should not adjust their assessments.
242. (describing decision-conflict and asymmetric dominance in the sale of compact disc players, Minolta cameras, microwaves, and pens).
243. (describing asymmetric dominance effects in the sale of Cross pens).
244. Scott Highhouse, Context-Dependent Selection: The Effects of Decoy and Phantom Job Candidates, 65 ORGANIZATIONAL BEHAV. & HUM. DECISION PROCESSES 68, 75 (1996).
245. (describing decision-conflict and asymmetric dominance in medical procedures).
246. Yigang Pan, Sue O'Curry & Robert Pitts, The Attraction Effect and Political Choice in Two Elections, 4 J. CONSUMER PSYCHOL. 85, 93-99 (1995) (finding evidence of contrast effect in a study of over 300 students after the reentry of H. Ross Perot into the 1992 U.S. presidential election).
247. Ravi Dhar, Stephen M. Nowlis & Steven J. Sherman, Trying Hard or Hardly Trying: An Analysis of Context Effects in Choice, 9 J. CONSUMER PSYCHOL. 189, 189-90 (2000) (articulating two alternative explanations for contrast bias-one based on attempts to limit effort, the other on perceptual contrast).
248. Sanjay Mishra, U.N. Umesh & Donald E. Stem, Jr., Antecedents of the Attraction Effect: An Information-Processing Approach, 30 J. MARKETING RES. 331, 332-35 (1993) (describing different explanations for contrast and decoy effects in consumer decisionmaking).
249. Ravi Dhar, Consumer Preference for a No-Choice Option, 24 J. CONSUMER RES. 215, 229 (1997) (finding that people are more likely to choose the status quo over two equally attractive options, even if both of these options are individually preferred to the status quo).
250. Jean-Baptiste Pochon et al., Functional Imaging of Decision Conflict, 28 J. NEUROSCIENCE 3468, 3471 (2008).
251. (noting that there is "considerable evidence" demonstrating that decision-conflict between two equally attractive choices can lead to "suboptimal" decisions and mapping the neurobiological effects in the anterior cingulate cortex).
252. Observing that the addition of a "competing alternative" increased the tendency to delay a decision). A closely related concept to decision-conflict is "option devaluation." See Guthrie, Panacea, (describing different consumer studies of "option devaluation"). People rate options more favorably in isolation than when those options are compared to other options.
253. (conducting and describing studies of decoy and compromise effects in jury decisionmaking).
254. (describing ways in which decoy effects can increase the relative attractiveness of dominant brands). These types of effects can occur even when the third option is not clearly inferior to either of the alternatives.
255. Douglas H. Wedell, Distinguishing Among Models of Contextually Induced Preference Reversals, 17 J. EXPERIMENTAL PSYCHOL.: LEARNING MEMORY & COGNITION 767, 768 (1991) (describing how new choices may steer decisionmakers to choose other options).
256. (demonstrating effects in negotiation and settlement).
257. (conducting and describing studies of decoy and compromise effects in jury decisionmaking and settlement negotiations).
258. (finding that in the two-option condition, 65 percent of the subjects preferred to sell a commonly owned painting and 35 percent preferred to give it to the law partner, but in the three-option condition, only 30 percent of the subjects preferred to sell the painting, whereas 70 percent of the subjects preferred to give it to the partner).
259. Finding that, in the three-option group, none chose the "inferior weekend lodging option".
260. Although lawyers and judges appear to be subject to the same kinds of biases, see Guthrie at al., (cataloging studies of judicial decisionmaking), other studies demonstrate that lawyers were comparatively immune to contrast effects in the settlement context.
261. It is unclear whether lawyers respond more rationally because they are repeat players, charged with deciding for someone else, or because they, on average, are more rationally minded.
262. See James R. Bettman, Mary Frances Luce & John W. Payne, Constructive Consumer Choice Processes, 25 J. CONSUMER RES. 187, 187 (1998) (describing how repeat player effects may cause consumers to act more rationally).
263. (noting that neuroscientists have "selected lawyers when they wished to test an occupational group that is characteristically analytical in its preferred mode of thought").
