Document Type

Article

Publication Title

University of Chicago Law Review

Abstract

As a matter of first principles, it seems impossible to deny two facts about human nature. First, people often make serious mistakes in deciding important matters. Second, people often find it hardest to keep their emotions in check when it matters the most. My task here is not to deny these obvious truths, but to ask about their significance in certain transactional settings. One key link in that inquiry is how individuals who suffer from both cognitive and emotional impairments can be regarded as "rational." Stated otherwise, do people with these dual limitations by and large make responsible decisions in their own self-interest, as much of standard economic thought presupposes? In order to develop these themes in this short Essay, I shall proceed as follows. Part I talks about maturation and mistakes, or how socialization deals with the impulses and ignorance of youth, and also the question of mistake as it arises in the choice of contract terms and in the valuation questions needed to ensure fair exchanges. Part II speaks about the proper legal response to mistakes made by individuals with full capacity. Part III applies this analysis to generic mistakes in valuation, and demonstrates why these cannot survive in voluntary and unregulated markets. Part IV applies this general framework to mistakes in credit-card transactions, and concludes that even devotees of a soft form of paternalism should propose no protection beyond that which a truth-in-lending law affords against misleading representations.

First Page

111

Volume

73

Publication Date

2006

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