THE CUSTOM-TO-FAILURE CYCLE

In areas of complexity, people often rely on heuristics—by which we broadly mean simplifications of reality that allow people to make decisions in spite of their limited ability to process information. When this reliance becomes routine and widespread within a community, it can develop into a custom...

Ausführliche Beschreibung

Gespeichert in:
Bibliographische Detailangaben
Veröffentlicht in:Duke law journal 2012-12, Vol.62 (3), p.767-795
Hauptverfasser: Schwarcz, Steven L., Chang, Lucy
Format: Artikel
Sprache:eng
Schlagworte:
Online-Zugang:Volltext
Tags: Tag hinzufügen
Keine Tags, Fügen Sie den ersten Tag hinzu!
Beschreibung
Zusammenfassung:In areas of complexity, people often rely on heuristics—by which we broadly mean simplifications of reality that allow people to make decisions in spite of their limited ability to process information. When this reliance becomes routine and widespread within a community, it can develop into a custom. As long as such a heuristic-based custom reasonably approximates reality, society continues to benefit. In the financial sector, however, rapid changes in markets and products have disconnected some of these customs from reality, leading to massive failures, and increasing financial complexity is accelerating the rate of change, threatening future failures. We examine this "custom-to-failure cycle" and consider how law can help to manage the cycle and to mitigate its failures. In that context, we also analyze whether individuals and firms who follow heuristic-based customs should be subject to liability if the resulting failures harm society.
ISSN:0012-7086
1939-9111