Baron, J. & Ritov, I. (1993). Intuitions about penalties and
compensation in the context of tort law. Journal of Risk and
Uncertainty, 7, 17-33.
Intuitions about penalties and compensation in the
context of tort law
Department of Psychology
University of Pennsylvania,
Department of Industrial Engineering and Management
Students, retired judges, economists and others made judgments of
appropriate penalties and compensation for hypothetical injuries.
In some scenarios, compensation was paid by the government and
penalties were paid to the government, so the two could differ.
Penalties were generally uninfluenced by their deterrent effect
on future behavior. Penalties were greater when they were paid
directly to the victim than when they were paid to the
government. Compensation was affected by whether injuries were
caused by people or by nature, or by acts vs. omissions. These
effects are not justified according to consequentialist views of
penalties and compensation. We suggest that people are
overgeneralizing reasonable rules and that such
overgeneralization may be involved in perverse effects of tort
When one person (or group) harms another, people often think that
the injurer should compensate the victim. Tort law can compel
compensation. Such a transaction not only compensates the victim
but also punishes the injurer. When the injurer compensates the
victim, as when a child is induced to give back something she has
taken or when a victim sues an injurer in court, punishment and
compensation are linked together. Sometimes these functions are
separated. Criminals are punished whether or not their victims
are compensated. Insurance (private and social) provides
compensation for misfortunes regardless of whether they are
caused by people or nature, and regardless of whether the insurer
collects from the injurer.
In the studies described here, we sought to understand how people
think about punishment and compensation in the context of
hypothetical cases in which people are killed or injured by
birth-control pills or vaccines. These are typical situations in
which lawsuits against companies occur. Some of our cases
separated punishment and compensation, so that we could learn how
people think about each function alone.
It has been argued that the tort system sometimes leads
systematically to undesirable results (e.g., Huber, 1988, 1991).
Rather than encouraging safety improvements or causing harmful
products to be withdrawn, tort penalties have caused highly
beneficial products - such as vaccines and birth-control products
- to be withdrawn and have led to a reduction in research and
development expenditures for similar products. For example,
pertussis vaccine might cause brain damage or death in small
numbers of children, although whooping cough, the disease it
prevents, is far more dangerous. Production of this vaccine in
the U.S. declined drastically as a result of lawsuits (David,
1986; Hinman, 1986; Huber, 1988; Inglehart, 1987), and the price
increased, although the passage of a (partial) no-fault
compensation law in 1986 may have reversed this trend (Hofmann,
1988). Likewise, research on new birth control methods seems to
have decreased for the same reason (Djerassi, 1989; Huber, 1988;
Mastroianni, Donaldson & Kane, 1990).
Viscusi and Moore (in press) present general evidence that
liability costs tend to increase research and development
expenditures up to a point and then cause a decline when the
costs are sufficiently high. Although it is likely that some
products should be withdrawn from the market, or not
developed, because their harm exceeds their benefit, the examples
cited by Viscusi and Moore, as well as those just cited, suggest
that many successful lawsuits do not involve such harmful
The motive of courts in these cases could have been to compensate
victims, but U.S. society makes no comparable effort to
compensate victims of natural disease for their misfortune. In
this paper, we suggest that undesirable results of the liability
system could result in part from the intuitions of those involved
in the system - judges, lawyers, plaintiffs, defendants, and
juries - about what penalties ought to be assessed and what
compensation ought to be paid. In particular, two basic
intuitive principles may be involved: the desire for retribution
against an injurer, whatever the consequences; and the dependence
of compensation judgments on judgments of human responsibility,
so that compensation is considered more necessary when the injury
is caused by a human act. These effects could be exacerbated by
the usual linkage of compensation and penalties. Use of these
intuitive principles, which are not based on expected
consequences, could help to produce the kinds of undesirable
outcomes that have led to complaints.
Conceivably, the attempt to consider consequences directly might
by self-defeating, and intuitive rules of this sort might yield
better results in the long run. However, people who accept rules
without understanding their consequentialist justifications can
be induced to use rules that have no such justification.
1.1 Consequentialist accounts of penalties and
Consequentialism justifies penalties by their deterrent function,
i.e., by the fact that they provide an incentive to do something
other than what was penalized. Thus, a penalty with no
beneficial deterrent effect is simply an unjustified wrong
against the injurer, and `two wrongs don't make a right.' Even
if other factors are involved in determining penalties, we might
expect deterrence considerations to affect their magnitude.
Several scholars from the `law and economics' tradition (e.g.,
Brown, 1973; Landes & Posner, 1987, and Shavell, 1987) have
argued that deterrence provides the main justification of the
common law of torts. Landes and Posner (1987) argue that common
law has evolved to serve this function, despite the fact that
many of its precepts seem nonintuitive to laypeople and the fact
that the judges who made the law did not themselves understand
the full economic rationale.
