Theresa A. Gabaldon · April 2013
81 GEO. WASH. L. REV. 929 (2013)
The traditional view of corporate law asserts that the corporation serves society via the satisfaction of consumers’ revealed preferences, which dictate the ultimate allocation of resources contributed by corporate investors, workers, and managers. Social psychology has long taught, and legal analysts now often concede, that revealed preference is an unreliable guide to social welfare. Human beings have cognitive limits that may be routinely exploited in a variety of ways, including the methods in which decisions are framed. The recognition that there are easily manipulable “bounds” on rationality, self-interest, and free will severely weakens corporate law’s familiar claims: if corporations are creating the very preferences they satisfy, the foxes are not only guarding the hen houses, they are running the farm. Still, the problem of bounded consumer rationality continues to be viewed as a matter for external regulation rather than as a reason for rethinking some of the givens of corporate governance. This Article attempts to explain why the Dodd-Frank Act’s creation of the Consumer Financial Protection Bureau provides an opportunity to revisit the characterization of bounded consumer rationality as a problem extrinsic to corporate law. The punch line is that the Bureau has both broad regulatory and general educational mandates that could justify a variety of reforms. One such reform recommended in this Article is the creation of a process pursuant to which the providers of at least some financial consumer goods could be certified as subscribing to corporate decisionmaking practices designed to be less injurious to consumer interests than the usual shareholder primacy model historically has dictated.