264. (suggesting that lawyers may make more rational decisions because they do not have a personal stake in the negotiated outcome). Recent psychological evidence suggests that decisions about risky choice are affected by the way that people are informed about the decision. Novices make decisions based on information that they obtain through description with little feedback. In such cases, people tend to overvalue rare but risky losses. In contrast, experts who learn by experience, making repeat choices and receiving feedback, tend to undervalue rare but risky losses.
265. See Ralph Hertwig et al., Decisions from Experience and the Effect of Rare Events on Risky Choice, 15 PSYCH. SCI. 534, 535-36 (2004) (observing that "[p]atients' and doctors' decisions are often based on information that, though equivalent in content, comes from different sources").
266. See John M.A. DePippa, How Prospect Theory Can Improve Legal Counseling, 24 U. ARK. LITTLE ROCK L. REV. 81 passim (2001) (applying prospect theory to legal counseling).
267. (arguing that lawyers can promote efficiency in dispute resolution by following a "cognitive error approach").
268. Ian Weinstein, Don't Believe Everything You Think: Cognitive Bias in Legal Decision Making, 9 CLINICAL L. REV. 783 passim (2003) (describing methods to avoid framing, representation, and other biases in counseling).
269. One commentator has called coupons "gravy" when large settlement funds offer cash and coupons, so long as trial judges do not include the coupons' face value when calculating the counsels' fees. Leslie,.
270. See Georgene Vairo, The Dalkon Shield Claimants Trust: Paradigm Lost (or Found)?, 61 FORDHAM L. REV. 617, 630-32 (1992) (describing settlement options and selection rates in the Dalkon Shield Settlement Trust).
271. An independent review of claims found that only a very small portion of claimants sought procedural options that did not match their injuries. See Georgene M. Vairo, Georgine, The Dalkon Shield Settlement Trust, and the Rhetoric of Mass Tort Claim Resolution, 31 LOY. L.A.L. REV. 79, 134 n.275 (1997).
272. (observing that the monetary value of coupons can be estimated because "many defendants use coupons as marketing devices").
273. 28 U.S.C. § 1712 (2006) (limiting the recovery of attorneys' fees in "coupon settlements" and requiring a court hearing to address the reasonableness and adequacy of any "coupon settlement"). Any attorneys' fees based on coupons "shall be based on the value to class members of the coupons that are redeemed.".
274. Indeed, many funds, like securities class action settlements, generally only offer one process for evaluating claims because they do not pose the same evidentiary issues as products liability cases.
275. (calculating the transaction costs in large class action settlements and placing the costs of notice, attorneys' fees, and administrative costs in the "tens of millions of dollars").
276. For example, a decoy option, like a coupon, may counter underclaiming. As discussed above, many claimants default into a settlement fund but never claim an award because of the status quo effect. The "noisy night club study," however, suggests that a settlement fund that offered claimants a decoy-say $25 in cash, a $30 coupon, or the option to give up the right to a lawsuit in exchange for nothing-may actually induce more people to file and select the cash option than to let their rights expire. See infra Part III.B.4.
277. Piers Steel, The Nature of Procrastination: A Meta-Analytic and Theoretical Review of Quintessential Self-Regulatory Failure, 133 PSYCHOL. BULL. 65, 66 (2007) (broadly examining the psychological research on procrastination).
278. See Ted O'Donoghue & Matthew Rabin, Choice and Procrastination, 116 Q.J. ECON. 121, 125 (2003).
279. See, e.g., George F. Lowenstein & Dražen Prelec, Preferences for Sequences of Outcomes, in CHOICES, VALUES, AND FRAMES, (observing that "[t]he tacit premise has been that such judgments will reveal an individuals 'raw' time preference, from which one can then derive preferences over more complex objects. This view we now know to be fundamentally incorrect.").
280. Shane Frederick, George Lowenstein & Ted O'Donoghue, Time Discounting and Time Preference: A Critical Review, 40 J. ECON. LITERATURE 351, 382 (2002).
281. Dilip Soman et al., The Psychology of Intertemporal Discounting: Why Are Distant Events Valued Differently from Proximal Ones?, 16 MARKETING LETTERS 347, 347 (2005).
