Why Do Retail Investors Make Costly Mistakes? An Experiment on Mutual Fund Choice
Congress has recently acknowledged the need for a better understanding of investor behavior. In the Dodd–Frank Act, Congress instructed the SEC to conduct a study of investor financial literacy. The SEC’s study was conducted at the most superficial level, however, and provided limited insight into developing future regulatory policy. Although the SEC found investor mistakes and misconceptions, it did not seek to identify the reasons for these mistakes or to understand the underlying mechanisms driving investor choices.
This Article takes up where the SEC study left off. We report the results of an experiment designed to explore how investors use the information provided to them, and why they often ignore it. Using a simulated investment game in which participants were asked to allocate funds in a retirement account among ten mutual fund alternatives, we offer some insights into how individuals seek and assimilate information about a fund’s characteristics. In particular, our experiment offers a novel addition to the body of experimental evidence on investor decisionmaking by incorporating a technology that allows us to collect data on the specific information that investors choose to view.
Putting Plea Bargaining on the Record
More than a decade ago, Rolando Stockton rejected a plea bargain that came with a ten-year prison sentence, opting instead to take his chances at trial. The trial went badly. After being found guilty on several drug and firearm charges, Stockton received a forty-year prison sentence. From an objective point of view, Stockton should have taken the deal; rejecting it cost him thirty years of freedom. In postconviction proceedings, Stockton proffered a reason for his poor judgment: his lawyer failed to disclose to him the maximum sentence he faced at trial and the advantages of the ten-year deal. In spite of his admittedly hazy memory of the events, the lawyer disagreed, claiming he told Stockton that the plea deal was a “good offer.” Without clear evidence, the reviewing court sided with Stockton’s lawyer. On that finding, Stockton lost his claim, and he is still serving his initial sentence today.
Under the recent Supreme Court decisions in Lafler v. Cooper and Missouri v. Frye, defense counsel has a duty to inform and reasonably advise clients about plea offers from the prosecution, so that defendants do not forego favorable plea bargains due to the ineffective assistance of their counsel. Yet the story above demonstrates a fundamental problem with these new duties: the lack of a record of the plea bargaining process makes them unenforceable. Without such a record, the defendants, who bear the burden of proof in Sixth Amendment ineffective assistance of counsel claims, have no evidence to support claims of defective advice. Their hopes thus rest on the cooperation of the very lawyers they accuse of being ineffective. When combined with the other difficulties inherent in establish-ing an ineffective assistance of counsel claim, this problem renders the new right toothless.
In this Comment, I propose that the criminal defense bar adopt a practice of recording the plea bargaining process in order to better protect defendants’ Sixth Amendment rights. I begin in Part I with a brief background of Sixth Amendment right-to-counsel jurisprudence, the plea bargaining process, and the evolution of the Supreme Court’s views on these topics.
The Prudential Third-Party Standing of Family-Owned Corporations
On November 26, 2013, the Supreme Court agreed to decide whether for-profit corporations or their shareholders have standing to challenge federal regulations that implement the Patient Protection and Affordable Care Act (ACA). At issue in the two cases consolidated for appeal, Hobby Lobby and Conestoga Wood Specialties, are regulations mandating that employers with fifty or more employees offer health insurance that includes coverage for all contraceptives approved by the Food and Drug Administration (FDA). The plaintiffs assert that providing certain types of contraceptive care would be contrary to their religious beliefs and allege, therefore, that the mandate violates the Religious Freedom Restoration Act of 1993 (RFRA) as well as the First Amendment’s Free Exercise Clause.
The government does not dispute that the family owners of Hobby Lobby and Conestoga Wood Specialties are sincere in their religious objections. However, the mandate applies only to employers and imposes no direct duties upon corporate shareholders. Thus, a threshold issue in these cases and dozens of other pending cases involving for-profit corporations is whether any plaintiff has standing to challenge the mandate. Some courts have concluded that religious objections to the mandate are simply nonjusticiable. Other courts have found standing, either by endorsing the novel proposition that a for-profit business corporation is, itself, a person capable of religious exercise, or by allowing individual owners who have no personal obligations or liability under the ACA’s mandate to nevertheless interpose a religious objection.
We offer a much simpler alternative: under well-established exceptions to the prudential rule against third-party standing, one party can sometimes assert the interests of a third party. Allowing Hobby Lobby and Conestoga Wood Specialties to litigate religious objections to the mandate on behalf of their shareholders obviates the need for the Court to venture into uncharted territory. The crucial insight is that the corporation’s injury need not be religious in nature for the religious objections to the ACA regulations to be adjudicated. So long as the corporate plaintiff is injured economically by the regulations, it has standing under Article III to challenge them. At that point, the corporation’s assertion of the constitutional or statutory rights of absent third parties is properly analyzed under the rubric of third-party standing.