Compensation can be given a consequentialist justification as a
form of insurance, as when damaged property is replaced by an
injurer or an insurance company (Calabresi, 1970). The loss
increases the utility of money for the victim: if your car is
stolen, you can use money more efficiently to achieve your goals
than you could before, e.g., you can buy a new car (Calfee &
Rubin, in press; Friedman, 1982; Schwartz, 1988). It is
irrelevant to this justification whether an injury is brought
about by a negligent act, an innocent act, an omission, or a
natural misfortune. (Compensation can also be justified as an
incentive for victims to sue or complain.) Critics of the U.S.
legal system maintain that those who sue successfully are well
compensated while others who suffer the same injury at the hands
of nature (or the hands of a `shallow pocket') are left to fend
for themselves, although the insurance justification is the same
in both cases.
1.2 Psychological mechanisms
We hypothesize that people make judgments of penalties and
compensation on the basis of general intuitive rules, which often
do produce the best consequences, but people do not understand
the consequentialist justifications of these rules (Baron, 1991,
in press). As a result, people apply the rules to cases in which
the justifications are absent. Previous studies (e.g., Baron &
Hershey, 1988; Ritov & Baron, 1990; Spranca, Minsk, & Baron,
1991) support these general claims. Two instances of the general
hypothesis are examined: 1., people will not refer to the
deterrence justification of punishment and will tend to base
punishment judgments on other principles, such as retribution;
and 2., compensation judgments will be affected by factors that
affect penalties but do not affect the insurance function of
compensation; these factors include the negligence of the injurer
and whether the injury was caused by an act, by an omission, or
Retribution and deterrence are typically correlated. Through
observation, people could come to think of punishment solely as
retribution, without understanding that retribution is beneficial
at least partly because of its correlation with deterrence.
Their intuitive rule for the justification of punishment is,
then, that it should depend on the magnitude of the harm and the
intention behind it (Fincham & Jaspers, 1980), not on its
deterrent effect. When the correlation between deterrence and
retribution is broken, they will stick with retribution.
Other research suggests that many people do not take deterrence
into account. Baron, Gowda, and Kunreuther (1992) have examined
intuitions about deterrence in the context of hazardous waste,
where compensation is not at issue. The subjects included
experts in hazardous waste legislation, retired judges,
economists, members of environmental organizations, legislators,
and officers of corporations. The questionnaire included two
cases of companies that made `products that are highly beneficial
to people' and that had dumped hazardous waste into a landfill
(following government standards but not using the best available
technology), which now had to be cleaned up. The subjects had to
apportion the costs between the companies and the government. In
the deterrent case, `The more the company is made to pay, the
more likely it is that the company and other companies will
adopt the best available technology to avoid pollution in the
future.' In the perverse-deterrence case, `The more the company
is made to pay, the more likely it is that the company and other
companies, instead of changing their technology, will stop
making the products that led to the waste.' Only 15% of the
subjects penalized the company more in the deterrent case than in
the perverse case; 2% penalized more in the latter. The groups
of subjects did not differ significantly in these proportions.
Baron (in press) found that when subjects were asked to judge how
much compensation a victim deserves, they are influenced by
whether the injury was caused by a human act or by nature, even
if the injurer did not know of the injury and even if the victim
did not know its cause. For example, in one case, a back injury
resulted from tripping over a rock on a sidewalk. More
compensation was provided when the rock rolled onto the sidewalk
because of a construction crew working nearby than when it was
washed there by rain.
Monetary compensation is theoretically inappropriate for some
misfortunes, such as reproductive sterility, assuming that money
will be less useful if one has fewer children. In fact, people
do not purchase insurance against such events - except for
medical insurance. But the tort system does provide compensation
when the same events are caused by other people. Again, part of
the desire to provide compensation in such cases could result
from the frequent linkage of compensation with punishment. (It
could also result from the fact that compensation does relieve
suffering more effectively when the victim knows that it is
The hypothesized psychological linkage of punishment and
compensation might arise not only because these two functions are
often linked in social institutions but also because of more
general psychological principles. For example, equity theory
predicts that when an injury occurs, people try to restore a
preexisting balance (Walster, Walster, & Berscheid, 1978).
People will want to hurt the injurer even if this hurt does not
deter anyone, and they will tend to ignore the deterrent effect
of their judgments. They will also want to compensate the victim
in order to bring her closer to the level of the injurer, when an
injurer can be found.
2 Experiment 1
The first experiment examines the factors that affect judgments
of penalties and compensation when these two are separated by a
new legal regime. Compensation was paid by the government, the
penalties were paid to the government, and the two did not have
to be equal. Penalties and compensation were provided by two
separate panels. (A system something like this exists in New
Zealand, and the U.S. worker's compensation laws contain some
elements of it.) The amount of the penalty, then, could be
determined without regard to the need for compensation, and the
amount of compensation did not need to consider the cause of the
We ask three main questions here. First, do subjects take into
account the effect of penalties on future behavior in assessing
penalties? Second do they take into account the cause of an
injury - act vs. omission, people vs. nature, negligent vs.
innocent behavior - in judging the amount of compensation when
compensation is separated from penalties? Third, do subjects
assess greater penalties when the injurer pays the victim
directly than when the injurer pays the government and the
government pays the victim? Several of these intuitions combined
could support a system in which injurers pay victims larger
amounts that are though to be justified either in terms of
appropriate penalties against injurers or in terms of
compensation warranted by injuries (e.g., if they were caused
naturally). Such judgments could be supported by the intuition
that injurers must compensate those that they injure and by the
intuition that cause is the relevant criterion for payment. Such
a pattern could occur in real life, such as the compensation of
vaccine victims, which seems to provide, if anything, incentive
only to stop making vaccines (Huber, 1987; Inglehart, 1987),
while victims of identical but natural diseases go uncompensated.