282. Andrew J. Wistrich, Procrastination, Deadlines, and Statutes of Limitation, 50 WM. & MARY L. REV. 607, 627-30 (collecting studies of "intertemporal discounting" or "hyberbolic discounting").
283. ("[W]hether the person ever completes that task depends on a comparison of its immediate cost to the benefits forgone by brief delay, and has very little to do with either its long-run benefit or the features of other tasks available.").
284. O'Donoghue & Rabin, Now or Later,.
285. The concept of naïve procrastination is closely related to the "planning fallacy," when people underestimate the time it takes to perform a task in the future, even when they know that they have not completed similar tasks by the predicted time in the past. See Wistrich, (collecting studies explaining the planning fallacy).
286. (describing challenges to integrated decisionmaking).
287. (finding that "framing," "spreading," and "time intervals" for a set of choices over time may counter time-inconsistent bias).
288. Daniel Read et al., Choice Bracketing, 19 J. RISK & UNCERTAINTY 171, 191 (1999).
289. O'Donoghue & Rabin, Now or Later,.
290. O'Donoghue & Rabin, Procrastination,.
291. O'Donoghue & Rabin,.
292. Dan Ariely & Klaus Westenbroch, Procrastination, Deadlines, and Performance: Self-Control by Precommitment, 13 PSYCHOL. SCI. 219, 222 (2002) (finding that evenly spaced deadlines discourage procrastination and improve performance).
293. (reviewing the literature of procrastination and finding that it "is not just that deadlines matter, but also that the structure of deadlines matters").
294. Ted O'Donoghue & Matthew Rabin, Incentives for Procrastinators, 114 Q.J. ECON. 769, 770 (1999) (considering the role of procrastination in the context of economic incentive schemes).
295. Colin Camerer and his coauthors use the following example: Suppose a person has $10,000 to invest and plans to invest this money in a fund that will yield a 10% APR (continuously compounded). In this situation, the cost of a one day delay is $2.75 of interest, and therefore, a person could easily prefer making the investment tomorrow rather than today. Now apply the deadlines discussed above (she can only invest on the first of the month) and consider a person's decision at the deadline. Because delay at the deadline means that the investment will not be implemented for (at least) thirty days, the cost of delay is now (at least) $82.53. Therefore, the person will be more motivated not to delay.
296. (observing that "[i]n anticipation of the filing of massive numbers of claims in and around the deadline for filing, the legal staff for the last six months" increased from eight to twenty-nine). Attorney hours for the September 11 Victim Compensation Fund, from November 2001 to September 2004, exceeded 19,000 hours, totaling almost $7.2 million. Separate totals for the last four months of the Fund are not publicly available.
297. ("Many potential claimants delayed filing claims so as to obtain more information about the size of the awards from the Fund and the possibilities for tort recovery.").
298. (evaluating responses of claimants to the September 11 Fund and finding that the choice to forgo litigation was not the easy choice that most lawyers and judges thought it would be, but rather, was a "deeply troubling trade-off between money and a host of nonmonetary [civic] values").
299. (observing that the delay in filings was due to grief and trauma).
300. This Figure appears in 1 FEINBERG,.
301. ("[L]awyers have been devoted to dealing with individuals and their problems on a retail basis. Modern disasters affecting large numbers of people make that approach impossible except at unacceptable transaction costs and inefficiencies that would prevent vindication of most people's rights.").
302. Gulf Oil Co. v. Bernard, 452 U.S. 89, 100 (1981) ("[A] district court has both the duty and the broad authority to exercise control over a class action and to enter appropriate orders governing the conduct of counsel and parties.").
303. Although due process does not require that a "legislatively enacted compensation scheme... duplicate the recovery at common law or provide a reasonable substitute remedy" to a lawsuit, see Duke Power Co. v. Carolina Envtl. Study Group, 438 U.S. 59, 88 (1978) (upholding the compensation system for nuclear accidents under the Price-Anderson Act), it may not be "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A) (2006).
304. see also Colaio v. Feinberg, 262 F. Supp. 2d 273, 300-01 (S.D.N.Y. 2003) (finding that the notice regarding the distribution of proceeds from the September 11 Fund did not violate due process).
