The overconfidence effect is a cognitive bias in which a person's subjective confidence in their judgments is reliably greater than the objective accuracy of those judgments, especially when confidence is relatively high.
Overconfidence is one example of a miscalibration of subjective probabilities. Throughout the research literature, overconfidence has been defined in three distinct ways: (1) overestimation of one's actual performance; (2) overplacement of one's performance relative to others; and (3) overprecision in expressing unwarranted certainty in the accuracy of one's beliefs.
The most common way in which overconfidence has been studied is
by asking people how confident they are of specific beliefs they hold or
answers they provide. The data show that confidence systematically
exceeds accuracy, implying people are more sure that they are correct
than they deserve to be. If human confidence had perfect calibration,
judgments with 100% confidence would be correct 100% of the time, 90%
confidence correct 90% of the time, and so on for the other levels of
confidence. By contrast, the key finding is that confidence exceeds
accuracy so long as the subject is answering hard questions about an
unfamiliar topic. For example, in a spelling task, subjects were correct
about 80% of the time, whereas they claimed to be 100% certain. Put another way, the error rate was 20% when subjects expected it to be
0%. In a series where subjects made true-or-false responses to general
knowledge statements, they were overconfident at all levels. When they
were 100% certain of their answer to a question, they were wrong 20% of
the time.
Types
Overestimation
One
manifestation of the overconfidence effect is the tendency to
overestimate one's standing on a dimension of judgment or performance.
This subsection of overconfidence focuses on the certainty one feels in
their own ability, performance, level of control, or chance of success.
This phenomenon is most likely to occur on hard tasks, hard items, when
failure is likely or when the individual making the estimate is not
especially skilled. Overestimation has been seen to occur across domains
other than those pertaining to one's own performance. This includes the
illusion of control, planning fallacy.
Illusion of control
Illusion of control describes the tendency for people to behave as if they might have some control when in fact they have none. However, evidence does not support the notion that people
systematically overestimate how much control they have; when they have a
great deal of control, people tend to underestimate how much control
they have.
Planning fallacy
The planning fallacy
describes the tendency for people to overestimate their rate of work or
to underestimate how long it will take them to get things done. It is strongest for long and complicated tasks, and disappears or reverses for simple tasks that are quick to complete.
Contrary evidence
Wishful-thinking
effects, in which people overestimate the likelihood of an event
because of its desirability, are relatively rare. This may be in part because people engage in more defensive pessimism in advance of important outcomes, in an attempt to reduce the disappointment that follows overly optimistic predictions.
Overprecision
Overprecision is the excessive confidence that one knows the truth. For reviews, see Harvey or Hoffrage. Much of the evidence for overprecision comes from studies in which
participants are asked about their confidence that individual items are
correct. This paradigm, while useful, cannot distinguish overestimation
from overprecision; they are one and the same in these item-confidence
judgments. After making a series of item-confidence judgments, if people
try to estimate the number of items they got right, they do not tend to
systematically overestimate their scores. The average of their
item-confidence judgments exceeds the count of items they claim to have
gotten right. One possible explanation for this is that item-confidence judgments were
inflated by overprecision, and that their judgments do not demonstrate
systematic overestimation.
Confidence intervals
The
strongest evidence of overprecision comes from studies in which
participants are asked to indicate how precise their knowledge is by
specifying a 90% confidence interval around estimates of specific
quantities. If people were perfectly calibrated, their 90% confidence
intervals would include the correct answer 90% of the time. In fact, hit rates are often as low as 50%, suggesting people have drawn
their confidence intervals too narrowly, implying that they think their
knowledge is more accurate than it actually is.
Overplacement
Overplacement
is the most prominent manifestation of the overconfidence effect which
is a belief that erroneously rates someone as better than others. This subsection of overconfidence occurs when people believe themselves to be better than others, or "better-than-average". It is the act of placing yourself or rating yourself above others
(superior to others). Overplacement more often occurs on simple tasks,
ones we believe are easy to accomplish successfully.
Perhaps the most celebrated better-than-average finding is Svenson's
finding that 93% of American drivers rate themselves as better than the
median. The frequency with which school systems claim their students outperform
national averages has been dubbed the "Lake Wobegon" effect, after
Garrison Keillor's apocryphal town in which "all the children are above
average." Overplacement has likewise been documented in a wide variety of other circumstances. Kruger, however, showed that this effect is limited to "easy" tasks in
which success is common or in which people feel competent. For difficult
tasks, the effect reverses itself and people believe they are worse
than others.
Comparative-optimism effects
Some
researchers have claimed that people think good things are more likely
to happen to them than to others, whereas bad events were less likely to
happen to them than to others. But others have pointed out that prior work tended to examine good
outcomes that happened to be common (such as owning one's own home) and
bad outcomes that happened to be rare (such as being struck by
lightning). Event frequency accounts for a proportion of prior findings of
comparative optimism. People think common events (such as living past
70) are more likely to happen to them than to others, and rare events
(such as living past 100) are less likely to happen to them than to
others.
Taylor and Brown have argued that people cling to overly positive
beliefs about themselves, illusions of control, and beliefs in false
superiority, because it helps them cope and thrive. Although there is some evidence that optimistic beliefs are correlated
with better life outcomes, most of the research documenting such links
is vulnerable to the alternative explanation that their forecasts are
accurate.
Social knowledge
People
tend to overestimate what they personally know, unconsciously assuming
they know facts they would actually need to access by asking someone
else or consulting a written work. Asking people to explain how
something works (like a bicycle, helicopter, or international policy)
exposes knowledge gaps and reduces the overestimation of knowledge on
that topic.
Practical implications
"Overconfident professionals sincerely believe they have expertise,
act as experts and look like experts. You will have to struggle to
remind yourself that they may be in the grip of an illusion."
Social psychologist Scott Plous wrote, "No problem in judgment and
decision making is more prevalent and more potentially catastrophic than
overconfidence." It has been blamed for lawsuits, strikes, wars, poor corporate acquisitions, and stock market bubbles and crashes.