A questionnaire was completed by 28 members of Judicate, a group
of arbitrators who are either retired judges or active judges, 16
environmental activists (from a list supplied by Clean Water
Action), 9 members of the American Economic Association, 33
undergraduate students, and 6 law students, 92 subjects in all.
In describing the results, we shall also refer to a similar
questionnaire, which we shall call the pre-questionnaire,
answered by 29 students from the Philadelphia College of Pharmacy
and Science and 5 from the University of Pennsylvania.
The questionnaire was introduced as follows:
This questionnaire presents some hypothetical cases that are
related to current controversies in the law. We are giving this
questionnaire to various groups, some of whom are familiar with
the law and some of whom are not. When you answer it, please
take the perspective of a citizen trying to judge what is simply
best or right. You may, however, take into account whatever
special knowledge you have. Please explain all of your answers.
Imagine that, a few years from now, the Unites States has a new
law concerning medical misfortunes, such as injuries or diseases.
According to this law, anyone who suffers such a misfortune can
request compensation from the government. This compensation is
in addition to medical expenses, which are paid out of universal
If the misfortune might be caused by a medical product made
by a company, the person who suffered the misfortune can file a
complaint. For each complaint, two questions will be decided
separately, each by a different panel:
* One panel will decide whether the company will be fined, and,
if so, how much. All fines go to the government, not the injured
person. The panel that decides the fines considers only the
justice of imposing the fines. It ignores the needs of the
government for money, and it ignores how the money will be spent.
* The second panel will decide how much the injured person will
be compensated. If any compensation is paid, the government pays
it, not the company. This panel takes into account only the
situation of the injured person. It ignores the cost to the
government, and it ignores the responsibility of the government,
if any, for causing or preventing the misfortune.
Compensation can be provided even if the company pays nothing,
and the company can be fined even if no compensation is provided.
The government does not have to break even in the long run.
The panel that decides on compensation to the victim does not
know how much the company has been fined, if anything, and the
panel that decides on fines does not know how much compensation
has been given to the injured person.
If the misfortune was not caused by a product, the
person who suffered the misfortune can still ask for
compensation. Only the second panel will hear the case.
Two cases were presented, with several `versions' after each
case. Here is the first case and its first version:
A woman who took a new birth control pill has become sterile as a
result of taking the pill, and she brings a complaint against the
ABC Company, which produced the pill. The woman has one child
already, and she is upset and angry because she cannot have
The pills had been tested on several thousand women, all of whom
had had a previous pregnancy and intended to have another. The
effect of the pills on the fertility of the women could therefore
be observed. Other pills had been tested in the same way.
The pills produced various side effects, but they were found to
be safer than all pills made by other companies. A package
insert that came with the pills warned truthfully about several
side effects, but it did not mention sterility because no cases
of sterility had been observed among the women who took the pill
Version A. The pill was profitable and the ABC Company knew
that it would be. It was, after all, safer than other pills.
The company knew how to make an even safer pill but had decided
against producing it because the company was not sure that the
safer pill would be profitable. If the company were to stop
making the pill that the woman took, it would make the safer
The subject was then asked: `Should the company pay anything to
the government in this case? Why or why not?' and `Should the
woman be compensated by the government? Why or why not?'
Here is the second case:
A type of flu kills many young infants. A pharmaceutical company
discovers a way to make vaccines that will prevent the flu. The
vaccines will prevent the flu completely, but they have side
effects that will kill some infants, even if the vaccines are
made to specification. If all children were vaccinated, the
number of children who would die from the vaccines would be a
tenth of those who would die from the flu if no children were
vaccinated. No other company knows how to make any vaccines
against this flu.
Version A. A child dies from the vaccine, and the parents
bring a complaint against the company. The vaccine used was made
to specification, and the package insert warned about the
possibility of death.
The company had considered making a safer vaccine but had decided
against it because it was not sure that the safer vaccine would
be profitable. The vaccine in question was profitable and the
company knew that it would be. If the company were to stop
making this vaccine, it would produce the safer vaccine.
Again, the subjects was asked about both compensation and
penalties. In subsequent versions of both cases, the subject was
asked whether penalties and compensation should be more or less
than in Version A, or than in some other version. The versions
differed in whether: the company would stop making the product in
question rather than try to improve it (B); the injury occurred
because the company decided not to make the product (C); the
penalty was secret and the company insured, so that the penalty
had no deterrent effect (D); the same, but the company paid the
victim directly (E); the injury was caused by natural causes
(with no company involved) (F); the company was negligent in
making the product (G, Case 2 only). More details will be
described with the results.
In general, the groups of subjects did not differ significantly
in their answers, so we shall note group differences only when we
found them. Of the 92 subjects, 52 wanted to penalize the
company in Version A, Case 1, and 70 in Version A, Case 2.
