Our laws, including the intricate rules that govern the financial sector, are mostly made and operated by lawyers. These professionals have deep expertise in what the rules are, how they should be interpreted, and how to apply these rules to different sorts of fact patterns. However, legal training, both in academia and in practice, does little to prepare lawyers to ensure that the rules they design and operate are effective in guiding human behavior and in preventing and reducing misconduct.
There is an implicit assumption in traditional legal thinking, training, and practice about law’s impact on human behavior. Lawyers are taught a law-centric view of human behavior. They are trained to believe that law matters, and that the language of legal rules comes to guide human conduct. The content of the law determines the costs of different behavioral options. And this is supposed to sway people’s actions. The core implicit belief is that legal incentives drive human behavior.1
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