This paper argues that a nuanced view of sophisticated investors, as well as sellers and structurers of financial instruments, articulated within a rationality paradigm, has implications for financial regulation. The paper distinguishes between conformist investors, who tend to herd, and confident investors, of which contrarians are a notable subgroup, who very much do not herd; sellers who are more aggressive, acting in accordance with strong form caveat emptor, sellers who are more empathetic, and those somewhere in the middle; and finally, focused structurers, who figure out how to achieve a particular objective, and holistic structurers, who also consider whether the objective (perhaps, an end-run around regulation) should be achieved. Regulation will work best if the different types of actors and their interactions are taken into account.

Read the full article.

Hill, Claire A., A Personality Theory of Sophisticated Investor Decision-Making (In the 2008 Financial Crisis), with Some Policy Implications (November 10, 2016). Revue internationale des services financiers/International Journal for Financial Services, Forthcoming; Minnesota Legal Studies Research Paper No. 17-02. Available at SSRN:


Claire A. Hill

Associate Reporter, Compliance, Risk Management, and Enforcement

Claire Hill is the James L. Krusemark Chair in Law at University of Minnesota Law School. She teaches corporate law, mergers and acquisitions, contracts, and a seminar in law and economics. She is the founding director of the Law School’s Institute for Law and Rationality, and the associate director of its Institute for Law and Economics. She is also an affiliated faculty member of the University’s Center for Cognitive Sciences. Before becoming a law professor, she practiced corporate law at several law firms. Her research interests include corporate governance, capital structure, structured finance, rating agencies, secured debt, contract theory, law and language, and behavioral economics.


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