Danielle starts right off criticizing what she calls the “freedom of contract ideal.” Her complaint this morning is that "disclosure statutes" to correct bargaining imbalances and asymmetric information actually conceal the real problem with freedom of contract, which is disparity of power. These statutes assume the classical conception of contract law which assumes that parties are able to make welfare enhancing choices that merit enforcement, provided they are given the relevant information.
She is now summarizing what she calls classical contract theory. She is reading pretty fast so it is hard to keep up. It is the familiar description of the rational actor model. (This is the model that Marcus was going to critique.) Now she is summarizing the standard critique of the unrealistic nature of the rational actor model based on informational asymmetry, the failure to consider all salient
information, and the absence of rationality in the marketplace. She says behavioral economics underscores this critique (which I am incompletely summarizing because she is speaking so fast--not too fast for the audience, just too fast for me to keep up). Human cognitive abilities are limited, says the literature that she is now summarizing, so people use shortcuts. They ignore the statistical data in favor of other less perfect markers. Now she is describing framing effects in which preferences are changed solely because of how the information is presented to her, which puts power into the hands of those who are presenting choices to market actors. Other studies show that people are not truly rational self-maximizers. The example is that people tip though it is not in their interest to do so (a claim that is widely criticized BTW). Market forces require businesses to manipulate information to stay in business, she says. She says the assumptions of the rational actor model underlying classical contract theory are "arguably contestable." All this undermines the feasibility of disclosure statutes because consumers will not process the information accurately and the resulting transaction will still not be wealth maximizing for consumers, which is the classical justification for enforcing contracts. By relying on disclosure statutes we are privileging the classical conception of freedom of contract which, on its own terms, is incoherent. Freedom of contract is only workable as an ideal if its underlying assumptions are sound, and they appear not to be. Freedom of contract, stripped of its underlying justifications leads to the "draconian" conclusion that "contracts should be kept." So what we have instead is a naked abuse of power. "Freedom of contract is essentially being used as a front for the use of contract as power."
This long passage come from one of a series of "live-blogs" posted to the Volokh Conspiracy by Prof. Randy Barnett from the AALS (Association of American Law Schools) Contracts Conference. There are several really interesting nuggets in these series of posts (especially some of the Critical Legal Theory stuff)...but primarily, I just wanted to be able to remember that bit above.
UPDATE: I wanted to add, that it is clear from his later comments that Prof. Barnett disagrees with the speaker (Danielle Kie Hard of Southwest University) of the above section. I did not want to leave the impression that this was his view - it is merely his reporting of the presentation.
UPDATE II: Read some of my other thoughts on Lochner and freedom of contract here, here, and here.