Strikes, lawsuits, and wars could arise from overplacement. If
plaintiffs and defendants were prone to believe that they were more
deserving, fair, and righteous than their legal opponents, that could
help account for the persistence of inefficient enduring legal disputes. If corporations and unions were prone to believe that they were stronger
and more justified than the other side, that could contribute to their
willingness to endure labor strikes. If nations were prone to believe that their militaries were stronger
than were those of other nations, that could explain their willingness
to go to war.
Overprecision could have important implications for investing
behavior and stock market trading. Because Bayesians cannot agree to
disagree, classical finance theory has trouble explaining why, if stock market
traders are fully rational Bayesians, there is so much trading in the
stock market. Overprecision might be one answer. If market actors are too sure their estimates of an asset's value is
correct, they will be too willing to trade with others who have
different information than they do.
Oskamp tested groups of clinical psychologists and psychology students on a multiple-choice task in which they drew conclusions from a case study. Along with their answers, subjects gave a confidence rating in the form
of a percentage likelihood of being correct. This allowed confidence to
be compared against accuracy. As the subjects were given more
information about the case study, their confidence increased from 33% to
53%. However their accuracy did not significantly improve, staying
under 30%. Hence this experiment demonstrated overconfidence which
increased as the subjects had more information to base their judgment
on.
Even if there is no general tendency toward overconfidence, social dynamics and adverse selection
could conceivably promote it. For instance, those most likely to have
the courage to start a new business are those who most overplace their
abilities relative to those of other potential entrants. And if voters
find confident leaders more credible, then contenders for leadership
learn that they should express more confidence than their opponents in
order to win election. However, Overconfidence can be liability or asset during the political
election. Candidates tend to lose advantage when verbally expressed
overconfidence does not meet current performance, and tend to gain
advantage express overconfidence non-verbally.
Overconfidence can be beneficial to individual self-esteem as well as giving an individual the will
to succeed in their desired goal. Just believing in oneself may give
one the will to take one's endeavours further than those who do not.
Overconfidence among experts
Kahneman and Klein further document how most experts can be beaten by simple heuristics
developed by intelligent lay people. Genuine expert intuition is
acquired by learning from frequent, rapid, high-quality feedback about
the quality of previous judgments. Few professionals have that. Those who master a body of knowledge
without learning from such expertise are called "respect experts" by
Kahneman, Sibony, and Sunstein. With some data, ordinary least squares
(OLS) models often outperform simple heuristics. With lots of data,
artificial intelligence (AI) routinely outperforms OLS.
Individual differences
Very high levels of core self-evaluations, a stable personality trait composed of locus of control, neuroticism, self-efficacy, and self-esteem, may lead to the overconfidence effect. People who have high core
self-evaluations will think positively of themselves and be confident in
their own abilities, although extremely high levels of core self-evaluations may cause an individual to be more confident than is warranted.
Catastrophes
The following is an incomplete list of events related or triggered by bias/overconfidence and a failing (safety) culture:
A corporation or body corporate is an individual or a group of people, such as an association or company, that has been authorized by the state to act as a single entity (a legal entity recognized by private and public law as "born out of statute"; a legal person in a legal context) and recognized as such in law for certain purposes. Early incorporated entities were established by charter (i.e., by an ad hoc act granted by a monarch or passed by a parliament or legislature). Most jurisdictions now allow the creation of new corporations through registration.
Corporations come in many different forms but are typically classified
under the laws of their jurisdiction based on two criteria: whether they
can issue stock, or whether they are organized to generate profit. In addition, some jurisdictions further distinguish corporations by
their ownership structure and governance, such as public versus private
corporations. Depending on the number of owners, a corporation can be classified as aggregate (the subject of this article) or sole (a legal entity consisting of a single incorporated office occupied by a single natural person).
Registered corporations have legal personality recognized by local authorities and their shares are owned by shareholders, whose liability is generally limited to their investment. One of the attractive early advantages business corporations offered to their investors, compared to earlier business entities like sole proprietorships and joint partnerships,
was limited liability. Limited liability separates control of a company
from ownership and means that a passive shareholder in a corporation
will not be personally liable either for contractually agreed
obligations of the corporation, or for torts (involuntary harms) committed by the corporation against a third party (acts done by the controllers of the corporation).
Where local law distinguishes corporations by their ability to issue stock, corporations allowed to do so are referred to as stock corporations; one type of investment in the corporation is through stock, and owners of stock are referred to as stockholders or shareholders. Corporations not allowed to issue stock are referred to as non-stock corporations;
i.e. those who are considered the owners of a non-stock corporation are
persons (or other entities) who have obtained membership in the
corporation and are referred to as a member of the corporation.
Corporations chartered in regions where they are distinguished by
whether they are allowed to be for-profit are referred to as for-profit and not-for-profit corporations, respectively.
Shareholders do not typically actively manage a corporation; shareholders instead elect or appoint a board of directors to control the corporation in a fiduciary capacity. In most circumstances, a shareholder may also serve as a director or officer of a corporation. Countries with co-determination
employ the practice of workers of an enterprise having the right to
vote for representatives on the board of directors in a company.
The word "corporation" derives from corpus, the Latin word for body, or a "body of people". By the time of Justinian (reigned 527–565), Roman law recognized a range of corporate entities under the names Universitas, corpus or collegium. Following the passage of the Lex Julia during the reign of Julius Caesar as Consul and Dictator of the Roman Republic (49–44 BC), and their reaffirmation during the reign of Caesar Augustus as Princeps senatus and Imperator of the Roman Army (27 BC–14 AD), collegia required the approval of the Roman Senate or the Emperor in order to be authorized as legal bodies. These included the state itself (the Populus Romanus), municipalities, and such private associations as sponsors of a religious cult, burial clubs,
political groups, and guilds of craftsmen or traders. Such bodies
commonly had the right to own property and make contracts, to receive
gifts and legacies, to sue and be sued, and, in general, to perform
legal acts through representatives. Private associations were granted designated privileges and liberties by the emperor.
