ORGANIZED ILLUSIONS : A BEHAVIORAL THEORY OF WHY CORPORATIONS MISLEAD STOCK MARKET INVESTORS ( AND CAUSE OTHER SOCIAL HARMS

Rationality is a strong assumption in the legal literature about how corporations and other organizations behave in market settings. The modern transaction-cost economics on which most contemporary corporate scholarship is based' concedes that the rationality of officers, directors, and other managers is "bounded" (that is, that they do not have perfect information or unlimited time, skill, and attention) and acknowledges that these agents have self-interests that differ from those of their firms' owners.2 Because of these limits and the imper-