Archive | Paternalism

The Double Standard of Libertarian Paternalism

Cato Unbound has an excellent symposium on “libertarian paternalism,” the theory that argues that government should intervene to protect people against cognitive biases that lead them to make decisions that ultimately reduce their ability to achieve their own objectives. Advocates of libertarian paternalism argue that their approach is different from and superior to traditional paternalism, which imposes the paternalists’ own values on those subject to regulation. Overall, I largely agree with the criticisms of libertarian paternalism in the Cato symposium by Glen Whitman (here and here) and Jonathan Klick. However, I wish to focus on a different weakness of libertarian paternalism: the implicit assumption that voters and government regulators are not subject to serious cognitive biases of their own.

It may well be that private citizens acting in markets and civil society often make decisions that they later regret because of cognitive errors. However, regulators and voters are people too. They also might make bad decisions because of cognitive errors. Libertarian paternalist scholars generally ignore this possibility by implicitly comparing perfectly rational regulators with often irrational consumers. But there is no a priori reason to believe that the former are more rational than the latter.

I. The Cognitive Biases of Regulators.

Indeed, there are good reasons to believe that regulators are likely to be more susceptible to cognitive biases than private sector consumers. This is so for at least three important reasons. First, regulators are making decisions for others, not for themselves. As a result, they have less incentive to get them right. If regulators in the proposed Consumer Financial Protection Agency ban financial products that are of great value to consumers, the regulators themselves won’t suffer (unless they happen to want to purchase those products themselves). The less people have at stake in the decisions they […]

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Welfare Evaluation, Behavioral Agents and Rational Agents

A reader sends me the following comment, further to the several VC posts on behavioral economics (initially occasioned by Andy Ferguson’s Weekly Standard essay):

One basic issue that this whole-“behavioral econ– good-or-bad?”
discussion seems to have neglected the following simple point: welfare
evaluation is much harder with “behavioral agents” than “rational
agents.”

With “rational” agents we know that subject to tons and tons of
asumptions markets are great (first welfare theorem).  And we have a
pretty good idea of what constitutes a market failure (externalities)
and when a “social planner” can help.  Thus, there is a principled
econ case for certain forms of “social planner” intervention that we
know will raise welfare (whether a government can act as an optimal
social planner is another question).

With “behavioral” agents, the basic issue is that people’s preferences
are at some level time-inconsistent.  My self of today wishes that my
self of tomorrow would put money in to a 401(K) but my self of
tomorrow wishes it to be the next period’s self and etc.  Thus, the
person sitting at today does *not* have the same preferences as the
person sitting at tomorrow.   If you make the person of today put
money into a 401(k) *today* you make them worse off (since they wanted
to put money in a 401(k) tomorrow), but you make their yesterday’s
self happy.   As a social planner, whose utility do you maximize?

It’s not obvious how you do this.  There are some attempts to work
this out in the literature (e.g. http://www.nber.org/papers/w13737)
but it’s not settled.

I guess the main take-away is that claiming policy implications from
behavioral research is *much* harder than from other kinds of econ
research, so at some level behavioral people are jumping the gun a bit
in claiming that they have a

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Further to Andrew Ferguson on Behavioral Economics

Todd’s right, Andy Ferguson’s Weekly Standard piece is excellent – whether one agrees with his ultimate take on it or not.  The bottom line of the piece, however, is not simply a skepticism about the powers of social science – behavioral economics as the New Social Engineering.  It is, rather, a broadly libertarian point, going to a crucial apparently methodological, but ultimately moral, difference between traditional economics and behavioral economics:

You can see how useful the notion of irrational man is to a would-be regulator. It is less helpful to the rest of us, because it runs counter to every intuition a person has about himself. Nobody sees himself always as a boob, constantly misunderstanding his place in the world and the effect he has upon it. Surely the behavioral economists don’t see themselves that way. Only rational people can police the irrationality of others according to the principles of an advanced scientific discipline. If the behavioralists were boobs too, their entire edifice would collapse from its own contradictions. Somebody’s got to be smart enough to see how silly the rest of us are.

Traditional economics has always been more modest. Assuming the rationality of man was a device that made the discipline possible. The alternative—irrational people behaving in irrational ways—would complicate the world beyond the possibility of understanding. But the modesty wasn’t just epistemological. It was also a democratic impulse, a sign of neighborly deference. A regulator who always assumed that man was other than rational was inviting himself into a position where he could exert a control over his fellow citizens that wasn’t proper for a true democrat. Self-government demands this deference. It won’t work otherwise.

