On Sept. 23, the Center for Business Law welcomed Professor Saul Levmore as part of its 2024-2025 lecture series to present his thoughts on Sunk Costs and Exploding Offers. He is the William B. Graham Distinguished Service Professor at the University of Chicago Law School where he has previously served as dean. He is a renowned and prolific scholar, who has written and taught in numerous areas, including torts, corporations, copyright, non-profit organizations, comparative law, public choice, corporate tax, commercial law, insurance, and contracts. His work is heavily focused in law and economics, and he is a leader in that area, including serving as the past president of the American Law and Economics Association.
Levmore’s lecture explored the sunk cost fallacy in which people fail to abandon a course of action because of the costs that they have already invested in the undertaking. In doing so, they ignore the critical need to assess the value of the undertaking based on the future probability and worth of success. Levmore used insights into the sunk cost fallacy to explore how a bidder’s sunk cost in investigating a target might influence the decision to proceed or abandon the acquisition of a target company. He noted that bidders must also pay attention to the winner’s curse of often overbidding based on the value of the item sought to avoid paying too much for a target company. He also analyzed why a bidder in a corporate acquisition might want to make an exploding offer to block competitors.
In talking about the lecture, Juliet Kostritsky remarked, “Professor Levmore is a leader among leaders in the field of law and economics.” She continued, “it was wonderful that he was able to stop by and share his knowledge prior to the start of the term at the University of Chicago Law School”. Eric Chaffee noted, “the sunk cost fallacy is an error that people regularly suffer. As a consequence, the wisdom Professor Levmore offered extended to a multitude of different contexts beyond just the complex world of corporate acquisitions and takeovers.”
The Center for Business law at Case Western, which is co-directed by Professors Juliet P. Kostritsky and Eric C. Chaffee, is an initiative to prepare future leaders to understand business issues facing business entities, engage in research on the role and impact of government in the regulation of business and to foster public debate regarding the role of government in the regulation of businesses. It is part of the robust business law curriculum at the Law School.