STICKY EXPECTATIONS: RESPONSES TO PERSISTENT OVER-OPTIMISM IN MARRIAGE, EMPLOYMENT CONTRACTS, AND CREDIT CARD USE

Most people underestimate the likelihood that they will experience negative events and overestimate the likelihood that the law will protect them if those events occur. Many of these mispredictions are highly resistant to change even in the face of accurate and available information. This Article illustrates the consequences of these "sticky" expectations using examples from marriage, employment, and credit card regulation. In each of these areas, erroneous expectations create costs. The largest and most common cost is the failure to adequately self-insure against future negative events like divorce, job loss, or high debt. But proposals for correcting irrational expectations can be costly, in part because unrealistic optimism can also create benefits. This Article develops a Calabresian cost-benefit framework to help us to assess those costs and benefits sensibly, arguing that polity makers should seek to minimize the sum of the cost of disparities between expectations and reality and the cost of reducing those disparities. This approach can help to determine whether it is worth implementing legal reform, to close the gap between expectations and reality, and if so, whether to do so by attempting to change the expectations or by changing the law to correspond to existing expectations. This framework provides reasons to rethink existing proposals (timed at informing or debiasing people through law.