Modern funding treaties give non-public arbitrators energy to find out whether or not governments ought to pay compensation to international buyers for a variety of sovereign acts. In latest years, significantly growing international locations have incurred important liabilities from funding treaty arbitration, which begs the query why they signed the treaties within the first place. Through a complete and well timed evaluation, this guide reveals that governments in growing international locations sometimes overestimated the financial advantages of funding treaties and virtually ignored their dangers. Rooted in insights on bounded rationality from behavioural psychology and economics, the evaluation highlights how policy-makers typically relied on inferential shortcuts when assessing the implications of the treaties, which resulted in systematic deviations from totally rational behaviour. This not solely sheds new mild on probably the most controversial authorized regimes underwriting financial globalization but in addition supplies a novel theoretical account of the usually irrational, but predictable, nature of financial diplomacy.