Training for Temptation - Towards a Cognitive Theory of Corporate Governance

Topic & Objectives

The project has explored how corporate governance theory is in the process of evolving from rational actor-theory towards behavioral approaches and has shed light on novel suggestions of incorporating social psychology and euro-economics. The project shows the theoretical strengths and weaknesses of these lines of thought as well as practical insight into corporate governance topics and ways to better understand them using behavioral and/or psychological findings.

My doctoral student Daniel Hau has been especially helpful with the underlying economic questions. Given his economics degree from Goethe, he was able to co-work with me on Bayesian statistics, a methodology used by behavioral economists and on frequentists statistics, a methodology used by most social psychologists.

SAFE has partially funded a research trip to the Wharton School’s neuroscience center to enable cooperation with Michael Platt (neuroscientist) and Joseph Kable (social psychologist).

The next step in this line of research is envisaged for February 2020 when I will be moderating a panel with experts including the founding father of euro-economics, Paul Glimcher, in a conference on „Cutting edge developments in neuroscience research“. The event is organized by the Neuroscience and Law Center of Fordham Law School (https://go.activecalendar.com/FordhamUniversity/site/law/event/neuroscience-event/).

Key Findings

• Much of law is about controlling and at times changing human behavior. Hence, it implies some form of decision theory on how people react to legal norms. In corporate law, microeconomics in its version of „rational choice theory” has long been the law’s natural ally, relying on abstract assumptions, „as if” models and utility functions.
• More recently, we see a broader array of cognitive sciences entering the field. „Behavioral economics” has insisted on a number of biases, raising doubts about the extent to which decision-making can usefully be conceptualized as rational.
• Reaching further, social psychology has contributed insights on group behavior, dual systems or self-control.
• Lastly, „neuroeconomics” has set out to combine methods of economics and neuroscience to make better predictions about human behavior.