Peter H. Huang Harold E. Kohn Chair Professor of Law James ...

Emotional Impact Analysis
options and processes by which societies make those choices as signals of those societies’ identities 139 or
aspirations. 140 Such views of social decision-making are related to a psychological model of individual
self-signaling. 141 When and how policy makers decide to utilize CBA methodology and techniques can in
this way shape our society just as certain theoretical models shaped modern financial markets. 142
As an economist notes, “[i]n principle, cost-benefit analyses are accounting exercises, a way of
adding up the benefits and costs … and then comparing them. In practice, however, cost-benefit analyses
are rich, economic exercises that bring to bear … microeconomic reasoning … and a host of interesting
empirical evidence.” 143 But, CBA does not count emotional impacts when analyzing benefits and costs.
Some omissions are implicit and unconscious, because it has become a second-hand, automatic reflex for
CBA to ignore much affect because of the dual conservative forces of precedent and tradition. Other
exclusions of emotions in CBA are conscious, deliberate, explicit and intentional choices due to beliefs
and feelings that emotional variables are categorically distinct from unemotional variables; 144 and
therefore insurmountably difficult to measure, too complex to easily analyze, or too nebulous to make
operational.
To illustrate how EIA differs from CBA, reconsider the case which this Article started with,
namely the SEC rule that requires mutual funds to have independent board chairs and a higher percentage
of independent directors than before. CBA of requiring independent board chairs and more independent
139
See generally Claire A. Hill, What the New Economics of Identity has to Say to Legal Scholarship, University of
Minnesota Legal Studies Research Paper No. 05-46 (unpublished manuscript) (Nov. 9, 2005), available at
http://ssrn.com/abstract=844345.
140
See generally Philip Harvey, Aspirational Law, 52 BUFF. L. REV. 701 (2004).
141
Drazen Prelec & Ronit Bodner, Self-Signaling and Self-Control, in TIME AND DECISION: ECONOMIC AND
PSYCHOLOGICAL PERSPECTIVES ON INTERTEMPORAL CHOICE. 277 (George Loewenstein et al. eds. 2003); and Ronit
Bodner & Drazen Prelec, Self-Signaling and Diagnostic Utility in Everyday Decision Making, in 1 THE
PSYCHOLOGY OF ECONOMIC DECISIONS: RATIONALITY AND WELL-BEING 105 (Isabelle Brocas & Juan D. Caririllo
eds., 2003).
142
See generally, DONALD MACKENZIE, AN ENGINE, NOT A CAMERA: HOW FINANCIAL MODELS SHAPE MARKETS
(2006).
143
GRUBER, supra note 90, at 194.
144
CASS R. SUNSTEIN, RISK AND REASON: SAFETY, LAW, AND THE ENVIRONMENT 292 (2003) (stating that CBA
“might seem to disregard people’s sense of risk and danger. The point is correct, but is no objection. Policy should
ordinarily be rooted in evidence, not baseless fear or unwarranted optimism”).
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