Preheat oven to 350 degrees. Grease a 1.5 quart baking dish (8x8 or 9x9 inch baking dish will work).
In a small sauce pan, melt butter and stir in flour. Whisk in the milk very slowly and season with salt and cayenne.
Cook sauce on low until smooth and boiling, stirring occasionally with a whisk.
Reduce heat and stir in 1 cup of the cheddar cheese. Place a half of the sliced potatoes in the baking dish. Pour half of cheese sauce over potatoes.
Repeat with second layer of potatoes and cheese sauce. Sprinkle the remaining 1/2 cup of cheddar cheese on top. Top with some paprika for color. Bake uncovered for about 1 hour at 350°F or longer until the potatoes are fork tender.