Nudging Debt: On the Ethics of Behavioral Paternalism in Personal Finance
financial education program components, nudging, government and institutional mandates
In recent years, experimental psychology and behavioral economics have cast doubt on the quality and reliability of individual decision making, especially in complicated choice contexts involving risk and time. These factors imply that financial decision making is particularly subject to such doubts, which has generated calls for increased regulation based on behavioral science to help people avoid imprudent decisions regarding borrowing, such as those implemented by the relatively new Consumer Financial Protection Bureau. This article argues that such interventions are fraught with ethical problems based on the regulators’ inability to appreciate the complex, multifaceted, and subjective interests of borrowers and recommends alternative approaches to helping people make better borrowing decisions while respecting their personal interests.