Seventy-five wanted to penalize the company in at least one case.
Sixty-one wanted to compensate the victim in Version A, Case 1,
62 in Case 2, and 74 in at least one case. We describe the main
results according to a set of questions.
Do people see deterrence or incentive - future consequences -
as a reason for increasing or decreasing penalties? One test
for this was the comparison of Version A, in which the penalty
would bring about improved behavior (making a safer product),
with Version B (perverse incentive), in which subjects were told
(in Case 2, for example), `If the company were to stop making
this vaccine, it would not make any vaccine for this flu, so
there would be no vaccine available.' If people said that the
company should be punished less in the second question, then they
were sensitive to the deterrent effects of the penalties. Out of
74 respondents who would fine the company in Version A of Case 1
or 2 and who answered this question, 23 did think that the
company should be punished less in Version B in at least one of
the two scenarios, and 3 thought the company should be punished
more. The remaining 48 respondents were not sensitive to the
incentive issue in these items.
A second test for incentive was Version D (no deterrence), in
which differed from Version A in that `the amount of payment made
by the company was absolutely secret - known only to the
government and to a few trustworthy officials of the company, who
were retiring; and the company was insured by a long-term policy
that would cover all liability costs in full, at a premium set
for the industry as a whole and constant for all companies.
These two facts together mean that decisions about payment to the
government could have no effect on future decisions by this
company or other companies about which vaccines to produce.' Out
of 72 respondents who penalized the company in Version A of Case
1 or 2 and who answered this question, 17 did penalize the
company less in this question, and 7 penalized the company more.
Again, 48 respondents were not sensitive to incentive effects
here. Answers to this question were correlated in the expected
direction with the answers to the question described in the last
paragraph (Kendall's t = .27, p < .025), which indicates
that these questions measure a general attitude toward incentive.
Results from the comparable question in the pre-questionnaire
showed an even greater neglect of deterrence: only one subject in
each version (out of 22 in Case 1, 25 in Case 2) compensated less
here than in Version A.
Does compensation depend on the cause of the injury? In
each case, the particular injury (sterility, death of a child)
was held constant across the questions. Differences in the need
for penalties could not serve as a reason for differences in
compensation, because these two decisions were independent. We
examined three different factors that could affect compensation
in the absence of differences in the victim's need for
compensation: whether the injury was caused by an act or omission
(Version C vs. A); whether it was caused by nature or a company
(Version F vs. E or A); and whether the company that caused it
was negligent (Version G vs. A). In the negligence case, the
negligence itself did not lead to the injury.
In Version C (omission), the injury was caused by a company's
failure to produce the product; either the victim used a more
risky product (Case 1) or died from the flu (Case 2). Out of the
64 respondents who compensated the victim in at least one case
and who answered this question, 20 provided less compensation (in
at least one case) when the harm was caused by an omission and 1
provided more compensation. The effect was significant in both
cases. (Significant results were also found in the
pre-questionnaire.) (Two thirds of the subjects did not penalize
the company for its omission in Version C of either case. We
cannot interpret this result because we did not hold constant
such factors as the company's intention.)
Version F of Case 1 read, `Suppose that the woman became sterile
from natural causes. She took no birth control pills.
(Remember, the government can compensate people for misfortunes
such as sterility regardless of their cause.)' For Case 2, it
read (with the same reminder), `Suppose that there was no vaccine
and the child died from the flu.' Out of 69 respondents who
provided compensation in at least one case and who answered
Version F, 40 provided less compensation for natural injuries
than those caused by the company (in at least one case), 29
provided equal compensation in both cases, and none provided more
compensation for natural injuries. Again, similarly strong
results were found in the pre-questionnaire.
Version G read, `The company is negligent in monitoring the
production of the vaccine. The vaccine given to the child who
died was made to specification, however, and it would not have
been withheld if the company had been more careful.' Out of 76
respondents who provided compensation in at least one case and
who answered Version G, 10 provided more compensation when the
company was negligent and 1 provided less compensation. Groups
differed (p=.001 by chi-square), with judges, economists, and
activists providing equal compensation regardless of the
company's negligence. In the pre-questionnaire, compensation was
also increased when the company `committed serious violations of
worker safety rules ... to increase its profits' (13 increases,
no decreases, out of 21 subjects in Case 1; 6 increases, no
decreases, out of 12 in Case 2).
It is possible that these results concerning compensation could
be explained by subjects' beliefs about the emotions of those who
were compensated. We doubt this for two reasons: no subject
mentioned such emotions as a justification of compensation; and
previous results (Baron, in press; Ritov & Baron, 1992) ruled
them out as explanations of similar phenomena.
Does direct compensation have special status? In our cases,
penalties and compensation were determined separately and did not
have to be equal. Typically, however, injurers pay victims
directly. We thought that people might have a basic intuition
about the need to `undo' a harm and that this intuition would
lead to greater payment when the compensation was paid directly.
In other words, people might see the provision of compensation as
more than just the assessment of a penalty and the provision of
compensation. We tested this by asking how much compensation
should be provided to the victim if the injurer pays directly
(Version E), in the context of Version D, in which the penalty
was secret and the injurer was insured.