The Constitutionality of Stop-and-Frisk in New York City
Stop-and-frisk, a crime prevention tactic that allows a police officer to stop a person based on "reasonable suspicion” of criminal activity and frisk based on reasonable suspicion that the person is armed and dangerous, has been a contentious police practice since first approved by the Supreme Court in 1968. In Floyd v. City of New York, the U.S. District Court for the Southern District of New York ruled that New York City’s stop-and-frisk practices violate both the Fourth and Fourteenth Amendments. Professors David Rudovsky and Lawrence Rosenthal debate the constitutionality of stop-and-frisk in New York City in light of Floyd and Judge Shira A. Scheindlin’s controversial removal from the case. Professor Rudovsky argues that Floyd shows the important role of data and statistical analysis in assessing the constitutionality of stop-and-frisk procedures. He contends that empirical evidence regarding both the factors for and outcomes of stops and frisks in New York demonstrates that either the legal standard is too permissive or police-stop documentation is not truthful. In response, Professor Rosenthal argues that Judge Scheindlin erred in failing to consider evidence of stop-and-frisk’s efficacy—evidence indicating that the NYPD’s stops are based on reasonable suspicion, a standard considerably less demanding than “preponderance of the evidence.” Additionally, Rosenthal argues that Judge Scheindlin should have considered differential offending by race or other potentially nondiscriminatory explanations for the higher stop rates of minorities.
Retroactivity, Strickland, and Alien Criminal Defendants: How the Chaidez Decision Raised More Questions Than It Answered
When the United States Supreme Court decides to hear a case, it does not grant certiorari simply on the case itself—it chooses to answer a “question presented” by that case. So in Chaidez v. United States, the Court granted certiorari on the question “whether the principle articulated in Padilla [v. Kentucky] applies to persons whose convictions became final before its announcement.” But in answering that question, Chaidez left unanswered—and raised—even more questions.
In the 2010 landmark case Padilla v. Kentucky, the Court declared that defense lawyers must inform noncitizen criminal defendants of the removal consequences of pleading guilty. In the years that followed, federal and state courts grappled with—and ultimately split over—whether Padilla applied only to defendants whose cases were still on direct appeal, or also to those whose convictions were final before Padilla. The Supreme Court granted certiorari in Chaidez, and, in an opinion authored by Justice Kagan, upheld the Seventh Circuit’s ruling that Padilla established a “new rule” not available retroactively.
But the Court’s ruling did not address several of the difficult questions that come up in retroactivity analysis, particularly for any rule premised on Strickland v. Washington. It also left many questions open for alien petitioners who seek relief from their convictions. Part I of this Note discusses how the Court has traditionally handled the retroactive application of rules to habeas petitioners and how the issue arose after Padilla. It summarizes the Teague rule for retroactivity and the problem the Padilla decision posed for lower courts determining its retroactive application. Part II discusses the Chaidez decision and notes the various policy and practical concerns implicated (and ignored) in its retroactivity analysis. Part III notes the open questions that persist after Chaidez—particularly for petitioners whose lawyers affirmatively gave them wrong information at the time they pleaded guilty—and examines where the Court may be heading with its recent plea jurisprudence. Finally, Part III also questions how long Teague and Strickland can function together, as new norms in criminal procedure evolve, become prevailing, and ultimately gain recognition from courts.
Whose Conception of Insurance?
Professor Abraham’s new Article, Four Conceptions of Insurance, offers an invaluable overview and critique of four modern conceptions of insurance. He cautions that “the particular lens through which we view insurance law cannot tell us what principles should govern or what policy choices to make.” But who is the “we” in that statement? This Response focuses on three overlooked groups with an important interest in such governing principles and policy choices. First, Abraham mentions insurance brokers only briefly, describing how large insurance brokers can negotiate policy terms. But brokers, large and small, play an important role in deciding which available insurance a policyholder purchases. Second, any discussion of homeowners insurance should include mortgage holders, who require mortgagors to purchase insurance and whose interest in the scope of coverage is equal to or greater than the homeowner’s. Third, within the construction industry, general contractors seek to transfer risk to their subcontractors, who must purchase liability policies naming general contractors as “additional insureds.” The contract model, which looks to the intent of the insurer and the subcontractor, as expressed in the policy language, preserves the expectations of the parties to the contract. In examining each of these three overlooked groups’ interests in an insurance transaction, we may discover that the contract model, so frequently maligned in the academic literature, is not so bad after all.