“Ultimately,” the economist Brian Mannix wrote not long ago, “we insist that our regulators start from a presumption of rationality for

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Ignorance is Not Stupidity, Redux

Co-conspirator Ken Anderson draws my attention to Alan Wolfe’s statement that “Americans are most certainly misinformed. Dumb they are not.” This of course is exactly what I have been saying for years: political ignorance is widespread, but isn’t necessarily a sign of stupidity. To the contrary, being ignorant about politics is, for most voters, actually rational behavior, as is doing a poor job of evaluating the political information they do possess. I also find myself in agreement with Alan Wolfe in his skepticism about Derek Bok’s paternalistic policy proposals (though for different reasons). If voters tend to be ignorant and often illogical in their evaluation of the information they know, transferring more power to government in order to adopt paternalistic policies will only increase the impact of the types of cognitive errors paternalists seek to correct. […]

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Rational Ignorance Alert! Rational Ignorance Alert!

I hereby respectfully draw Co-Conspirator Ilya’s attention to Alan Wolfe’s witty and insightful book review in today’s New York Times of Derek Bok’s The Politics of Happiness. In particular to the following two sentences; should we call this rational political ignorance or not?

Americans are most certainly misinformed.  Dumb they are not.

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How Markets Make Us More Rational

Advocates of “libertarian paternalism” cite experimental evidence showing that people often make irrational decisions, and argue that we need government regulation to guard against such problems. Economist Richard McKenzie challenges part of this rationale by citing experimental evidence showing that markets actually give people incentives to act more rationally than they would otherwise, thus undercutting claims of irrational behavior based primarily on surveys or experiments that don’t mimic the incentives and other conditions of real-world markets:

People, including economists, are imperfect decision makers because of their mental limitations. But this fact does not mean that markets fail. Indeed, markets do far more than induce improved allocation of resources, given wants and resources. Markets induce market participants to be more rational than they otherwise would be because they must pay a price for being irrational. Thus, markets allow—no, require—economists to assume that people are more rational than they are likely to be found to be in laboratory settings, absent meaningful information and incentives and absent market pressures.

One underappreciated fact about the experimental and survey evidence relied on by advocates of the new paternalism is that it models voter decision-making far more closely than market decisions. Unlike market participants, voters have little or no incentive to either acquire information about the issues they decide, or to analyze the information they do have in an unbiased fashion. The same is true, to a lesser extent, of libertarian paternalist policies established by expert regulators insulated from democratic control (the “rule of experts” is often proposed as a means by which paternalist regulation can be enacted without being influenced by voter ignorance and irrationality). Such regulators may be more knowledgeable than voters. But unlike consumers, they do not have their own money at stake, and therefore don’t suffer any penalty if they […]

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My Response to David Brooks, Taken from an Old Article on Lawyers, Elites, and the New Class

(Update:  Thank you Instapundit)

David Brooks has a piece up today in the Times attracting much comment. I am no populist, except perhaps by David Frum’s unexacting standards, but let’s just say I think that Brooks somewhere along the way lost the marvelous tuning that made him the true heir of Veblen.  I think it was the need at the Times to do politics rather than Bobo culture and “comic sociology.”  As for me, well, how much of an elitist am I?  An editor of the TLS once told me, “Ken, you have almost exquisite taste.  It would be flawless, too, except for your fondness for the novels of AA Gill.”

Here is my response to David Brooks, en passant, taken with some editing from the conclusion of an essay of mine in the Columbia Law Review in 1996, reviewing books on lawyers, elites, and the therapeutic New Class.

A New Class of Lawyers: The Therapeutic as Rights Talk (96 Columbia Law Review 1092 (May 1996).) (SSRN link)

The old elites wanted to be the top of the communities in which they had grown up; whether to lead or dominate, to serve communities or exploit them, at least they understood themselves as having a place in them. The new elites, by contrast, want no connection; they understand that power is elsewhere, money is elsewhere, and mobility is everything; if indeed they have to live somewhere, it will be if at all possible in a wholly private, gated community. Yet simultaneously they want to dominate.

