University of Chicago Law School Chicago Unbound Journal Articles Faculty Scholarship 2006 Boundedly Rational Borrowing Cass R. Sunstein Follow this and additional works at: https://chicagounbound.uchicago.edu/journal_articles Part of the Law Commons Recommended Citation Cass R. Sunstein, "Boundedly Rational Borrowing," 73 University of Chicago Law Review 249 (2006). This Article is brought to you for free and open access by the Faculty Scholarship at Chicago Unbound. It has been accepted for inclusion in Journal Articles by an authorized administrator of Chicago Unbound. For more information, please contact
[email protected]. Boundedly Rational Borrowing Cass R. Sunsteint Excessive borrowing, no less than insufficient savings, might be a product of bounded ra- tionality. Identifiable psychological mechanisms are likely to contribute to excessive borrowing; these include myopia, procrastination,optimism bias, "miswanting," and what might be called cumulative cost neglect. Suppose that excessive borrowing is a significant problem for some or many; if so, how might the law respond? The first option involves weak paternalism, through debi- asing and other strategies that leave people free to choose as they wish. Another option is strong paternalism, which forecloses choice. Because ofprivate heterogeneity and the risk of government error,regulators should have a firm presumption against strong paternalism,and hence the initial line of defense against excessive borrowing consists of information campaigns, debiasing, and default rules. On imaginable empirical findings, however, there may be a plausible argument for strong paternalismin the form of restrictionson various practices,perhaps including "teaser rates" and late fees The two larger themes applicable in many contexts, involve the importance of an ex post perspective on the consequences of consumer choices and the virtues and limits of weak forms of paternalism,including debiasing and libertarianpaternalism.