305. See Impervious Paint Indus. v. Ashland Oil, 508 F. Supp. 720, 723 (W.D. Ky.), appeal dismissed, 659 F.2d 1081 (6th Cir. 1981).
306. Georgine v. Amchem Prods., Inc., 160 F.R.D. 478, 490 (E.D. Pa. 1995).
307. See In re Visa Check/Mastermoney Antitrust Litig., No. CV-96-5238, 2006 WL 1025588, at *4 (E.D.N.Y. Mar. 31, 2006) ("[T]his is not a run-of-the-mill business environment, subject solely to market forces and the principles of contract and tort law that control behavior in that environment. The fact that the merchant class is huge does not alter the nature of the Court's relationship with its members.... I have an affirmative obligation to protect those interests.").
308. Georgine, 160 F.R.D. at 498 ("The issuance of a remedial order under Fed.R.Civ.P. 23(d) does not require a finding of actual harm. A remedy is appropriate if the communications at issue create a 'likelihood' of abuse, confusion, or an adverse effect on the administration of justice." (citation omitted)).
309. (describing the dissemination of information to all victims, families of victims, and other interested parties as "[o]ne of the Special Master's principal objectives").
310. see also Exec. Order No. 13,179, 3 C.F.R. 321 (2001), reprinted in 42 U.S.C. § 7384 (2006) (requiring the Secretary of Labor to develop "informational materials ... to help potential claimants understand the Program and the application process").
311. ("The judge should, it is submitted, expose himself or herself on a person-to-person basis to the emotional and other needs of the litigants. This proposition requires a shift from the traditional Anglo-American jurisprudential view that the common law judge is an oracle on high, muffled in a black robe of anonymity, uttering the law and deciding the facts without involvement.").
312. Defining the concept of the "choice architect".
313. Compare FED. R. CIV. P. 23(b)(3) (requirements for class certification), with Edelman v. Jordan, 415 U.S. 651, 673 (1974) ("Constructive consent is not a doctrine commonly associated with the surrender of constitutional rights....").
314. Fuentes v. Shevin, 407 U.S. 67, 95 (1972) (noting that a waiver of constitutional rights "in any context must, at the very least, be clear" (emphasis omitted)).
315. On Amir & Orly Lobel, Stumble, Predict and Nudge: How Behavioral Economics Informs Law and Policy, 108 COLUM. L. REV. 2098, 2116 (2008) (cautioning against overestimating the capability of "choice architecture" to address some forms of cognitive bias).
316. (describing potential pitfalls and objections to procedures that account for cognitive bias).
317. ("The principle lesson of cognitive psychology is ... that people develop complex, contextual strategies for making choices.").
318. (describing offsetting effects of cognitive biases).
319. (observing that consumer mistakes may vary between different types of markets).
320. (proposing the concept of "asymmetric paternalism" as an alternative to regulatory systems aimed at redistribution or at imposing harm on individuals to realize "net societal benefits").
321. Recognizing the challenge of determining when applying policies that adjust for irrational choices would undermine rational choices.
322. For example, one might argue that the business judgment rule, which limits juries' and judges' review of corporate board decisions, is an insulating legal solution. (offering the business judgment rule as an example of how the law has incorporated the theory of bounded rationality). This is because the rule insulates boards from irrational post-hoc determinations by judges and juries that may be influenced by hindsight bias-the tendency to review past decisions in light of recent events. Such a solution, however, fails to account for rationally minded judges and juries who may accurately evaluate poor board decisions.
323. See Linda Babcock, George Loewenstein & Samuel Issacharoff, Creating Convergence: Debiasing Biased Litigants, 22 LAW & SOC. INQUIRY 913, 917-21 (1997) (presenting the results of an experimental simulation of a lawsuit in which the "litigants" were required to evaluate the weaknesses of their own cases).
324. Gregory Mitchell, Libertarian Paternalism Is an Oxymoron, 99 NW. U. L. REV. 1245, 1256 n.40 (2005) ("Asking ... subjects to consider alternative or opposing arguments ... has been found to ameliorate the adverse effects of several biases....").
325. (describing a "long-standing literature" dealing with the problem of bounded rationality in "the adjudicative process").
326. (describing methods to reduce bias in decisionmaking through "alternative representational structure[s]").
