Prospect theory posits that people perceive outcomes as gains or losses in relation to some reference point. People are generally loss averse: the disutility generated by a loss is greater than the utility produced by a commensurate gain. Chapter 6 of the book argues that loss aversion can explain basic features of entire legal fields, the relative importance of different fields, and certain specific doctrines. It demonstrates this by exploring, among other things, the marginal role played by unjust enrichment law compared to tort law; the different treatment of takings and givings in constitutional property law; the much greater constitutional protection afforded to civil and political rights compared to social and economic ones; the distinction between expelling asylum seekers and denying them entry; and the asymmetry between tax exemptions and spending.
The present chapter argues that the correspondence between loss aversion and the law rests on an intermediate factor: commonsense morality. Commonsense morality is deontological: it prohibits the infliction of active or intentional harm on other people, even if such harming would promote overall good outcomes. This implies that the prohibition on actively/intentionally harming people is more compelling than the moral duty to actively/intentionally benefit others. There is a straightforward correlation between the harms-benefits and the losses-gains distinctions. The argument draws in part on experimental studies in moral psychology. It also deals with counterarguments regarding the relationship between loss aversion and deontological morality raised by Frances Kamm. Once the correspondence between loss aversion and commonsense morality is established, the chapter demonstrates that the law reflects commonsense morality — and therefore, indirectly, loss aversion as well. Overall, the analysis highlights an important correspondence among psychology, morality, and law. This correspondence resonates with theories of moral psychology and evolutionary morality.
Zamir, Eyal, Cognitive Psychology, Commonsense Morality, and the Law (May 27, 2014). Chapter 8 of the book Law, Psychology, and Morality: The Role of Loss Aversion (OUP, 2014), forthcoming.