The Dangers of Letting Someone Else Decide

I don’t think I suffer from any phobias (heck, I’m not even afraid of clowns, though some would argue that suggests a lack of prudence on my part).  I’m not sure Professors Whitman and Rizzo do either, despite Professor Thaler’s gentle ribbing.  While Whitman can surely defend himself, I can’t resist pointing out that Thaler’s example of Prohibition is illustrative of Whitman’s point.

Early temperance movement leaders in the United States originally focused on trying to convince individuals to voluntarily take “the Pledge” not to drink spirits, eventually adding beer and wine to the list of proscribed indulgences.  While some of the temperance movement’s allegedly scientifically proven effects of alcohol consumption now seem to be supported by modern science, others do not (e.g., alcohol consumption causing epilepsy), and none were based on evidence that, in retrospect, passes the causal inference sniff test.  Not satisfied with the rate of voluntary adoption, the movement formed more aggressive organizations like the Anti-Saloon League, which pressured politicians to enact local and then state bans, culminating in federal Prohibition.

Perhaps this movement from a voluntary campaign to federal Prohibition doesn’t represent a slide down the slippery slope.  Perhaps it was simply a natural progression toward widespread support (Thaler’s “recommend[ing] a book or movie that you really like”), but this is belied by the fact that President Wilson (presumably representing the national median voter’s interests) vetoed the Volstead Act. It’s also belied by the amendment’s supporters’ need to resort to nationalistic fear-mongering (since many of the nation’s breweries were owned by German Americans).  Anyway, as Thaler says, no harm, no foul since, even if Prohibition was the result of a slippery slope, the United States had the sense to repeal it a mere 14 years later.

But, as I said, Whitman can defend himself.

Taking Thaler’s descriptions of his views at face value, I suppose I don’t have particularly strong objections to the “choice architecture” view of the new paternalism.  If adopted voluntarily, who could object?  If people really do want to eat more healthful foods, it’s only sensible to move them to where people will notice them.  This raises the question of why we even need to nudge firms in this direction, but Thaler and his crew have fancy explanations for this (though I’m much younger than Thaler, I tend to cling to the old-fashioned economics that says we should infer people’s preferences from their actions as opposed to what they say their preferences are, but the behavioral economics crowd has plausible critiques of this position).

My fear (phobia?) arises when the distinction between private and public (voluntary and mandatory) becomes lost.  While Thaler is home drinking his fine wines, his buddy, the Diet Coke swilling Sunstein, is in DC, in one of the most important regulatory positions in the country.  Perhaps Sunstein too really embraces the “libertarian” part of libertarian paternalism and, so, will resist the temptation to use his powers to nudge/shove/trick/force people into doing what they really want to do anyway, if they simply understood their preferences well enough.  But others pushing different flavors of the new paternalism feel no such restraint.  A few years ago, the FTC had a bunch of us (including many of the figures Thaler refers to) come to Washington to debate the merits of the FTC and other federal bodies exploiting the insights of behavioral economics so people can better understand what’s good for them.  Who could object to that?  I’m sure no agency will use behavioral economics insights to exploit people for the sake of broader policy goals as opposed to simply liberating people from their biases.

Even in the public sphere, however, perhaps a libertarian/soft paternalism is possible.  If choice is preserved, on what grounds do guys like Whitman and me object?  Well, Whitman and Rizzo have written that it is likely that the soft paternalists will not (cannot) generally have sufficient information to pick the right defaults, choice architecture, and so forth.  While I might be willing to trust Thaler, Sunstein, Rabin, and other experts to have the judgment (despite Rabin’s penchant for tie-dye) and the prudence to take their limitations and caveats seriously, only acting when they are likely to do more good than harm, these aren’t the folks who will be making the relevant decisions.  It’s going to be bureaucrats and legislative staffers, fueled by the counsel of lobbyists as to how to do the nudging (and, remember, if you’re OK with that because you like who is currently at the helm, you presumably wouldn’t have wanted the previous guy to have had the power and vice versa).

Further, the government is not generally known for leaving people free to opt out of the rules it deems to be the best. It prefers one-size-fits-all in many situations.  For example, the Consumer Financial Protection Agency Act of 2009, which uses behavioral economics as its road map, proposed to make opt-outs very difficult when it allowed them at all, presumably because its proponents have little faith in the judgment of individuals even after they are nudged in the right direction.  Even if economists purport to be pure subjectivists when it comes to judging preferences, policymakers view such a perspective as crazy talk.

Beyond this fear, I do have another overarching concern with paternalism (old, new, future, classic, and others).  While Greg Mitchell and I claimed the idea as ours, in a sense it actually goes back to Locke.  The more we protect individuals from making decisions (good or bad), the less willing they will be to invest in decisionmaking capacities.  A few years ago, I was bemused when I spoke at an orientation session for new law students, finding that a third of the room was filled with their parents.  This feeling eventually turned to despair when I discovered this is a fairly ubiquitous phenomenon.  By coddling their children (setting up default rules in such a way to protect them from their failure to make a good decision, so to speak), it seems, today’s helicopter parents have actually stunted their children’s development.  You may think I am exaggerating the costs of this (and that I may be a little bitter that the parents, year after year, assumed I was the A/V guy, reacting with shock when they found out I was the professor they had come to hear speak), but there is at least some evidence of this coddling leading to negative long term consequences.  Apparently a number of firms report that entry-level candidates are now bringing their parents to job interviews and letting mom negotiate their benefits for them.

But, as Thaler suggests, if this turn has proved to be a bad one, we can simply reverse course to fix things in 20 years or so.

Also from this issue

Lead Essay

  • In his lead essay, Glen Whitman argues that “soft” or “libertarian” paternalism lends itself to ever more intrusive regulations in a variety of ways. Some of these are due to the very cognitive biases that advocates of soft paternalism have identified in their own research. For example, behavioral economists note that people exhibit extremeness aversion — a phenomenon in which they avoid what appear to be extreme positions. Yet introducing some amount of paternalism will make more paternalism, rather than less, appear to be the plausible middle ground. The dividing line between “soft” and “hard” paternalism is difficult to find, and Whitman offers many reasons why policymakers will tend toward more and more intrusive paternalism over time.

Response Essays

  • Richard Thaler argues that libertarian paternalism does not face any of the dangers that Glen Whitman suggests. Given that policymakers and administrators are commonly forced to set up default rules anyway, it only makes sense to set these up in ways that help the governed individuals to realize their true goals. Given that the problem of choice architecture is unavoidable, Thaler argues that this is a reasonable, mainstream solution.

  • Jonathan Klick argues that not only is the slippery slope real, but a host of other difficulties lie ahead for libertarian paternalists. While we might find academic behavioral economists sensible regulators, in reality regulations are made by lobbyists and Congressional staffers, whose incentives don’t necessarily lie in the direction of good policy. In the long term, too, allowing people to shift the burden of decision to others will habituate people to not deciding — and stunt their abilities.

  • Shane Frederick explores some of the unanswered questions of soft paternalism. He admits that Whitman is right to doubt whether we can postulate a given preference set as the “true” one for all time, for a given individual, and by implication for a given society. Still, he argues, this doesn’t mean we must refrain from all opinions about the behavior of others. Why not express such opinions in our choice architecture, if they are sincerely held and not terribly hard to opt out of?