327. (describing the ways professionals offer more than "just knowledge" by providing a "better decisionmaking perspective").
328. see also Jennifer Arlen, Mathew Spitzer & Eric Talley, Endowment Effects Within Corporate Agency Relationships, 31 J. LEGAL STUD. 1, 4-6 (2002) (evaluating experimental results indicating that corporations effectively remove biases by delegating decisions to managers).
329. (describing debiasing approaches).
330. Describing a program in Chicago in which city planners used decoy effects to reduce speeding accidents by requiring unevenly spaced street paint to create the illusion for drivers that they were moving faster on the highway.
331. "[T]here must be a continuous study as to whether the chosen design attains its intended effect....").
332. Describing the distributional effects of new default rules for customers and homebuyers on credit card companies and mortgage brokers).
333. (arguing that reforms to credit card markets based on cognitive biases benefit those at "the bottom end of the distribution, but only at a high price for everyone else").
334. 15 U.S.C. §§ 1601-67f (2006).
335. (Disclosure guidelines and obligations). TILA also requires that, for credit card applications sent through the mail, any annual, periodic, or membership fees are disclosed in a tabular format, known as a "Schumer Box," see, e.g., Michael Schroeder, Bigger Print for Rates in Credit-Card Data May Be on the Way, WALL ST. J., May 18, 2000, at A3. The Schumer Box attempts to describe the key terms of the loan transaction, including fees, in a more accessible format.
336. See 15 U.S.C. § 1632©.
337. See Lawrence J. Sanna & Norbert Schwarz, Integrating Temporal Biases: The Interplay of Focal Thoughts and Accessibility Experiences, 15 PSYCHOL. SCI. 474, 480 (2004) (suggesting that consideration of alternative outcomes may fail as a debiasing strategy when the alternatives considered are too numerous).
338. Such a policy comes at another cost. When large funds pay claimants sooner rather than later, they necessarily require more money upfront from defendants, or, with respect to public compensation funds, from the government.
339. (describing the strategic, emotional, and legal factors that slowed enrollment in the fund).
340. (surveying class action settlements).
341. (Comparing opt-out rates for small, "negative-value" consumer claims with large mass tort claims).
342. Some commentators, like Deborah Hensler, have elsewhere described the advantages of automatically processing class action settlement claims. (emphasizing the disadvantages of nonautomatic disbursements).
343. (Finding, in a study involving sixty branch offices of H&R block, that tax filers were more likely to contribute to 401(k) plans when an employer subsidy was characterized as a "matching contribution" than as an equivalent tax "rebate").
344. (comparing low-care and high-care firms in dealing with cash-coupon remedies).
345. For a description of the importance of equity in large settlements.
346. See, e.g., Leslie Kaufman, A Bounty of Food Stamps, Harvested from a Lawsuit, N.Y. TIMES, Nov. 27, 2008, at A36 (describing a settlement in which 9,500 class members illegally denied food stamps were automatically credited $12 million through the use of electronic benefit cards).
347. Automatic processing is more feasible in shareholder class actions in which claimants are generally not required to choose among multiple settlement awards. Rather, pro-rata awards are offered to claimants based upon trading data. See SEC v. Bear Stearns, 626 F. Supp. 2d 402, 406-07 (S.D.N.Y. 2009) (describing the practice in shareholder class action settlements).
348. Indeed, the recently released ALI Principles of the Law of Aggregate Litigation already recommends that settlements be evaluated on other considerations. See PRINCIPLES OF THE LAW OF AGGREGATE LITIGATION § 3.0 (Tentative Draft 2008).
349. (Observing that the monetary value of coupons can be estimated because "many defendants use coupons as marketing devices").
350. 28 U.S.C. § 1711(a)(3)(A) (2006).
351. See MANUAL FOR COMPLEX LITIGATION, § 21.644 (observing that judges may retain special masters, experts, and technical advisors to "examine issues regarding the value of non-monetary benefits to the class").
352. FED. R. EVID. 706 (allowing court appointment of experts).
353. See, e.g., O'Keefe v. Mercedes-Benz USA, LLC, 214 F.R.D. 266, 287 (E.D. Pa. 2003) (involving a class action against vehicle manufacturers).