Early entities which carried on business and were the subjects of legal rights included the collegium of ancient Rome and the sreni of the Maurya Empire in ancient India. In medieval Europe, churches became incorporated, as did local governments, such as the City of London Corporation.
The point was that the incorporation would survive longer than the
lives of any particular member, existing in perpetuity. The alleged
oldest commercial corporation in the world, the Stora Kopparberg mining community in Falun, Sweden, obtained a charter from King Magnus Eriksson in 1347.
Dutch and English chartered companies, such as the Dutch East India Company (also known by its Dutch initials: VOC) and the Hudson's Bay Company,
were created to lead the colonial ventures of European nations in the
17th century. Acting under a charter sanctioned by the Dutch government,
the Dutch East India Company defeated Portuguese forces and established itself in the Moluccan Islands in order to profit from the European demand for spices.
Investors in the VOC were issued paper certificates as proof of share
ownership, and were able to trade their shares on the original Amsterdam Stock Exchange. Shareholders were also explicitly granted limited liability in the company's royal charter.
In England, the government created corporations under a royal charter or an Act of Parliament with the grant of a monopoly over a specified territory. The best-known example, established in 1600, was the East India Company of London. Queen Elizabeth I granted it the exclusive right to trade with all countries to the east of the Cape of Good Hope.
Some corporations at this time would act on the government's behalf,
bringing in revenue from its exploits abroad. Subsequently, the company
became increasingly integrated with English and later British military and colonial policy, just as most corporations were essentially dependent on the Royal Navy's ability to control trade routes.
Labeled by both contemporaries and historians as "the grandest
society of merchants in the universe", the English East India Company
would come to symbolize the dazzlingly rich potential of the
corporation, as well as new methods of business that could be both
brutal and exploitative. On 31 December 1600, Queen Elizabeth I granted the company a 15-year monopoly on trade to and from the East Indies and Africa. By 1711, shareholders in the East India Company were earning a return on their investment
of almost 150 per cent. Subsequent stock offerings demonstrated just
how lucrative the company had become. Its first stock offering in
1713–1716 raised £418,000, its second in 1717–1722 raised £1.6 million.
A similar chartered company, the South Sea Company,
was established in 1711 to trade in the Spanish South American
colonies, but met with less success. The South Sea Company's monopoly
rights were supposedly backed by the Treaty of Utrecht, signed in 1713 as a settlement following the War of the Spanish Succession, which gave Great Britain an asiento
to trade in the region for thirty years. In fact, the Spanish remained
hostile and let only one ship a year enter. Unaware of the problems,
investors in Britain, enticed by extravagant promises of profit from company promoters
bought thousands of shares. By 1717, the South Sea Company was so
wealthy (still having done no real business) that it assumed the public debt of the British government. This accelerated the inflation of the share price further, as did the Bubble Act 1720,
which (possibly with the motive of protecting the South Sea Company
from competition) prohibited the establishment of any companies without a
royal charter. The share price rose so rapidly that people began buying
shares merely in order to sell them at a higher price, which in turn
led to higher share prices. This was the first speculative bubble
the country had seen, but by the end of 1720, the bubble had "burst",
and the share price sank from £1,000 to under £100. As bankruptcies and
recriminations ricocheted through government and high society, the mood
against corporations and errant directors was bitter.
Chart of the South Sea Company's stock prices. The rapid inflation of the stock value in the 1710s led to the Bubble Act 1720, which restricted the establishment of companies without a royal charter.
In the late 18th century, Stewart Kyd, the author of the first treatise on corporate law in English, defined a corporation as:
a collection of many individuals united into one body, under a special denomination, having perpetual succession
under an artificial form, and vested, by the policy of the law, with
the capacity of acting, in several respects, as an individual,
particularly of taking and granting property, of contracting
obligations, and of suing and being sued, of enjoying privileges and
immunities in common, and of exercising a variety of political rights,
more or less extensive, according to the design of its institution, or
the powers conferred upon it, either at the time of its creation or at
any subsequent period of its existence.
— A Treatise on the Law of Corporations, Stewart Kyd (1793–1794)
Development of modern company law
Due to the late 18th century abandonment of mercantilist economic theory and the rise of classical liberalism and laissez-faire economic theory due to a revolution in economics led by Adam Smith and other economists, corporations transitioned from being government or guild affiliated entities to being public and private economic entities free of governmental directions. Smith wrote in his 1776 work The Wealth of Nations
that mass corporate activity could not match private entrepreneurship,
because people in charge of others' money would not exercise as much
care as they would with their own.
Deregulation
"Jack and the Giant Joint-Stock", a cartoon in Town Talk (1858) satirizing the 'monster' joint-stock economy that came into being after the Joint Stock Companies Act 1844
The British Bubble Act 1720's prohibition on establishing companies remained in force until its repeal in 1825. By this point, the Industrial Revolution
had accelerated demand for legal frameworks that could support
large-scale business activity. The repeal marked the beginning of modern
corporate law in the United Kingdom, paving the way for the Joint Stock Companies Act 1844 and subsequent legislation that established open incorporation and investor protections."
The repeal was the beginning of a gradual lifting on restrictions, though business ventures (such as those chronicled by Charles Dickens in Martin Chuzzlewit)
under primitive companies legislation were often scams. Without
cohesive regulation, proverbial operations like the "Anglo-Bengalee
Disinterested Loan and Life Assurance Company" were undercapitalized
ventures promising no hope of success except for richly paid promoters.
The process of incorporation was possible only through a royal charter or a private act
and was limited, owing to Parliament's jealous protection of the
privileges and advantages thereby granted. As a result, many businesses
came to be operated as unincorporated associations with possibly thousands of members. Any consequent litigation
had to be carried out in the joint names of all the members and was
almost impossibly cumbersome. Though Parliament would sometimes grant a
private act to allow an individual to represent the whole in legal
proceedings, this was a narrow and necessarily costly expedient, allowed
only to established companies.
