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date: 12 December 2019

Abstract and Keywords

This chapter provides an overview of three probability errors and their impact on legal scholarship. Overoptimism causes people to underestimate their likelihood of experiencing negative events, to overestimate their likelihood of experiencing positive events, and to be overly confident in each of these judgments. Overoptimism can help explain numerous behaviors including excessive borrowing, excessive litigation, and insufficient preparation for negative events like divorce. Ambiguity aversion—the tendency of people to prefer known to unknown risks—helps explain patterns in contracting behavior and plea bargaining, and can also be used strategically to increase deterrence. The certainty effect, which includes the tendency of people to place a high premium on reducing the probability of a negative event to zero, has been used to illuminate the behavior of both jurors and legislators. Combined, these probability errors help explain a great deal of human behavior and have numerous implications for law.

Keywords: overoptimism, overconfidence, above-average effects, ambiguity aversion, uncertainty, certainty effect, debiasing, disclosure

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