The Limits of Behavioral Law and Economics’ Predictive Power

Behavioral economics’ most severe criticism is that it lacks a coherent theory for predicting when irrationality will govern decision-making. BE is often therefore identified as a body of anomalies residual or exceptional to rational choice theory. This Article answers the question of why this is the case and does so by distinguishing between two types of predictive power—endogenous and exogenous. In lacking any normative foundation, behavioral economics is limited to the latter, which illuminates not only its theoretical limits but also why such exogeneity may be incompatible with a legal system based on general and uniform governance structures. The Article thus clarifies this long-running question of not only why behavioral economics is the residual of rational choice but also why it should be.