Then, in 1843, William Gladstone became the chairman of a Parliamentary Committee on Joint Stock Companies, which led to the Joint Stock Companies Act 1844, regarded as the first modern piece of company law. The Act created the Registrar of Joint Stock Companies,
empowered to register companies by a two-stage process. The first,
provisional, stage cost £5 and did not confer corporate status, which
arose after completing the second stage for another £5. For the first
time in history, it was possible for ordinary people through a simple
registration procedure to incorporate. The advantage of establishing a company as a separate legal person
was mainly administrative, as a unified entity under which the rights
and duties of all investors and managers could be channeled.
Limited liability
However,
there was still no limited liability and company members could still be
held responsible for unlimited losses by the company. The next, crucial development, then, was the Limited Liability Act 1855, passed at the behest of the then Vice President of the Board of Trade, Robert Lowe. This allowed investors to limit their liability in the event of business failure to the amount they invested in the company – shareholders were still liable directly to creditors, but just for the unpaid portion of their shares. (The principle that shareholders are liable to the corporation had been introduced in the Joint Stock Companies Act 1844).
The 1855 Act allowed limited liability to companies of more than 25 members (shareholders). Insurance companies
were excluded from the act, though it was standard practice for
insurance contracts to exclude action against individual members.
Limited liability for insurance companies was allowed by the Companies Act 1862.
This prompted the English periodical The Economist
to write in 1855 that "never, perhaps, was a change so vehemently and
generally demanded, of which the importance was so much overrated." The major error of this judgment was recognised by the same magazine
more than 70 years later, when it claimed that, "[t]he economic
historian of the future... may be inclined to assign to the nameless
inventor of the principle of limited liability, as applied to trade
corporations, a place of honour with Watt and Stephenson, and other pioneers of the Industrial Revolution. "
These two features – a simple registration procedure and limited liability – were subsequently codified into the landmark 1856 Joint Stock Companies Act.
This was subsequently consolidated with a number of other statutes in
the Companies Act 1862, which remained in force for the rest of the
century, up to and including the time of the decision in Salomon v A Salomon & Co Ltd.
The legislation quickly led to a railway boom, resulting in a
surge in the formation of companies. However, in the later nineteenth
century, a period of depression set in, causing many of these companies
to collapse and become insolvent. Strong academic, legislative, and
judicial opinions emerged, opposing the notion that businessmen could
escape accountability for their role in the failing businesses.
In 1892, Germany introduced the Gesellschaft mit beschränkter Haftung with a separate legal personality
and limited liability even if all the shares of the company were held
by only one person. This inspired other countries to introduce
corporations of this kind.
The last significant development in the history of companies was the 1897 decision of the House of Lords in Salomon v. Salomon & Co.,
where the House of Lords confirmed the separate legal personality of
the company, and that the liabilities of the company were separate and
distinct from those of its owners.
In the United States, forming a corporation usually required an act of legislation until the late 19th century. Many private firms, such as Carnegie's steel company and Rockefeller's Standard Oil, avoided the corporate model for this reason (as a trust).
State governments began to adopt more permissive corporate laws from
the early 19th century, although these were all restrictive in design,
often with the intention of preventing corporations from gaining too
much wealth and power.
In 1896, New Jersey was the first state to adopt an "enabling" corporate law, with the goal of attracting more business to the state. In 1899, Delaware followed New Jersey's lead by enacting an enabling
corporate statute. However, Delaware only emerged as the leading
corporate state after the enabling provisions of the 1896 New Jersey
corporate law were repealed in 1913.
The end of the 19th century saw the emergence of holding companies and corporate mergers creating larger corporations with dispersed shareholders. Countries began enacting antitrust
laws to prevent anti-competitive practices and corporations were
granted more legal rights and protections. The 20th century witnessed a
proliferation of laws allowing for the creation of corporations through
registration worldwide. These laws played a significant role in driving
economic booms in many countries both before and after World War I.
Another major post World War I shift was toward the development of conglomerates, in which large corporations purchased smaller corporations to expand their industrial base.
Starting in the 1980s, many countries with large state-owned corporations began moving toward privatization, which involved selling publicly owned (or 'nationalized') services and enterprises to corporations. Deregulation aimed at reducing the regulation of corporate activity, often accompanied privatization as part of a laissez-faire policy.
Ownership and control
A corporation is, at least in theory, owned and controlled by its members. In a joint-stock company,
the members are known as shareholders, and each of their shares in the
ownership, control, and profits of the corporation is determined by the
portion of shares in the company that they own. Thus, a person who owns a
quarter of the shares of a joint-stock company owns a quarter of the
company, is entitled to a quarter of the profit (or at least a quarter
of the profit given to shareholders as dividends) and has a quarter of
the votes capable of being cast at general meetings.
In another kind of corporation, the legal document which
established the corporation or which contains its current rules will
determine the requirements for membership in the corporation. What these
requirements are depends on the kind of corporation involved. In a worker cooperative, the members are people who work for the cooperative. In a credit union, the members are people who have accounts with the credit union.
The day-to-day activities of a corporation are typically
controlled by individuals appointed by the members. In some cases, this
will be a single individual but more commonly corporations are
controlled by a committee or by committees. Broadly speaking, there are
two kinds of committee structure.
A single committee known as a board of directors is the method favored in most common law
countries. Under this model, the board of directors is composed of both
executive and non-executive directors, the latter being meant to
supervise the former's management of the company.
In countries with co-determination (such as in Germany), workers elect a fixed fraction of the corporation's board.
Formation
Historically,
corporations were created by a charter granted by the government. As
explained above, such charters were often enacted as private bills.
Today, a corporation is formed, or incorporated,
by registering with the state, province, or national government and
regulated by the laws enacted by that government. Registration is the
main prerequisite to the corporation's assumption of limited liability.
The law sometimes requires the corporation to designate its principal
address, as well as a registered agent (a person or company designated to receive legal service of process). It may also be required to designate an agent or other legal representatives of the corporation.
Generally, a corporation files articles of incorporation
with the government, laying out the general nature of the corporation,
the amount of stock it is authorized to issue, and the names and
addresses of directors. Once the articles are approved, the
corporation's directors meet to create bylaws that govern the internal functions of the corporation, such as meeting procedures and officer positions.
