Personalizing Default Rules and Disclosure with Big Data

1. Ariel Porat & LiorStrahilevitz Personalizing Default Rules and Disclosure with Big Data

2. Example: Inheritance Empirical research has shown that married fathers are more likely than married mothers to bequeath all their property to their spouse (55% compared to 34%). Moreover, according to these studies, men bequeath significantly larger shares of their estates to their spouses (80% of estates are willed to widows versus 40% to widowers).

3. Advantages of Default Rules • Saving transaction costs. • Enabling transactions which are more compatible with the parties’ wills (the special case of sticky default rules). • Enabling transactions which otherwise would not have been made.

4. Personalizing Default Rules in General • Default rules are often tailored to types of transactions but not to parties’ personal characteristics and traits. • Tailoring to personal characteristics and traits seems infeasible. • Very few scholarly writings discussed personalization (Sunstein; Ayres), and none proposed so far a comprehensive theory of personalizing default rules. • With Big Data personalization becomes feasible. • Using guinea pigs is another way to acquire information needed for personalization.

5. Personalizing Intestacy Law • Crude personalization: gender, ethnicity, wealth, health, age. • Granular personalization: learning from the intestate’s past behavior in other contexts (for example, as a consumer), or from guinea pigs’ data. • With personalization: less transaction costs; allocation of estates would be more often consistent with the deceased’s will.

6. Example: Physical Disability Dan is a disabled consumer who uses a wheelchair for mobility. He purchases a large-screen television from an electronics store. Should the default place of delivery be the seller’s or the buyer’s place (regularly it is the seller’s place)?

7. Example: Performance or Damages? Steven is a classic rational actor. He feels no personal attachment to property and changes his residence quite often. Sarah holds Kantian moral values regarding keeping one’s promises, feels personal attachment to property, rarely changes her place of residence and when she does, she spends months searching for the perfect place. Both Steven and Sarah entered into (separate) contracts to purchase homes from John, who is a merchant in the business of selling homes. John breaches both contracts by failing to deliver possession and title, and the question of the adequate remedy arises. Assuming everything else about the contracts is equal, except the parties’ characteristics, should the court order the same remedy for Steven and Sarah?

8. Example: Right to Return Dana is conservative, very careful in her behavior in all fields of life. She is a cautious consumer: before she buys anything, she consults Consumer Reports and asks for her friends’ advice. In the past, she has never returned a product she bought, unless it was defective. Jim is a risk taker who is quite impulsive. He makes decisions fast, without consulting anyone. In the past, he returned products he bought several times just because he realized he should not have bought them in the first place. Both Dana and Jim have separately bought a new flat-screen television at the same store. After a day of using the new television, they realized that this purchase was a mistake. They want to return the product and get their money back. Should they be treated in the same manner?

9. Example: Donating Organs Many jurisdictions confront the dilemma of how to encourage people to donate their organs after death to save other people’s lives. A possible solution is to have a default rule that is expected to be quite sticky: most people would not opt out, whatever the default rule is. Assuming the social goal is to find an optimum between fulfilling people’s wishes and third parties’ benefits, tailoring personalized default rules to different groups in society could be an optimal solution.

10. How would it work? • Consumer approaches merchant. • Merchant can check immediately consumer’s personal characteristics and traits. • Consumer can ask for disclosure. • Consumer could check her personal cluster beforehand. • Consumer can opt out of personalization. • Courts have access to the relevant information and could fill in the gaps.

11. Feasibility (1): Big Data and Big five • $34 billion in 2013. • Information traded among firms. • Evaluating risks by insurance companies (the pads example). • Marketing medical services. • Marketing consumer products (the pregnant women example). • Restaurants. • Learning from cellular phones’ use. Next: Use Big Data to personalize default rules.

12. Feasibility (2) • Past behaviors in the same field. • Questionnaires. • Guinea pigs.

13. Personalizing Disclosure and Informed Consent • The general problem: information flooding (Ben Shahar & Schneider). • What does the patient want to know? • The vaccination case: who should be warned from side effects? • Would the patient persist with the drug?

14. Objections and Limitations • Cross subsidies. • Abuse by merchants. • Uncertainty. • Case law fragmentation. • Statistics, stereotypes and valuable default rules. • Subordination, adaptive preferences and personalization. • Privacy. • ”But I can change” and opting in.

15. Conclusion and Extensions • Start personalization in the easiest cases (inheritance law?). • After acquiring experience proceed to other areas. • Allow opting out of personalization, or at least allow opting in. • Extensions: Should personalization take place beyond default rules? Criminal law? Tort law? Property law?