IV.  The Delicate Balance of Quids and Quos:  The “Fairness” Insight of Behavioral Science

For what little impact the consumer bankruptcy system might have in shifting general consumer attitudes about the risks of debt, it seems that the European-style payment-plan systems hold more potential for preventing overindebtedness.  Behavioral economics offers some further insights into which of those widely varied systems has greater potential to affect behaviors positively.  Debtor and non-debtor consumers might welcome and learn from a payment-plan system, but only if they view it as being administered “fairly.” 

Behavioral scientists have found that not only do people exhibit “bounded rationality” in their decision making, they also exhibit “bounded self-interest” in their interaction with others.  Contrary to traditional economic premises, behavioralists have demonstrated that people are not one-minded, selfish, value-maximizers.  Instead, they want to be treated fairly and to treat others fairly, even if that means sacrificing potential benefits or rejecting opportunities for advancing self-interest.  “Fair” in this context is generally not an indeterminate concept.  Fairness is a measure of how the situation coincides with or diverges from what normally happens in such situations.  The closer a situation comes to the “norm” (or at least what the individual views as the norm), the more likely that situation is to be deemed “fair” and thus accepted as positive or constructive.

In societies with strong contract law—like those in the U.S. and especially Europe—abiding by one’s obligations is definitely “the norm.”  The overwhelming majority of contractual obligations are honored in these societies, they are strongly expected to be honored, and those who fail to honor their obligations generally feel guilty to some degree about their failure.   Thus, most people can be expected to view paying their debts as “fair.”  At the very least, most people can be expected to feel that making reasonable efforts to pay off most types of debt is fair, and doing so or seeing others do so should register positively.  A system that allows debtors to evade their obligations with little effort is likely to be viewed as unfair by most, even if it achieves other laudable goals.  Thus, for example, although the U.S. system seeks quite reasonably to protect debtors from the accidents of life (unemployment, divorce, medical problems), to avoid an undue burden on the social welfare system, and to preserve the incentive for debtors to work and add value to society, many are likely to view this system as “unfair” if it makes no demand on debtors to abide by the “norm.” 

A system that makes reasonable demands on overextended debtors to attempt to abide by the norm of paying debts should be met with, if not enthusiasm, at least acceptance.  Even such debtor-friendly and creditor-antagonistic groups as the former German Communist Party have argued in favor of multi-year payment plans as part of a consumer debt relief system.   Not only a desire to avoid undermining “payment morality” underlies European insistence on payment plans for all.  Plans of reasonable duration and demand likely represent the “fair” approach in the eyes of the great majority of people—debtors and non-debtors alike.