New Papers on the Net
Here is the roundup:
- Troy Paredes (Washington University, St. Louis) posts Blinded by the Light: Information Overload and its Consequences for Securities Regulation, forthcoming in the Washington University Law Quarterly. From the abstract:
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A demanding system of mandatory disclosure, which has become more demanding in the wake of the Sarbanes-Oxley Act of 2002, makes up the core of the federal securities laws. Securities regulation is motivated, in large part, by the assumption that more information is better than less. After all, “sunlight is said to be the best of disinfectants; electric light the most efficient policeman.” But sunlight can also be blinding. Two things are needed for a regulatory regime based on disclosure, such as the federal securities laws, to be effective. First, information has to be disclosed. Second, and often overlooked, is that the users of the information – for example, investors, securities analysts, brokers, and portfolio managers – need to use the disclosed information effectively. Securities regulation focuses primarily on disclosing information, and pays relatively little attention to how the information is used – namely, how do investors and securities market professionals search and process information and make decisions based on the information the securities laws make available? Studies making up the field of behavioral finance show that investing decisions can be influenced by various cognitive biases on the part of investors, analysts, and others. This Article focuses on a related concern: information overload. An extensive psychology literature shows that people can become overloaded with information and make worse decisions with more information. In particular, studies show that when faced with complicated tasks, such as those involving lots of information, people tend to adopt simplifying decision strategies that require less cognitive effort but that are less accurate than more complex decision strategies. The basic intuition of information overload is that people might make better decisions by bringing a more complex decision strategy to bear on less information than by bringing a simpler decision strategy to bear on more information. To the extent that investors, analysts, and other capital market participants are subject to information overload, the model of mandatory disclosure that says more is better than less may be counterproductive. This Article considers the phenomenon of information overload and its implications for securities regulation, including the possibility of scaling back the mandatory disclosure system.
Stephen Lubben (Seton Hall) uploads Learning the Wrong Lessons: Baird and Rasmussen’s Third Lesson of Enron and the Inherent Ambiguity of Control. From the abstract:
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In this paper, I respond to Baird & Rasmussen, Four (or Five) Easy Lessons From Enron, 55 Vand. L. Rev. 1787 (2002). The paper is specifically addressed to Baird & Rasmussen’s contention that one of the key lessons of Enron is that chapter 11 is superfluous when a firm’s control rights “are coherently allocated.” Part I of the article reviews Barid & Rasmussen’s view of control rights and the lessons about control rights they draw from Enron. Part II explains how this conception of control rights suffers from several identifiable shortcomings and develops the argument that control in modern firms is inherently (and perhaps intentionally) constructed in a way that leaves ultimate control unclear, even when the firm faces a financial crisis. Part III concludes with some brief observations about the implications of the ambiguous nature of control and the future of chapter 11.