In theory, a corporation cannot own its own stock. An exception is treasury stock,
where the company essentially buys back stock from its shareholders,
which reduces its outstanding shares. This essentially becomes the
equivalent of unissued capital, where it is not classified as an asset
on the balance sheet (passive capital).
Under the internal affairs doctrine,
the law of the jurisdiction in which a corporation is incorporated will
govern its internal activities—that is, conflicts between shareholders
and managers such as the board of directors and corporate officers. If a corporation operates outside its home state, it is usually required to register with other governments as a foreign corporation and must formally appoint a registered agent to accept service of process within such other jurisdictions. A foreign corporation is almost always subject to the laws of its host state pertaining to external affairs such as employment, crimes, contracts, civil actions, and the like.
Naming
Corporations
generally have a distinct name. Historically, some corporations were
named after the members of their boards of directors: for example, the "President and Fellows of Harvard College" is the name of one of the two governing boards of Harvard University, but it is also the exact name under which Harvard was legally incorporated. Nowadays, corporations in most jurisdictions have a distinct name that
does not need to make reference to the members of their boards. In
Canada, this possibility is taken to its logical extreme: many smaller
Canadian corporations have no names at all, merely numbers based on a
registration number (for example, "12345678 Ontario Limited"), which is
assigned by the provincial or territorial government where the
corporation incorporates.
In most countries, corporate names include a term or an
abbreviation that denotes the corporate status of the entity (for
example, "Incorporated" or "Inc." in the United States) or the limited
liability of its members (for example, "Limited", "Ltd.", or "LLC").These terms vary by jurisdiction and language. In some jurisdictions,
they are mandatory, and in others, such as California, they are not. Their use puts everybody on constructive notice that they are dealing with an entity whose liability is limited: one can only collect from whatever assets the entity still controls when one obtains a judgment against it.
Corporate names are supposed to be unique to the jurisdiction in which the corporation is registered. Governments will not allow another corporation or any other kind of
legal entity to register a name that is too similar to the name of an
existing corporation. However, since "different states may register entities with the same
names, a corporate name is a unique identifier only when combined with
the name of the state of incorporation". This explains why lawyers in legal papers often expressly refer to a
corporation's state of incorporation after the first mention of its
name.
Some jurisdictions do not allow the use of the word "company" alone to denote corporate status, since the word "company" may refer to a partnership or some other form of collective ownership (in the United States it can be used by a sole proprietorship but this is not generally the case elsewhere).
Despite not being human beings, corporations have been ruled legal persons in a few countries, and have many of the same rights as natural persons do. For example, a corporation can own property, and can sue or be sued for as long as it exists. Corporations can exercise human rights against real individuals and the state, and they can themselves be responsible for human rights violations. Corporations can be "dissolved" either by statutory operation, the
order of the court, or voluntary action on the part of shareholders. Insolvency
may result in a form of corporate failure, when creditors force the
liquidation and dissolution of the corporation under court order, but it most often results in a restructuring of corporate holdings.
Corporations can even be convicted of special criminal offenses in the
UK, such as fraud and corporate manslaughter. However, corporations are not considered living entities in the way that humans are.
Legal scholars and others, such as Joel Bakan, have observed that a business corporation created as a "legal person" has a psychopathic personality because it is required to elevate its own interests above those of others even when this inflicts major risks and grave harms
on the public or on other third-parties. Such critics note that the
legal mandate of the corporation to focus exclusively on corporate
profits and self-interest often victimizes employees, customers, the
public at large, and/or the natural resources. The political theorist David Runciman notes that corporate personhood forms a fundamental part of the 21st century conception state, and believes the idea of the corporation as legal persons can help to clarify the role of citizens as political stakeholders,
and to break down the sharp conceptual dichotomy between the state and
the people or the individual, a distinction that, on his account, is
"increasingly unable to meet the demands placed on the state in the
modern world".
Critics of euthanasia sometimes claim that legalizing any form of the practice will lead to a slippery slope effect, resulting eventually in non-voluntary or even involuntary euthanasia. The slippery slope argument has been present in the euthanasia debate since at least the 1930s.
Lawyer Eugene Volokh argued in his article The Mechanism of the Slippery Slope that judicial logic could eventually lead to a gradual break in the legal restrictions for euthanasia, while medical oncologist and palliative care specialist Jan Bernheim
believes the law can provide safeguards against slippery-slope effects,
saying that the grievances of euthanasia opponents are unfounded.
The slippery slope
As applied to the euthanasia debate, the slippery slope argument claims that the acceptance of certain practices, such as physician-assisted suicide or voluntary euthanasia, will invariably lead to the acceptance or practice of concepts which are currently deemed unacceptable, such as non-voluntary or involuntary euthanasia. Thus, it is argued, in order to prevent these undesirable practices from occurring, we need to resist taking the first step.
There are two basic forms which the argument may take, each of which involves different arguments for and against. The first of these, referred to as the logical version, argues that the acceptance of the initial act, A, logically entails the acceptance of B, where A is acceptable but B is an undesirable action. This version is further refined into two forms based on how A entails
B. In the first, it is argued that there "is no relevant conceptual
difference between A and B" – the premises that underlie the acceptance of A logically entail the
acceptance of B. Within the euthanasia debate, van der Burg identifies
one of Richard Sherlock's objections to Duff and Campbell as fitting
this model. Duff and Campbell had presented an argument for the selective
non-treatment of newborns suffering from serious defects. In responding
to Duff and Campbell's stance, Sherlock argued that the premises which
they employed in order to justify their position would be just as
effective, if not more so, in justifying the non-treatment of older
children: "In short, if there is any justification at all for what Duff
and Campbell propose for newborns then there is better justification for
a similar policy with respect to children at any age."
