Lauterpacht Centre for International Law

Speaker: Professor Lauge Poulsen, University College London Lecture summary : Modern investment treaties give private arbitrators power to determine whether governments should pay compensation to foreign investors for a wide range of sovereign acts. In recent years, particularly developing countries have incurred significant liabilities from investment treaty arbitration, which begs the question why they signed the treaties in the first place. In his talk, Dr. Poulsen will introduce some of the key findings in his book, Bounded Rationality and Economic Diplomacy (Cambridge Press, 2015). The book shows that governments in developing countries typically overestimated the economic benefits of investment treaties and practically ignored their risks. Rooted in insights on bounded rationality from behavioral psychology and economics, the analysis highlights how policy-makers often relied on inferential shortcuts when assessing the implications of the treaties, which resulted in systematic deviations from fully rational behavior. This not only sheds new light on one of the most controversial legal regimes underwriting economic globalization but also provides a novel theoretical account of the often irrational, yet predictable, nature of economic diplomacy. Bounded Rationality and Economic Analysis won the International Studies Association’s inaugural prize for best book in International Political Economy. ​