Out of 83 respondents who answered the relevant question at least
once, 24 provided more compensation when the company paid the
victim directly and 4 provided less compensation. Moreover, 44
of the 83 respondents who answered the relevant questions
provided more compensation here than when the injury was
naturally caused. (Groups differed here, p=.002, with students
most inclined to make this distinction and economists least
inclined to make it.) Out of 79 subjects who answered all the
relevant questions, 22 showed both of these effects together and
only one showed the reverse effects (more compensation from
nature and less compensation with direct payment, p<.001)). (The
pre-questionnaire did not permit this analysis.)
This pattern of responses cannot be justified in terms of
compensation or incentive. The need for compensation does not
change as a function of the direct payment. Incentive is absent
because of the insurance and the secrecy. We conclude, then,
that a substantial proportion of respondents are inclined to ask
injurers to pay more and victims to receive more when the payment
is direct, as it is in most cases in the real world. Such a
pattern of responding would lead to excessive use of the tort
system, which makes direct payments, compared to what could be
justified by the functions of compensation and deterrence.
Our general conclusion is that intuitions about compensation and
penalties are based on other considerations than the consequences
for fulfilling needs or deterring future harm. Although some
respondents, in their answers and their explanations, did
consider consequences in some detail, many others did not.
3 Experiment 2
Experiment 1 demonstrated that many people do not take incentive
and deterrence effects into account in decisions about
punishment. This is a surprising result, given that many writers
hold that these effects are the sole justification of punishment.
Experiment 2 checked this result by presenting modified forms of
the questionnaire used in Experiment 1.
In addition, we presented an argument about deterrence and
incentive. After reading the argument, subjects responded to the
same cases again. Of particular interest is whether subjects
said that they had thought of the argument before. We ask, then,
whether failure to use the deterrence principle is the result of
not thinking of it, thinking of it and rejecting it, or both.
This question is relevant if we want to increase the use of this
principle in the legal system or elsewhere. If people simply do
not think of it, then we simply need to teach it to them. If
they reject it, then we need to engage them in a more thorough
Two different modified forms were used. Form I contained
essentially the basic cases presented in Experiment 1, the
version of each case in which making the company pay would lead
to withdrawal from the market, and the version in which nobody
would know about the amount of payment (so that it could set no
precedent). Form II eliminated this secret version but kept the
version in which payment would make the company withdraw from the
market. It thus contained only Version A, in which the company
would make the safer product, and Version B, in which the company
would stop making the product altogether. In addition, Form II
eliminated the distinction between compensation and penalty. The
situation was therefore just is it is in the present U.S. tort
system. Subjects were asked whether the company should pay the
plaintiff(s). Twenty-eight students did Form I, and 23 did Form
In both forms, the subjects were given an argument explaining the
deterrence justification of penalties and were asked to answer
the questions again. The argument used in Form II concluded, `In
sum, when a company is penalized, its behavior is deterred, and
that behavior can be better or worse than the alternative to it.
If the behavior is worse than the alternative, then we have
reason to penalize the company. If the behavior deterred is
better than the alternative, then we have reason not to
penalize the company. Of course, these deterrent effects are not
the only effects of lawsuits. But, if you did not think about
these effects before, we want to see how thinking about them now
will affect your judgments.' The argument in Form I was similar.
After answering the original cases again, in both forms, the
subject was asked two final questions: `If you have not already
done so, please explain how the argument affected your answers,
or why it did not affect your answers.' `If the argument did
affect your answers, had you ever thought of it before?'
The results for compensation in Form I were similar to those of
Experiment 1 and are therefore not presented. (We asked about
compensation mainly to ensure that subjects understood that
compensation and penalties could differ.)
In Form I, the incentive argument should lead subjects to
penalize the company more in Version A (company will try harder
if penalized) than in Version B (company will stop making
product) or Version C (secret). In general, the argument had
little effect on these judgments. The top part of Table 1 shows
the numbers of subjects who did or did not take incentive into
account in their judgments, before and after reading the
argument. Subjects who did not take incentive into account
either did not penalize the company in either version or
penalized the company in both versions.
Number of subjects (and percent of those answering) in
Experiment 2 who did (`yes') or did not (`no') take incentive
into account in each comparison, before and after reading the
argument defending the principle of incentive. Case 1 is the
birth-control pill; Case 2 is the vaccine. In Version A, the
company will improve if fined; in Version B, the company will
stop; in Version C, the penalty is secret.
Birth-control pill Vaccine
1A vs. 1B 1A vs. 1C 2A vs. 2B 2A vs. 2C
yes yes 4 (14\%) 1 (4\%) 6 (21\%) 4 (15\%)
yes no 0 (0\%) 0 (0\%) 4 (14\%) 1 (4\%)
no yes 5 (18\%) 5 (19\%) 3 (11\%) 2 (7\%)
no no 19 (68\%) 20 (77\%) 15 (54\%) 20 (74\%)
Birth-control pill Vaccine
1A vs. 1B 2A vs. 2B
yes yes 4 (19\%) 4 (19\%)
yes no 0 (0\%) 0 (0\%)
no yes 2 (10\%) 3 (14\%)
no no 15 (71\%) 14 (67\%)
In response to the final question about their response to the
incentive argument, of the 21 subjects whose answers could be
clearly scored (either from their answers to these questions or
earlier ones), 5 had thought of the argument before and accepted
it, 5 had not thought of it before and accepted it, 6 had though
of it before and rejected it (or did not apply it to their
judgments), and 5 had not thought of it before and rejected it.
