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

Emotional Impact Analysis
progress in a document known as the Economic Report of the President. 197 The CEA has a staff, which
“includes about 20 academic economists, plus four permanent economic statisticians.” 198 Another
example of the privileging of economics in law is that “[i]n the last few decades, the law and economics
movement has had a tremendous impact on legal studies.” 199
Psychologist Daniel Kahneman believes that psychologically informing economics is likely to be
more influential and effective than attempting to displace economics from law and public policy; 200 and
makes this observation:
there are really two disciplines that are in charge, and they’re the economists and the
lawyers. And the economists, in particular, are the gatekeepers, the academic
gatekeepers of the policy world. They do the research, they interpret the research, and so
everything goes through them in terms of what actually gets implemented. … and this
situation is one that is not going to change soon. 201
Thus, EIA would redress a number of shortcomings of CBA as financial and securities regulators
currently practice it. EIA would simply replace or supplement a dominant form of economic analysis in
policymaking, namely CBA with a broader, more accurate brand of psychologically informed economics.
III. Cost-Benefit Analysis in SEC Rulemaking
A. Does the SEC Engage in Cost-Benefit Analysis?
As a general empirical and factual matter, SEC rulemakings often contain sections with
apparently extensive CBA. A casual perusal of many SEC proposed and final rules finds a larger
percentage of pages in them devoted to discussing CBA than one might expect. For example, the final
version of the above-mentioned controversial mutual fund governance rule (requiring independent board
chairs and 75 percent of board members being independent) contained a section “III. Discussion,” which
197
http://www.gpoaccess.gov/eop/.
198
http://en.wikipedia.org/wiki/Council_of_Economic_Advisors.
199
EMMA COLEMAN JORDAN & ANGELA P. HARRIS, ECONOMIC JUSTICE: RACE, GENDER, IDENTITY, AND
ECONOMICS, at v (2005).
200
See e.g., Russel B. Korobkin & Thomas S. Ulen, Law and Behavioral Science: Removing the Rationality
Assumption from Law and Economics, 81 CA. L. REV. 1051 (2000).
201
Daniel Kahneman, Does Psychology Have Anything To Say to Policy Makers?, 1 (Oct. 3, 2003), available at
http://www.gallup.hu/pps/2003/kahneman_transscript.pdf.
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