ABSTRACT
This chapter discusses the key features of behavioural law and economics, including prospect theory and the various biases that lead people systemically to make irrational decisions. The chapter explores three significant contributions of the behavioural literature in explaining how people choose to act. These concern bounded rationality, willpower, and self-interest. Understood from the perspective of economics, law is a tool with which government induces socially desirable behaviour. The core narrative underlying law and economics is that people respond to incentives. Economics provides lawmakers with theoretical and empirical means by which to predict how specific laws will affect conduct. The principal tools that economists have used to forecast the positive effect of law is neoclassical price theory and game theory. Normative behavioural economics generally recommends limiting choice, due to people's tendency to err and to make decisions injurious to their own welfare.