Some rejections were quite explicit, e.g., `Either the company is
to blame or it isn't.'
In Form II, as shown in the bottom part of Table 1, most
judgments were again unaffected by the argument. In the answers
to the final questions about their response to the argument, only
14 subjects answered both questions clearly. Of these, 2 had
thought of the argument and accepted it, 3 had not thought of it
and accepted it, 7 had thought of it and did not accept it, and 2
had not thought of it and did not accept it. Again, some
rejections were explicit, e.g., `To say that she should not be
paid for her suffering because that would deter progress is using
the ends to justify the means. There are other ways to achieve
progress besides causing some to suffer.' In other cases,
rejections were more pragmatic, e.g., `If the pill is safer than
the rest of the market, it is negative that it will stop, but
still there are other birth control alternatives to the public,
so it won't be such a loss to society.' (Note, however, that the
other alternatives were worse.)
In sum, these results indicate a mixture of four kinds of
subjects: those who have not thought of the argument and accept
it, those who have not thought of it and reject it, those who
have thought of it and accept it, and those who have thought of
it and reject it. The relative proportions of such subjects will
surely depend on the type of case and the population sampled, but
it is clear that all four types can be found in substantial
numbers. Perhaps the somewhat greater resistance to the
incentive argument in Form II than in Form I results from the
lack of an alternative means of providing compensation. (We must
bear in mind, however, the resistance of subjects in Experiment 1
to compensating people for acts of nature.)
4 Experiment 3
In Experiment 3, we tried a different approach to finding out
whether people had thought of the incentive argument and whether
they found it relevant to liability judgments in the context of
cases in which the injurer pays the plaintiff. We presented
subjects with Versions A (the company would improve if fined) and
B (the company would stop making the product if fined) and simply
asked them if the distinction was relevant to determining the
fine. We also asked why someone else might think the distinction
was relevant in case they did not think it was.
The same two cases (birth-control pill and vaccine) were used as
in Experiment 2, Form II. Again, we used two forms. The
critical questions for Form I (Case 1) were:
Consider the following two versions:
Version A. If the company were to change its behavior in
any way as a result of losing the suit, it would make the safer
Version B. If the company were to change its behavior in
any way as a result of losing the suit, it would cease making
pills altogether. Also, no other companies would try to make
1. Should the difference between Version A and Version B matter
in determining whether the company has to pay damages, or (if it
does) how much it has to pay? Why or why not?
2. If you think the difference doesn't matter, why might someone
think that it does matter?`
The two versions for the vaccine case were analogous. In Version
B, `the company ... would not make any vaccine for this flu, so
there would be no vaccine available. Also, no other companies
would try to make vaccine for this flu.'
In Form II, the versions for the pill case were:
Version A. If the company lost the suit and had to pay, it
and other companies would probably spend more on research to try
to make safer pills.
Version B. If the company lost the suit and had to pay, it
and other companies would be less likely to keep this pill and
similar pills on the market.
The vaccine versions were analogous. The changes in Form II were
designed to prevent the interpretation of the versions as a
threat and to call attention to the precedent-setting effect for
Twenty-eight students did Form I (of which 5 were dropped for
misunderstanding or otherwise not answering the questions), and
59 did Form II (of which 10 were dropped for the same reasons).
The most common misunderstanding was saying which outcome was
better rather than whether the expected outcome should affect the
Table 2 shows the results for both forms, for subjects whose
answers could be clearly categorized. Once again, all possible
responses are represented. Some subjects applied the incentive
principle to their judgment; others knew it (when asked how
others might respond) but did not apply it to their own
judgments; and still others showed no evidence of knowing it. In
Form I, it seemed somewhat easier to think of the incentive
argument in the vaccine case, perhaps because the effect on death
rates was clear here. Still, although many subjects thought of
the argument, most who thought of it rejected it.
Number of subjects (and percent of those answering clearly)
in Experiment 3 who applied the incentive principle to their
judgment, knew it (when asked how others might respond) but did
not apply it to their own judgments, or showed no evidence of
knowing it. Case 1 is the birth-control pill; Case 2 is the
vaccine. In Version A, the company will improve if fined; in
Version B, the company will stop.
Form I Form II
Case 1 Case 2 Case 1 Case 2
Applied to judgment 5 (23\%) 4 (24\%) 5 (17\%) 6 (24\%)
Knew but rejected 5 (23\%) 10 (59\%) 9 (30\%) 7 (28\%)
Didn't know 12 (55\%) 3 (18\%) 16 (53\%) 12 (48\%)
Examples of subjects who accepted and applied the incentive
argument are: `Of course [the difference matters], because if
the result of being sued impacts so heavily not only on the
parties in this case, but on the whole industry (and its
consumers), then this must be taken into account. Individual vs.
social justice.' `... I would not hold [the company]
responsible, but if I knew they could and would produce a safer
vaccine if penalized, I would have them lose the suit for the
sake of infants on their vaccine in the future.' `It would be a
pretty sorry version of justice if 10 times [the number of]
infants were to die just so that one family would be compensated
for their loss.' `If losing the case would result in the
company's leaving the marketplace, I feel that it would not be in
the interest of society to find them negligent. More babies
would die without the vaccine...'