The second logical form of the slippery slope argument, referred to as the "arbitrary line" version, argues that the acceptance of A will lead to the acceptance of A1, as
A1 is not significantly different from A. A1 will then lead to A2, A2 to
A3, and eventually the process will lead to the unacceptable B. As Glover argues, this version of the argument does not say that there
is no significant difference between A and B, but instead argues that it
is impossible to justify accepting A while also denying B – drawing a
line at any point between the two would be creating an arbitrary cut-off
point that would be unjustifiable. Glover provides the example of infanticide (or non-voluntary euthanasia) and severely deformed children:
"If it is allowable at birth for
children with some grave abnormality, what will we say about an equally
grave abnormality that is only detectable at three months? And another
that is only detectable at six months? And another that is detectable at
birth only slightly less serious? And another that is slightly less
serious than that one?"
— Jonathan Glover
The second primary form of the slippery slope argument is that of the "Empirical" or "Psychological" argument. The empirical version does not rely on a logical connection between A
and B, but instead argues that an acceptance of A will, in time, lead to
an acceptance of B. The process is not a logical necessity, but one which will be followed through a process of moral change. Enoch describes the application of this form of the argument thus:
"Once we allow voluntary
euthanasia, she argues, we may (or will) fail to make the crucial
distinction, and then we will make the morally unacceptable outcome of
allowing involuntary euthanasia; or perhaps even though we may make the
relevant distinction, we will not act accordingly for some reason
(perhaps a political reason, or a reason that has to do with weakness of
will, or some other reason)."
— David Enoch
Glover, however, notes that this line of argument requires good
evidence that this direction will be followed, as not all boundaries are
thus pushed.
More generally, it has been argued that in employing the slippery
slope there can be an "implicit concession", as it starts from the
assumption that the initial practice is acceptable – even though it will
lead to unacceptable outcomes in the future. Nevertheless, van der Burg argues that this is not a useful concession,
as the outcomes are intended to make it clear that the initial practice
was not justifiable after all.
Response to the logical versions
Countering
the first logical version of the slippery slope argument, it is argued
that the different types of euthanasia are sufficiently distinct that it
is not "logically inconsistent" to support one version while denying
the others. It is possible to support, for example, voluntary euthanasia
while denying non-voluntary euthanasia, just as it is possible to
support both – the distinction comes not from a logical inconsistency,
but a choice of principles, such that a focus on euthanasia as personal
choice will support voluntary euthanasia but not non-voluntary
euthanasia, while a focus on a person's "best interests" may allow for
the support of both. From a more practical perspective, another option when faced with the
logical version of the argument is to simply accept the consequences.
This was the response by Duff and Campbell to Sherlock. Rather than
arguing that their premises were flawed, they argued that Sherlock was
correct: their criteria could also be applied to older children, and
thus it should be applied, as it was "probably the most caring policy
generally."
In responding to the "arbitrary line" version of the slippery slope argument, it is argued that the stance relies on the "paradox of the heap", and that it is possible to draw a line between the acceptable and unacceptable alternatives. Furthermore, in the case of euthanasia, it is possible to draw hard
lines between different types of practices. For example, there is a
clear distinction between voluntary and non-voluntary euthanasia, such
that the arbitrary line approach cannot be applied.
The empirical argument
Glover
argues that the empirical argument needs to be backed by evidence, as
there are situations where we do not seem to push boundaries. Generally, two examples are discussed – Action T4, the Nazi euthanasia program in Germany between 1939 and 1941, and the Groningen Protocol in the Netherlands, which has allowed for non-voluntary euthanasia of severely deformed newborns.
Lewis notes that the focus has been on voluntary to non-voluntary
euthanasia, rather than physician-assisted suicide to voluntary
euthanasia, as there have been no instances of the latter: in
jurisdictions where physician-assisted suicide have been legalised,
there have been no moves to legalise voluntary euthanasia, while
jurisdictions that have legalised voluntary euthanasia also allowed
physician-assisted suicide at the same time.
Leo Alexander, in examining the events of the Holocaust during the Nuremberg Trials,
stated that the origins of the Nazi programs could be traced back to
"small beginnings", and presented a slippery slope argument. Others have argued that Action T4 is not an example of the empirical slippery slope, as euthanasia was still a criminal act in Germany during that time, and
there is "no record of the Nazi doctors either killing or assisting in
the suicide of a patient who was suffering intolerably from a fatal
illness".
Euthanasia historian Ian Dowbiggin linked the Nazis' Action T4
to the resistance in the West to involuntary euthanasia. He believes
that the revulsion inspired by the Nazis led to some of the early
advocates of euthanasia in all its forms in the US and UK removing
non-voluntary euthanasia from their proposed platforms.
The Groningen Protocol
Non-voluntary euthanasia is sometimes cited as one of the possible outcomes of the slippery slope
argument, in which it is claimed that permitting voluntary euthanasia
to occur will lead to the support and legalization of non-voluntary and
involuntary euthanasia. Some studies of the Netherlands after the introduction of voluntary
euthanasia state that there was no evidence to support this claim while other studies state otherwise.
A study from the Jakobovits Center for Medical Ethics in Israel argued that a form of non-voluntary euthanasia, the Groningen Protocol, has "potential to validate the slippery-slope argument against allowing euthanasia in selected populations". Anesthesiologist William Lanier says that the "ongoing evolution of
euthanasia law in the Netherlands" is evidence that a slippery slope is
"playing out in real time". Pediatrician Ola Didrik Saugstad
says that while he approves of the withholding of treatment to cause
the death of severely ill newborns where the prognosis is hopeless, he
disagrees with the active killing of such newborns. Countering this view, professor of internal medicine Margaret Battin finds that there is a lack of evidence to support slippery slope arguments. Additionally, it is argued that the public nature of the Groningen
Protocol decisions, and their evaluation by a prosecutor, prevent a
"slippery slope" from occurring.
