Fiduciary duties, conflict of interest and proper exercise of judgment

This article proposes a novel understanding of the notion of conflict of interest. Building on insights from cognitive psychology, behavioural economics and philosophy, this article defines a conflict of interest as the situation where a person, who has a duty to exercise judgment for the benefit of another, has an interest that tends to interfere with the proper exercise of his discretion. The emerging inter-disciplinary theory of conflicts of interest shows that personal or extraneous interests interfere with a decision-maker’s judgment in unpredictable ways, and despite the decision-maker’s honest efforts to keep them aside. This theory offers a more persuasive rationale for the existing strict fiduciary liability. It also offers a potent argument against the recent calls to relax the strict fiduciary regime in commercial contexts.