Contract Theory and Criminal Negligence

[EvilSocialistFellow]

Hi, this is something I’ve thought about a lot and basically for the free market to operate, contractual agreements must be virtually sacrosanct, right?

Well my problem with contract theory in its purest most unadulterated form is the fact that people do not always read the small print. Be honest, how many times have you signed up for something, thinking perhaps I ought to read the entire contract but realising it is about 40 pages long and contains endless technical jargon?

If somebody sells me medicine that blinds me, I can sue them in the free market, right, perhaps even seek retribution for criminal negligence, unless I have signed up a contract saying they bear no responsibility.

My thoughts were that, for a contract to be recognised as legitimate by a DRO in a free society, it must contain a succinct, clear summary (lets say no more than 50 words and no smaller than a font size of 12) that does not conflict with anything stated in the small print. This would help protect vulnerable people from the mistake of accepting potential lethal contract arrangements.

Before someone comes along and says, ‘well its their own fault if blah, blah blah’ my response would be that in order for economic growth and wide scale technological development to occur, all individuals must benefit from voluntary exchange.

Also, this question is kind of relevant to the flow of the thread; I often hear Libertarians arguing that all voluntary exchanges are mutually beneficial for both parties involved but does this statement presuppose that in 100% of circumstances all actors act optimally and rank their own means and ends according to their own subjective preferences 100% correct?

For instance, I might come to an agreement with an estate agent to upgrade my house but at the cost of going into major debt. Before making the agreement, I ranked all potential ends on a marginal utility and came to the decision that it was preferable to live in a mansion but be in massive debt rather than to remain in a shoddy, 2nd class bed sit but not be in major debt. However, upon upgrading, I found that the voluntary exchange of Scenario A for Scenario B was not beneficial.

The same argument applies to what I currently feel is a major problem with contract theory. Perhaps I have made assumptions on a false premisis. If so, please feel free to correct me.

[liberty_student]

Your issue isn’t with contracts, it is with the market.

You do not trust other human beings.

But the catch is, if you don’t trust people to make decisions for themselves, then who do you trust? God? Who should rule humans, since humans are incapable of doing it?

[z1235]

@EvilSocialistFellow

My thoughts were that, for a contract to be recognised as legitimate by a DRO in a free society, it must contain a succinct, clear summary (lets say no more than 50 words and no smaller than a font size of 12) that does not conflict with anything stated in the small print. This would help protect vulnerable people from the mistake of accepting potential lethal contract arrangements.

If shorter, clearer contracts were preferred (valued), they would take away business (exchanges) from the longer, convoluted ones. If such optimal (market derived) level of contract complexity was too much for an average customer to bear then clarification, simplification, review, and comparison of such contracts would be in demand, which would produce a profit opportunity for such services to be provided (Contract Consumer Reports). Also, DROs could always impose limitations (like the ones you suggested) over the universe of contracts they’re willing to adjudicate, but that’d be at the risk of losing business to competitors without such restrictions. If, on the other hand, the DROs found such limitations to be profit-enhancing, then most of them would impose them.

Before someone comes along and says, ‘well its their own fault if blah, blah blah’ my response would be that in order for economic growth and wide scale technological development to occur, all individuals must benefit from voluntary exchange.

You’re still being affected by your interventionist legacy. An exchange is voluntary, by definition, if it was perceived to be beneficial at that time by both parties. No “must” is necessary.

Also, this question is kind of relevant to the flow of the thread; I often hear Libertarians arguing that all voluntary exchanges are mutually beneficial for both parties involved but does this statement presuppose that in 100% of circumstances all actors act optimally and rank their own means and ends according to their own subjective preferences 100% correct?

Everyone’s current subjective preferences are always “100% correct”, by definition. That’s why they’re preferences and that’s why they’re subjectively ranked the way they are, again by definition. This ranking says nothing about (1) other people’s (i.e. busybodies’) subjective preferences regarding the same items, or (2) future ranking of subjective preferences of the same person.

For instance, I might come to an agreement with an estate agent to upgrade my house but at the cost of going into major debt. Before making the agreement, I ranked all potential ends on a marginal utility and came to the decision that it was preferable to live in a mansion but be in massive debt rather than to remain in a shoddy, 2nd class bed sit but not be in major debt. However, upon upgrading, I found that the voluntary exchange of Scenario A for Scenario B was not beneficial.

The future is uncertain. Subjective preferences change accordingly.

[EmperorNero]

About small print. I don’t think it’s really necessary to require a summary in a certain format. Firstly, short, simple contracts would probably emerge as a way to compete for customers. Secondly, even in our current legal system small print isn’t always taken literally. You can usually argue in court that you didn’t read the small print. In other words, contracts that people can’t be expected to read aren’t always legally valid anyways. Thirdly, contracts can’t actually protect you from being sued for negligence. At least that’s how it works in California. A company can be successfully sued even if they made you sign a waiver. You can’t sign away negligence.