A 1999 study by Jochemsen and Keown from the Dutch Christian Lindeboom Institute published in the peer reviewed Journal of Medical Ethics,
argued that euthanasia in the Netherlands is not well-controlled and
that there is still a significant percentage of cases of euthanasia
practiced illegally. Raanan Gillon, from the Imperial College School of Medicine, University
of London commented in 1999 that "what is shown by the empirical
findings is that restrictions on euthanasia that legal controls in the
Netherlands were supposed to have implemented are being extensively
ignored and from that point of view it is surely justifiable to
conclude, as Jochemsen and Keown do conclude, that the practice of
euthanasia in the Netherlands is in poor control." A similar conclusion was presented in 1997 by Herbert Hendin, who
argued that the situation in The Netherlands demonstrated a slippery
slope in practice, changing the attitudes of doctors over time and
moving them from tightly regulated voluntary euthanasia for the
terminally ill to the acceptance of euthanasia for people suffering from
psychological distress, and from voluntary euthanasia to the acceptance
of non-voluntary and potentially involuntary euthanasia.
An October 2007 study, published in the Journal of Medical
Ethics, found that "rates of assisted dying in Oregon and in the
Netherlands showed no evidence of heightened risk for the elderly,
women, the uninsured (inapplicable in the Netherlands, where all are
insured), people with low educational status, the poor, the physically
disabled or chronically ill, minors, people with psychiatric illnesses
including depression, or racial or ethnic minorities, compared with
background populations. The only group with a heightened risk was people
with AIDS."
A 2009 review study of euthanasia in the Netherlands concluded that no slippery slope effect has occurred, while another study of the same year found that abuse of the Dutch euthanasia system is rare. In 2010, a study found that there is no evidence that legalizing
assisted suicide will lead us down the slippery slope to involuntary
euthanasia.
Most critics rely predominantly on Dutch evidence of cases of
"termination of life without an explicit request" as evidence for the
slide from voluntary euthanasia to non-voluntary euthanasia. One commenter wrote that critics who rely on this slippery slope
argument often omit two important elements, thereby using flawed logic. First, the argument is only effective against legalization if it is
legalization which causes the slippery slope; and secondly, it is only
effective if it is used comparatively, to show that the slope is more
slippery in the Netherlands than it is in jurisdictions which have not
legalized assisted suicide or euthanasia. Since these questions have not been addressed by critics, little
attention has been paid to available evidence on causation and
comparability.
Research review studies
In the most recent review paper on euthanasia in the Netherlands, namely the 2009 paper entitled Two Decades of Research on Euthanasia from the Netherlands. What Have We Learnt and What Questions Remain?
written by researchers from the Department of Public Health in the
Netherlands, it was found that "public control and transparency of the
practice of euthanasia is to a large extent possible" and that "[n]o
slippery slope seems to have occurred". The researchers find that the legalization of euthanasia in the
Netherlands did not result in a slippery slope for medical end-of-life
practices because:
The frequency of ending of life without explicit patient request did not increase over the studied years;
There is no evidence for a higher frequency of euthanasia, compared with background populations, among:
In 2010, 4,050 persons died from euthanasia or from assisted suicide on request. According to research done by the Vrije Universiteit (Amsterdam), University Medical Center Utrecht and Statistics Netherlands, and published in The Lancet,
this is not more than before the introduction of the "Termination of
Life on Request and Assisted Suicide (Review Procedures) Act" in 2002.
Both in the Netherlands and in Belgium, the number of termination of
life without explicit request for terminally ill patients, decreased
after the introduction of the legislation about the termination of life.
In effect, the legislation did not lead to more cases of euthanasia and
assisted suicide on request.
Generic hydrolysis reaction. (The 2-way yield symbol indicates a chemical equilibrium in which hydrolysis and condensation are reversible.)
Hydrolysis (/haɪˈdrɒlɪsɪs/; from Ancient Greek hydro-'water' and lysis'to unbind') is any chemical reaction in which a molecule of water breaks one or more chemical bonds. The term is used broadly for substitution and elimination reactions in which water is the nucleophile.
Biological hydrolysis is the cleavage of biomolecules where a water molecule is consumed to effect the separation of a larger molecule into component parts. When a carbohydrate is broken into its component sugar molecules by hydrolysis (e.g., sucrose being broken down into glucose and fructose), this is recognized as saccharification.
Hydrolysis reactions can be the reverse of a condensation reaction
in which two molecules join into a larger one and eject a water
molecule. Thus hydrolysis adds water to break down molecules, whereas
condensation joins molecules through the removal of water.
Types
Hydrolysis
is a chemical process in which a molecule of water is added to a
substance, causing both the substance and water molecule to split into
two parts. In such reactions, a chemical bond is broken, with one
fragment of the target molecule (or parent molecule) gains a hydrogen ion, and the other gaining a hydroxide. In living systems, most biochemical reactions (including ATP hydrolysis) take place during the catalysis of enzymes. The catalytic action of enzymes allows for the hydrolysis of proteins, fats, oils, and carbohydrates.
Ester and amide hydrolysis occurs through nucleophilic acyl substitution where water acts as a nucleophile (a nucleus-seeking agent, e.g., water or hydroxyl ion), attacking the carbon of the carbonyl group of the ester or amide. Under acidic conditions, the carbonyl group is activated via protonation, allowing for direct nucleophilic attack by water. In an aqueous base, hydroxyl ions are better nucleophiles than polar
molecules such as water due to the negative charge localized on the
oxygen and therefore directly attack the carbonyl group.
Upon hydrolysis, an ester is converted into a carboxylic acid plus an alcohol, while an amide converts into a carboxylic acid and an amine or ammonia
(which in the presence of acid are immediately converted to ammonium
salts). One of the two oxygen groups on the carboxylic acid are derived
from a water molecule and the amine/ammonia or alcohol gains the
hydrogen ion.
Perhaps the oldest commercially practiced example of ester hydrolysis is saponification (formation of soap). It is the hydrolysis of a triglyceride (fat) with an aqueous base such as sodium hydroxide (NaOH). During the process, glycerol is formed, and the fatty acids react with the base, converting them to salts. These salts are called soaps, commonly used in households. Under biological conditions, this reaction is catalyzed by lipases for the digestion of fats, acting when adsorbed to an oil-water interface. Other esterases function in water, serving a variety of biological functions.
