What is a Fact?

I was teaching Carnival Cruise Lines to my first-year contract students.  This is the Supreme Court opinion holding that a forum selection clause in the fine print on the back of a cruise line ticket binds a customer who bought the ticket near her home in Washington state and was injured on the cruise to travel to Flordia to sue.  As we discussed the opinion, a student explained that the clause is good for everyone (except the woman who was injured) because, quoting the Court, "passengers who purchase tickets containing a forum clause like that at issue in this case benefit in the form of reduced fares reflecting the savings that the cruise line enjoys."

Is this a question of fact or of law?  "Fact, of course," said the students.  So I asked how this fact could be proven.  What followed was a wonderful, multi-student discussion of maginal pricing, elasticity of demand, etc.  Even as I pressed on the presumptions underlying the deductive model--fully informed parties, competitive markets, low transactions costs, etc--the students hung on to their model.  They were smart and sophisticated in their arguments, but the bottom line was that they "proved" the fact of lower costs deductively by appling what they saw as immutable economic principles. 

When I pointed out that this lovely conversation was all about theory and not fact, they were resistant.  So I reversed and asked what the plaintiff might offer as proof to show that the justice was wrong.  Much silence followed.

I finally filled in the blanks, suggesting some empirical tests--ticket prices for companies that do/don't use such clauses, changes in pricing before/after such clauses are used, evaulation of whether cost is large enough to be reflected in price, etc.  They got the idea and had some good suggestions

What struck me, and the reason I bring it to this group, is how these very bright students seemed to believe that deductive logic produced a "fact" that they could not or would not challenge.  Perhaps my class was abberational, but it made me wonder about how we are educating our students, both before and during law school.  Is it all about deduction, with nothing left over for reality?   

I speculate that my contracts class includes several future law teachers and future policy makers, many future community leaders and a lot of future voters.  If the deductive logic of economics is all-controling, then empirical work--indeed, empirical questions--will always remain at the intellectual and political margins. 

The class reminded me that empirical scholarship is important, but empirical teaching may be more important.  These students are our future. 

Comments

[Greg]

I hope you got through to a few of them. This is an excellent point. Having just finished law school, I knew quite a few need-no-facts-because-I-can-argue-instead types.

Could an economic argument be made that letting the woman sue in her home state actually lowers ticket prices? Over time consumers will prefer companies that allow customers to sue in their home state (perhaps). All things being equal, which ticket would you buy? The company's cruise ships will be fuller. They will gain market share over competitors who have forum selection clauses. Cruise ships at fuller capacity bring in more money with little extra cost. Prices can be lowered because the company can rely on fuller capacity ships. This may be weaker logically, and it takes a few extra steps, but I think (hope) it works. The magic of economic theory!

[Fred Tung]

Great discussion! Perhaps some casual empiricism might have been in order. I might have asked the class if any of them priced their purchases based on comparing forum selection clauses.

[Andrew Engel]

I think the answer to your question might be a bit more simple than you do. You asked whether the student's theory was a FACT. Of course, the question answers itself. But what I have noticed is that most people, including (perhaps even especially) those who are bright and educated, do not have command of language. They use words loosely, ignoring their denotations. Your students' conduct is indicative of a lack of understanding of the meaning of words. One of the things that law school teaches is to be cognizant of the meaning of words. If you were to have the same discussion with those same students in two years, I would anticipate that the conversation would be very different. A 1L has not yet been trained to be recognize that, at least in law, words have meanings.

[anon1L]

The real problem is that the 1L is confronted with case upon case of winning arguments that rely on this armchair economics. It isn't at all clear from the cases covered that empirical research would be used in an opinion, much less convince a judge. Bring on the Brandeis brief.

[Jeff]

I was pointed here by anon1L. I also experienced some of your frustration during the discussion in question. However, I have found in your class that some questions that seem obviously simple to me will baffle many of my classmates while questions baffling to me will be simple to my classmates.

But then again, I'm always ready to question economics in the real world. I was once told that a good engineer knows how theoretical models apply to the situation at hand, but a great engineer knows how (or when) theoretical models don't apply to the situation at hand. Economics is particularly susceptible to this given that real life mostly contains oligopolies while economics mostly deals with perfect markets. Yet this still doesn't explain why my classmates tried to poke deductive holes in the arguments rather than come up with empirical tests.

Perhaps even more interesting to me, is that the first two comments above seemed to have missed the point. Greg laments with you and then tries to make another deductive argument. Fred then offers an empirical study that would answer the wrong question. (I think perhaps this same issue came up in class.) I think it is quite obvious that most consumers do not consider forum selection clauses when valuing contracts (we could even do an empirical study that would likely say so). The question is whether the cruise line companies value forum selection clauses and if the savings / expense of the ticket reflects this.

I also think this question is more difficult than most to look at empirically. There aren't that many cruise lines, so other factors could easily dwarf price differences due to forum selection clauses (the cruise line with the shrimp and lobster buffet has a forum selection clause while the one with a hamburger and hot dog buffet doesn't). Another suggestion was to look at the cruise line's history to see if the price changed when the forum selection was added. This more directly confronts Blackmun's argument, but I'd still be skeptical of the results (likely that the price didn't change when the clause was added). I think companies in an oligopoly setting are slow to lower prices, but might be more willing to raise prices if profits disappeared. Profits are the primary concern of any company that reports to Wall Street. (However this does confront the idea that consumers were compensated for the forum selection clause.) The issue seems to me to be a difficult one to examine empirically.

I will admit though, that I was surprised to see the number of law professors that are interested in doing empirical studies. I thought most (or all) law professors spent their time writing lengthy treatises about (to choose an example from class) whether contracts are moral obligations or just a promise to put someone in a certain position regardless of how you get them there.

Alright, I've spent too long on this post; I have a quite lengthy case to read regarding contracts on the high seas.