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

Emotional Impact Analysis
about how firms and societies engage in and can foster research and development, growth, and innovation
obviously do not assume that production possibilities and technological constraints are fixed and
immutable. In addition, some economists have come to realize that individual preferences are culturally
and socially constructed in addition to being malleable in response to advertising, experience, imitation,
and persuasion. Moreover, some consumer researchers, marketing professors, and psychologists address
how to construct preferences. 296 EIA should build upon such research.
Another potential concern about EIA is whether or not it would be too financially costly or
resource prohibitive to perform EIA studies, at least currently because regulations might have their own
fairly unique set of emotional impacts. At least with CBA, regulators can draw upon a pre-existing large
number of CBA studies for analogous benefits and costs to a particular regulation. But EIA does not
already have that large collection of data at hand. So basically every EIA must start more afresh, which is
a big drawback in terms of passing timely regulations. One response to such a concern is all this provides
all the more reason to start requiring EIA. A second response is that some forms of EIA, such as those
about investor confidence or trust, process concerns, and social mood are important for all financial and
securities regulations. Moreover, high quality CBA, as opposed to the hand-waving, perfunctory
discussions of CBA that many financial and securities regulators do, would not be cheap either. EIA thus
is expensive only in comparison to low quality CBA all too prevalent among financial and securities
regulators today.
A direct and more basic response is that, as described above already, a small, but growing number
of economists have already developed statistical techniques to examine how external factors affect SWB.
For example, economists found that an individual’s own reported utility losses from terrorism are likely
to far exceed terrorism’s purely economic consequences. 297 Another pair of researchers estimated the
295 Fisher & Statman, supra note 130, at 115. See also
http://www.thestreet.com/tsc/basics/tscglossary/leadingeconomicindicators.html.
296 See e.g., THE CONSTRUCTION OF PREFERENCE (Sarah Lichtenstein & Paul Slovic eds., 2006)
297 Bruno S. Frey, Simon Luenchinger & Alois Stutzer, Calculating Tragedy: Assessing the Costs of Terrorism,
Institute for Empirical Research in Economics, University of Zurich Working Paper No. 205 (Sept. 2004).
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