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Rational Expectations model, Homo economicus, Investor confidence


Business Organizations Law | Law and Economics | Securities Law


Academic discussions of securities policy often assume that investors are hyperrational and distrustful actors who do not need the protections of the securities laws to avoid being defrauded. The time has come to recognize the limitations of this assumption and to consider as well the possibility and implications of investor trust. Experienced policymakers and businesspeople (and certainly experienced con artists) have long known that trust is a potent force in explaining and manipulating investor behavior. They are right. They are right to believe that investor confidence-meaning investor trust-is important to the market. They are right to think that trust has been imperiled by the recent slew of securities frauds and accounting scandals. Finally, they are right to call for swift and sure action to restore investor trust.


This article predates the author's affiliation with Cornell Law School.

Publication Citation

Published in: Brooklyn Law Review, Vol. 68, No. 2 (2002).