Those who rejected the incentive argument generally felt that
fines should be based on the facts of the case, what happened in
the past, or the need for compensation, not on effects in the
future. For example: `... we are dealing with solely what
happened to the woman.' `A woman has been hurt and she must be
rightly compensated.' `The damage was already done to that
woman.' `It should have to pay damages if it was at fault.'
`Company ABC should pay for its previous actions on account of
those actions.' `The point of this case has to do with personal
injury to the woman, and the outcome of the case is to make the
injured party whole again or compensate for her injury ...'
Of particular interest are some subjects who explicitly rejected
future consequences as a basis for legal decisions, for example:
`The liability issue should be decided based only on the
facts of the particular case. The possible consequences of the
company losing the suit should not in any way have a bearing
on the particular woman's case.' `The legal consequences of a
past action on decision should not be judged based on its
ramifications for future actions/decisions.' `The question is
whether the company did any wrongdoing against the woman. The
decision on whether they pay has nothing to do with their future
actions.' `... long term policy decisions of the company are not
the victim's concern.' `The amount and the decision to pay
damages depends on the company's past performance,not on
what it may or may not do in the future.' `The court's decision
may cause an increase in research, but that doesn't make a
In Form I, 3 subjects did in fact perceive the description of the
possible outcomes as a threat, for example: `The company's
reaction to losing the suit should in no way be considered in the
decision making process. If it was any industry ... could
circumvent the law by threatening to later withhold its
Several subjects - 8 in Form I but only 3 in Form 2 - took the
difference between versions into account in exactly the opposite
way from that dictated by the incentive principle, in particular,
they argued for leniency in Version A (when the company would try
harder if it were fined) on the grounds that it was a more
deserving company. The reduction of this idea in Form 2 might
have resulted from the emphasis on the effect on other companies.
Examples are: `Some might think that it does matter because B
shows the company to be extremely selfish/immoral. Many might
feel that they should have to pay more for their callousness.'
`... ceasing to make pills altogether means [the company] has
committed a crime ...'
Another type of non-incentive response to the question of why
someone might think that the difference mattered was that it
mattered to the profits of companies, for example: `It would
matter to someone else, I think, because they would consider ...
the effect this decision will have on drug manufacturing
companies.' `It could matter if you were president of the
company because it would decrease profits.' `Version A forces
other companies to spend money on research that might exceed the
losses [sic] of the company in question. However, in Version B,
the other companies are almost given free business advice.'
Our results suggest that intuitions about punishment and
compensation, in the context of tort law, are variable from
person to person and are not typically consequentialist. Many
subjects regard penalties as an automatic consequence of causing
injury (perhaps only with some negligence), regardless of the
incentive effects of assessing the penalties. Many subjects have
not learned the deterrent rationale to the point where they can
recall it and bring it to bear on cases. Others have learned it
but still reject it. Some who are presented with the rationale
for what seems to them to be the first time accept it, but others
reject it because it conflicts with their intuition.
Likewise, many people assign compensation not in terms of the
injury but, rather, in terms of setting the balance right between
the injurer, if any, and the victim. Victims thus can receive
less compensation for injuries caused by omissions or by nature
than for injuries caused by acts.
These nonconsequentialist attitudes, together, constitute a kind
of support for a system in which people are compensated for
injuries caused by acts but not for other injuries. Compensation
is provided even when the incentive effects of providing it are
harmful in the long run, as in the case of vaccines (clearly) or
(only a little less clearly) medical specialties such as
obstetrics which are losing practitioners because of frequent
Presumably the nonconsequentialist intuitions we have found are
not limited to the U.S. Certainly our account of how they arise
- in terms of overgeneralization based on incomplete
understanding of purposes - is not specific to any particular
culture. If these intuitions are to explain the bad outcomes of
the legal system, why are these outcomes found more often in the
U.S. than in other countries, as they seem to be (Huber & Litan,
1991)? Schwartz (1991) suggests that the U.S. legal system
contains several jointly unique features that encourage frequent
litigation, thus giving these intuitions more opportunity to
affect outcomes. These features include the widespread use of
jury trials for product liability and malpractice cases, the fact
that losing plaintiffs are not liable for the defendant's legal
expenses, and the use of contingent fee arrangements in which the
plaintiff's lawyer is not paid if the plaintiff loses.
Our results create a puzzle for positive economic theories of
law, particularly Landes and Posner's (1987). If the system can
be understood in terms of the consequentialist rationale, as they
claim it can, what human judgments maintain it? Note that our
main findings held even for judges, and most of our other
subjects are potential jury members. Perhaps the present system
is not so close to the `best of all possible consequentialist
worlds' as Landes and Posner would suggest. The system might
yield better outcomes if its consequentialist rational were more
widely understood and applied.