[EvilSocialistFellow]

@liberty student

Your issue isn’t with contracts, it is with the market.

No. I am not a socialist anymore.

You do not trust other human beings.

Correct.

But the catch is, if you don’t trust people to make decisions for themselves, then who do you trust? God? Who should rule humans, since humans are incapable of doing it?

I don’t believe that was inferred as such.

[EvilSocialistFellow]

@EmperorNero

About small print. I don’t think it’s really necessary to require a summary in a certain format. Firstly, short, simple contracts would probably emerge as a way to compete for customers. Secondly, even in our current legal system small print isn’t always taken literally. You can usually argue in court that you didn’t read the small print. In other words, contracts that people can’t be expected to read aren’t always legally valid anyways. Thirdly, contracts can’t actually protect you from being sued for negligence. At least that’s how it works in California. A company can be successfully sued even if they made you sign a waiver. You can’t sign away negligence.

Ah yes, good post, cheers

@z1235

You’re still being affected by your interventionist legacy. An exchange is voluntary, by definition, if it was perceived to be beneficial at that time by both parties. No “must” is necessary.

I didn’t say the exchange wasn’t voluntary.

Everyone’s current subjective preferences are always “100% correct”, by definition. That’s why they’re preferences and that’s why they’re subjectively ranked the way they are, again by definition. This ranking says nothing about (1) other people’s (i.e. busybodies’) subjective preferences regarding the same items, or (2) future ranking of subjective preferences of the same person.

Yes but that doesn’t mean that an exchange is always 100% of the time mutually beneficial, though, right?

The future is uncertain. Subjective preferences change accordingly.

True.

[Giant_Joe]

Yes but that doesn’t mean that an exchange is always 100% of the time mutually beneficial, though, right?

Voluntary exchanges are.

The valuation at the time of exchange is now gone. It is a part of history. If someone regrets the exchange they made, they have made a mistake. We can’t see into the future all too well, so we always guess that the exchanges we make as we pass through time are going to be worth it. Every action, and by implication, every exchange is a gamble.

What I’m wondering is what you mean by “mutually beneficial”… do you mean at that instant, in the minds of the people making that deal, or in some long-term future forecast?

[EvilSocialistFellow]

@Giant_Joe

What I’m wondering is what you mean by “mutually beneficial”… do you mean at that instant, in the minds of the people making that deal, or in some long-term future forecast?

In a long-term future forecast. It was just a small thing I was thinking about, and it is rather important since a lot of capitalist economic thought is based upon the premisis that all voluntary exchanges are mutually beneficial; this premisis needs to be correct for everything else that is deduced from it to be correct also.

Cheers.

[z1235]

@EvilSocialistFellow

Yes but that doesn’t mean that an exchange is always 100% of the time mutually beneficial, though, right?

No action is undertaken with the assumption that it must eventually be beneficial (with 100% certainty). That would require omiscience. Are you suggesting that only the omniscient can really act voluntarily?

More importantly, what does “eventually” above even mean? 3mins, 3hours, 3years, 30years from now? Buying that diamond ring may have been beneficial toward marrying that cutie six month later, but would that action still be considered beneficial if that same cutie divorced you 10 years later, ran away with the pool-boy, and took everything you have with her?

[EvilSocialistFellow]

@z1235

No action is undertaken with the assumption that it must eventually be beneficial (with 100% certainty). That would require omiscience. Are you suggesting that only the omniscient can really act voluntarily?

Good point. Very good point. In fact this demolishes my argument.

More importantly, what does “eventually” above even mean? 3mins, 3hours, 3years, 30years from now? Buying that diamond ring may have been beneficial toward marrying that cutie six month later, but would that action still be considered beneficial if that same cutie divorced you 10 years later, ran away with the pool-boy, and took everything you have with her?

Well, no, that was my initial point, namely that the actor can falsely rank his ends according to what is future subjective preferences would be, thereby not all voluntary exchanges are mutually beneficial.

[z1235]

@EvilSocialistFellow

@z1235

No action is undertaken with the assumption that it must eventually be beneficial (with 100% certainty). That would require omiscience. Are you suggesting that only the omniscient can really act voluntarily?

Good point. Very good point. In fact this demolishes my argument.

It’s gets even worse than that. The omniscient, by definition, couldn’t even act. Their very act would reveal that their current state is less desirable than the one such an act would produce, which precludes omniscience.

Well, no, that was my initial point, namely that the actor can falsely rank his ends according to what is future subjective preferences would be, thereby not all voluntary exchanges are mutually beneficial.

Exchanges are actions. Actions are only undertaken if they are perceived to produce a state which is more desirable than the current (action-less) one. Hence, all voluntary action is beneficial, by definition. If it wasn’t beneficial it wouldn’t be voluntary.

“Beneficial” refers ONLY to (1) the actor himself (2) at the time of the action. Whether the action is judged as beneficial for the actor (1) by someone else, or (2) at a different point in time (by someone else or by the same actor) is irrelevant.