The Exponential Growth Bias: Mathematics, Psychology, and The Law (with Eyal Zamir)

Many human decisions, ranging from the taking of loans with compound interest to fighting deadly pandemics, involve phenomena that entail exponential growth. Yet a wide and robust body of empiri-cal studies demonstrates that people systematically underestimate exponential growth. This phe-nomenon, dubbed the exponential growth bias (EGB), has been documented in numerous contexts, across different populations, using both experimental and observational methods.
Despite its centrality to human decision making, legal scholarship has thus far failed to account for the EGB. This Article presents the first comprehensive study of EGB and the law. Incorporating the EGB into legal analysis sheds new light on legal measures that are already in use, and highlights new solutions to numerous problems that the law strives to solve. More concretely, in the sphere of poli-cymaking, the EGB calls for the adoption of new legal strategies to improve officials’ ability to react promptly to novel exponential risks such as the COVID-19 pandemic and climate change. In the sphere of individual decision-making, it calls for the introduction of new disclosure duties that could assist people grasp the long-term implications of their choices, and the imposition of new mandatory rules that would minimize the exploitation of the EGB by savvy profit-maximizing entrepreneurs.