Conceivably, such understanding would lead to less use of the
tort system, which cannot compensate victims of nature and which
can discourage useful activities, and more emphasis on insurance
(including social insurance) and regulation. Schools can play a
role in teaching citizens various justifications of legal
principles, including the consequentialist ones, as part of the
social studies curriculum and elsewhere.
Baron, Jonathan. (1991). Harmful heuristics and the improvement
of thinking. In D. Kuhn (Ed.), Developmental perspectives on
teaching and learning thinking skills. Basel: Karger.
Baron, Jonathan. (in press). Heuristics and biases in equity
judgments: a utilitarian approach. In B. A. Mellers & J. Baron
(Eds.), Psychological perspectives on justice. New York:
Cambridge University Press.
Baron, Jonathan, David Asch, John C. Hershey, Howard Kunreuther,
Jacqueline Meszaros, Ilana Ritov, and Mark Spranca. (1991).
Determinants of resistance to pertussis vaccination.
Manuscript, Department of Psychology, University of Pennsylvania.
Baron, Jonathan, Rajeev Gowda, and Howard Kunreuther (1992).
Attitudes toward managing hazardous waste: What should be
cleaned up and who should pay for it? Working paper, Center for
Risk and Decision Processes, University of Pennsylvania.
Baron, Jonathan, and John C. Hershey. (1988). Outcome bias in
decision evaluation. Journal of Personality and Social
Psychology, 54, 569-579.
Brown, John P. (1973). Toward an economic theory of liability.
Journal of Legal Studies, 2, 323-349.
Calabresi, Guido. (1970). The costs of accidents: A legal
and economic analysis. New Haven: Yale University Press.
Calfee, John E., & Paul H. Rubin. (in press). Some implications
of damage payments for nonpecuniary losses. Journal of Legal
David, A. B. (1986). DTP: Drug manufacturers' liability in
vaccine-related injuries. Journal of Products Liability,
Djerassi, Carl. (1989). The bitter pill. Science, 245,
Fincham, Frank D., & Joseph M. Jaspars. (1980). Attribution of
responsibility: From man the scientist to man as lawyer.
Advances in Experimental Social Psychology, 13, 81-138.
Friedman, David. (1982). What is 'fair compensation' for death
or injury? International Review of Law and Economics, 2,
Hinman, A. R. (1986). DTP vaccine litigation. American
Journal of Diseases of Children, 140, 528-530.
Hofmann, M. A. (1988). No-fault system to compensate vaccine
injuries. Business Insurance, 22 (5), 3, 24-25.
Huber, Peter W. (1988). Liability: The legal revolution and
its consequences. New York: Basic Books.
Huber, Peter W. (1991). Galileo's revenge: Junk science in
the courtroom. New York: Basic Books.
Huber, Peter W., and Robert E. Litan (Eds.). (1991). The
liability maze: The impact of liability law on safety and
innovation. Washington: Brookings Institution.
Inglehart, John K. (1987). Compensating children with
vaccine-related injuries. New England Journal of Medicine,
Landes, William M., and Richard A. Posner. (1987). The
economic structure of tort law. Cambridge, MA: Harvard
Mastroianni, Luigi Jr., Peter J. Donaldson, and Thomas T. Kane.
(1990). Developing new contraceptives: Obstacles and
opportunities. Washington: National Academy Press.
Ritov, Ilana, and Jonathan Baron. (1990). Reluctance to
vaccinate: omission bias and ambiguity. Journal of
Behavioral Decision Making, 3, 263-277.
Ritov, Ilana, and Jonathan Baron. (1992). Judgments of
compensation for misfortune: the role of expectation.
Manuscript, Department of Psychology, University of Pennsylvania.
Schwartz, Alan. (1988). Proposals for products liability reform:
A theoretical synthesis. Yale Law Journal, 97, 353-419.
Schwartz, Gary T. (1991). Product liability and medical
malpractice in comparative context. In P. W. Huber & R. E. Litan
(Eds.), The liability maze: The impact of liability law on
safety and innovation, pp. 28-80. Washington: Brookings
Shavell, Steven. (1987). Economic analysis of accident law.
Cambridge, MA: Harvard University Press.
Spranca, Mark, Elisa Minsk, and Jonathan Baron. (1991). Omission
and commission in judgment and choice. Journal of
Experimental Social Psychology.
Viscusi, W. Kip, & Michael J. Moore. (in press). Product
liability: Research and development, and innovation. Journal
of Political Economy.
Walster, Elaine, Walster, G. W., & Berscheid, Ellen. (1978).
Equity: Theory and research. Boston: Allyn & Bacon.
1We thank Colin Camerer, David Houston, Robert Field, Rajeev
Gowda, John C. Hershey, Howard Kunreuther, Jacqueline Meszaros,
George Priest, and the anonymous reviewers for helpful
suggestions, and Penny Pollister and Joanne Schwartz for research
assistance. This work was supported by a grant from the National
Science Foundation (SES-8809299).
File translated from
On 25 Aug 2003, 07:27.