A key biological application of amide hydrolysis is the digestion of proteins into amino acids. Proteases, enzymes that aid digestion by causing hydrolysis of peptide bonds in proteins, catalyze the hydrolysis of peptide bonds in peptide chains, releasing polypeptide fragments two to six amino acids long. Those fragments are then broken down into single amino acids via carboxypeptidases secreted by the pancreas.
However, proteases do not catalyze the hydrolysis of all kinds of
proteins. Their action is stereo-selective: Only proteins with a certain
tertiary structure are targeted as some kind of orienting force is
needed to place the amide group in the proper position for catalysis.
The necessary contacts between an enzyme and its substrates (proteins)
are created because the enzyme folds in such a way as to form a crevice
into which the substrate fits; the crevice also contains the catalytic
groups. Therefore, proteins that do not fit into the crevice will not
undergo hydrolysis. This specificity preserves the integrity of other
proteins such as hormones, and therefore the biological system continues to function normally.
Mechanism for acid-catalyzed hydrolysis of an amide.
Many polyamide polymers such as nylon 6,6 hydrolyze in the presence of strong acids. The process leads to depolymerization.
For this reason nylon products fail by fracturing when exposed to small
amounts of acidic water. Polyesters are also susceptible to similar polymer degradation reactions. The problem is known as environmental stress cracking.
Hydrolysis is related to energy metabolism and storage. All living cells require a continual supply of energy for two main purposes: the biosynthesis of micro and macromolecules, and the active transport of ions and molecules across cell membranes. The energy derived from the oxidation
of nutrients is not used directly but, by means of a complex and long
sequence of reactions, it is channeled into a special energy-storage
molecule, adenosine triphosphate (ATP). The ATP molecule contains pyrophosphate
linkages (bonds formed when two phosphate units are combined) that
release energy when needed. ATP can undergo hydrolysis in two ways:
Firstly, the removal of terminal phosphate to form adenosine diphosphate (ADP) and inorganic phosphate, with the reaction:
ATP + H2O → ADP + Pi
Secondly, the removal of a terminal diphosphate to yield adenosine monophosphate (AMP) and pyrophosphate.
The latter usually undergoes further cleavage into its two constituent
phosphates. This results in biosynthesis reactions, which usually occur
in chains, that can be driven in the direction of synthesis when the
phosphate bonds have undergone hydrolysis.
Polysaccharides
Sucrose. The glycoside bond is represented by the central oxygen atom, which holds the two monosaccharide units together.
The hydrolysis of polysaccharides to soluble sugars can be recognized as saccharification. Malt made from barley is used as a source of β-amylase to break down starch into the disaccharide maltose, which can be used by yeast to produce beer. Other amylase enzymes may convert starch to glucose or to oligosaccharides. Cellulose is first hydrolyzed to cellobiose by cellulase and then cellobiose is further hydrolyzed to glucose by beta-glucosidase. Ruminants such as cows are able to hydrolyze cellulose into cellobiose and then glucose because of symbiotic bacteria that produce cellulases.
DNA
Hydrolysis of DNA occurs at a significant rate in vivo. For example, it is estimated that in each human cell 2,000 to 10,000 DNA purine bases turn over every day due to hydrolytic depurination, and that this is largely counteracted by specific rapid DNA repair processes. Hydrolytic DNA damages that fail to be accurately repaired may contribute to carcinogenesis and ageing.
Metal ions are Lewis acids, and in aqueous solution they form metal aquo complexes of the general formula M(H2O)nm+. The aqua ions undergo hydrolysis, to a greater or lesser extent. The first hydrolysis step is given generically as
M(H2O)nm+ + H2O ⇌ M(H2O)n−1(OH)(m−1)+ + H3O+
Thus the aqua cations behave as acids in terms of Brønsted–Lowry acid–base theory. This effect is easily explained by considering the inductive effect of the positively charged metal ion, which weakens the O−H bond of an attached water molecule, making the liberation of a proton relatively easy.
The dissociation constant, pKa, for this reaction is more or less linearly related to the charge-to-size ratio of the metal ion. Ions with low charges, such as Na+ are very weak acids with almost imperceptible hydrolysis. Large divalent ions such as Ca2+, Zn2+, Sn2+ and Pb2+ have a pKa of 6 or more and would not normally be classed as acids, but small divalent ions such as Be2+ undergo extensive hydrolysis. Trivalent ions like Al3+ and Fe3+ are weak acids whose pKa is comparable to that of acetic acid. Solutions of salts such as BeCl2 or Al(NO3)3 in water are noticeably acidic; the hydrolysis can be suppressed by adding an acid such as nitric acid, making the solution more acidic.
Hydrolysis may proceed beyond the first step, often with the formation of polynuclear species via the process of olation. Some "exotic" species such as Sn3(OH)2+4 are well characterized. Hydrolysis tends to proceed as pH rises leading, in many cases, to the precipitation of a hydroxide such as Al(OH)3 or AlO(OH). These substances, major constituents of bauxite, are known as laterites
and are formed by leaching from rocks of most of the ions other than
aluminium and iron and subsequent hydrolysis of the remaining aluminium
and iron.
Mechanism strategies
Acetals, imines, and enamines can be converted back into ketones by treatment with excess water under acid-catalyzed conditions: RO·OR−H3O−O; NR·H3O−O; RNR−H3O−O.
Catalysis
Acidic hydrolysis
Acid catalysis can be applied to hydrolyses. For example, in the conversion of cellulose or starch to glucose. Carboxylic acids can be produced from acid hydrolysis of esters.
Acids catalyze hydrolysis of nitriles to amides. Acid hydrolysis does not usually refer to the acid catalyzed addition of the elements of water to double or triple bonds by electrophilic addition as may originate from a hydration reaction. Acid hydrolysis is used to prepare monosaccharide with the help of mineral acids but formic acid and trifluoroacetic acid have been used.
Acid hydrolysis can be utilized in the pretreatment of cellulosic
material, so as to cut the interchain linkages in hemicellulose and
cellulose.
The reaction is often used to solubilize solid organic matter. Chemical drain cleaners take advantage of this method to dissolve hair and fat in pipes. The reaction is also used to dispose of human and other animal remains as an alternative to traditional burial or cremation.