354. (Gathering and criticizing methodological approaches used to value class action coupon settlements). Such cases have even employed behavioral economists. See, e.g., In re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 807-14 (3d Cir. 1995) (products liability).
355. In re Motorsports Merch. Antitrust Litig., 112 F. Supp. 2d 1329, 1334-38 (N.D. Ga. 2000) (price-fixing).
356. See MANUAL FOR COMPLEX LITIGATION, § 21.644 (observing that reviewing the fairness of a settlement is a "time consuming and demanding task" but concluding that "it is essential and must be done by the judge").
357. (advocating that transparency in the form of publicity is key to evaluating paternalistic solutions).
358. For general criticisms of the "paternalistic" use of biases to sway human decisionmaking, see Jonathan Klick & Gregory Mitchell, Government Regulation of Irrationality: Moral and Cognitive Hazards, 90 MINN. L. REV. 1620 (2006).
359. Mario J. Rizzo & Douglas Glen Whitman, Paternalist Slopes, 2 N.Y.U.J.L. & LIBERTY 411 (2007).
360. Glen Whitman, Against the New Paternalism: Internalities and the Economics of Self-Control, CATO INST. POL'Y ANALYSIS, Feb. 22, 2006, at 1.
361. See, e.g., Linda Babcock et al., Forming Beliefs About Adjudicated Outcomes: Perceptions of Risk and Reservation Values, 15 INT'L REV. L. & ECON. 289, 296-97 (1995) (finding that framing effects had a similar impact on lawyer and nonlawyer subjects).
362. Marjorie Anne McDiarmid, Lawyer Decision Making: The Problem of Prediction, 1992 WIS. L. REV. 1847, 1868-75 (worrying that lawyers' decisionmaking is also affected by cognitive bias).
363. (collecting studies demonstrating lawyers' cognitive biases).
364. Edward Glaeser, Paternalism and Psychology, 73 U. CHI. L. REV. 133, 144 (2006) ("Consumers face stronger incentives to correct errors that directly impact their well-being than do government bureaucrats.").
365. ("The fact is that human beings come into the world with a passion for control, they go out of the world the same way, and research suggests that if they lose their ability to control things at any point between their entrance and their exit, they become unhappy, helpless, hopeless, and depressed.").
366. (arguing that, "if individuals do not understand their well-being," their argument applies to "actual well-being-what they would prefer if they correctly understood how they would be affected").
367. (Describing "reactive effects" of redesigning default options in national organ donation plans).
368. (describing "reactive effects" to decoy ploys).
369. One recent example is the fund developed to compensate former investors of Bernard Madoff. Three separate agencies will be responsible for collecting funds on behalf of victims- the Securities Investment Protection Corporation ("SIPC"), an agency charged with insuring accounts with brokers and dealers, the United States Attorneys Office, which sought criminal restitution awards against Madoff, and the SEC, which continues to seek civil disgorgement awards against those who may have abetted Mr. Madoff.
370. See Patrick Danner & Martha Brannigan, Madoff's Victims Still Pursue Justice, Money, MIAMI HERALD, July 6, 2009, at 1A (quoting an SEC spokesperson who declared that "[e]verything the SEC collects will be for the benefit of investors"). On December 15, 2008, the Securities Investment Protection Corporation moved to liquidate Mr. Madoff's fifty-year-old firm, Bernard L. Madoff Investment Securities, and will oversee the distribution of most of those collected funds.
371. See Securities Investor Protection Act, 15 U.S.C. 78eee(a)(3) (2006) (permitting the appointment of a trustee and removal to bankruptcy court when a debtor is unable to meet his obligations to investors).
372. see also Trustee's First Interim Report for the Period December 11, 2008 Through June 30, 2009, No. 08-1789 (Bankr. S.D.N.Y filed July 9, 2009), available at http://graphics8.nytimes.com/packages/pdf/business/Interim.pdf (summarizing bankruptcy court proceedings, objections to claims determinations, and claims administration for the first six months of the bankruptcy trust operation).
373. Diana B. Henriques, It's Thankless, But He Decides Madoff Claims, N.Y. TIMES, May 29, 2009, at A1 (describing the disputed method for paying claims).