The New Class pushes its mobility to absolute limits, launching itself into what it imagines is a global society conducted in the jet stream, made weightless by the complete mobility of capital, but with devastating consequences for those left behind on the ground. For

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Paternalism and Slippery Slopes

Advocates of the “new paternalism” (sometimes also called “libertarian paternalism”) argue that carefully calibrated government interventions can help consumers avoid mistakes caused by their own cognitive biases. In this interesting new article, economist Mario Rizzo and legal scholar Glen Whitman argue that new paternalist policies are vulnerable to slippery slopes that will extend them far beyond the areas where they might be genuinely need to correct consumer errors. Here is the abstract:

The “new paternalism” claims that careful policy interventions can help people make better decisions in terms of their own welfare, with only mild or nonexistent infringement of personal autonomy and choice. This claim to moderation is not sustainable. Applying the insights of the modern literature on slippery slopes to new paternalist policies suggests that such policies are particularly vulnerable to expansion. This is true even if policymakers are fully rational. More importantly, the slippery-slope potential is especially great if policymakers are not fully rational, but instead share the behavioral and cognitive biases attributed to the people their policies are supposed to help. Accepting the new paternalist approach creates a risk of accepting, in the long run, greater restrictions on individual autonomy than have been heretofore acknowledged.

I have myself previously criticized the new paternalism here, here, here, and here. Rizzo and Whitman argue that the danger of slippery slope effects is greater if policymakers themselves suffer from cognitive biases. In this post, I pointed out that the voters who elect the policymakers also suffer from ignorance and cognitive bias, often to a greater extent than the consumers whose biases new paternalist policies are intended to correct. Giving more power to cognitively biased government officials elected by rationally ignorant and cognitively biased voters is likely to exacerbate the effects of cognitive error more […]

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Interest Group Capture of the Proposed Consumer Financial Protection Agency

A few weeks ago, I warned that one of the problems with the Administration’s proposed Consumer Financial Protection Agency is that it could easily be captured by interest groups who would use its powers to exploit the general public for their own benefit:

[Voter] political ignorance opens the door to interest group “capture” of the CFPA or other agencies that will implement paternalistic regulations. Such regulations will necessarily be complex and difficult to understand. Rationally ignorant voters are unlikely to follow them closely enough to be able to tell the difference between effective regulations and harmful ones. As a result, it will be easy for interest groups and government officials to enact regulations that benefit politically influential businesses as the expense of the public under the guise of consumer protection. We have seen this pattern time and again with other regulatory agencies, such as those engaged in railroad, airline, public utility, and trucking regulation.There is no reason to believe that the new paternalistic regulatory agencies will be any different. Indeed, agencies implement paternalistic financial regulations are likely to be even more vulnerable to capture because of the complexity of the financial system (which makes political monitoring by ignorant voters even more difficult), and the presence of numerous powerful interest groups who have an incentive to do the capturing. Banks, credit card companies, real estate developers, and many others will no doubt lobby hard to capture the CFPA once it gets established.

Recently, Democratic Representative Maxine Waters added an amendment to the bill establishing the CFPA that would add five seats to its powerful Oversight Board for “experts in the fields of consumer protection, fair lending and civil rights, representatives of depository institutions that primarily serve underserved communities, or representatives of communities that have been significantly impacted by higher-priced mortgage loans.” […]

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How to Have Less Crime and Less Punishment

Thanks to Eugene’s generosity, I will have access to this space all week to expound what I see as a great moral and practical imperative:  to put our new knowledge of what controls crime into use, with the goal of achieving “half and half”:  half as much crime and half as many people behind bars in a decade as we have today.  (Here’s the a book-length version of the argument.)

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Engineers have a sardonic saying:  “When brute force fails, you’re not using enough.”  For three decades, in the face of the great crime wave that started in the early 1960s, we have been trying to solve our crime problem with brute force:  building more and more prisons and jails. We now keep 2.4 million of our fellow human beings under lock and key at any one time, and that number has continued to grow despite the spectacular drop in crime between 1994 and 2004, which took crime rates to 50% of their peak levels.

Imprisonment at five times the historical level in the United States, and at five times the level of any of the countries with which we would like to compare ourselves, has not been sufficient to fully reverse the growth in crime; current crime rates are still at 2.5 times the level of the late 1950s and early 1960s.  Even that discouraging number understates how much worse things are now than they were half a century ago; today’s high crime rates persist in the face not only of ferocious punishment but also of greatly enhanced – and very costly – adaptations by potential victims to avoid being victimized.  Those adaptations range from buying alarm systems to moving to the suburbs.  Most of all, they involve avoiding risky situations.  The need to take such precautions […]

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Gardasil Vaccinations for Boys?

If the boys don’t stand to benefit from the vaccine, then are we making boys into The Island? Well, that’s an awfully inflammatory way to start out, I grant you.  Here’s another inflammatory way to start out … would forcing boys to be vaccinated against their will but without any medical benefit to them, with the benefits accruing instead to girls, violate Roe v Wade? Our boy-bodies, ourboyselves?  For that matter, should pre-teen girls be forced to be Nudgily inoculated because their parents systematically underestimate the extent to which they will engage in sexual activity and have a tendency to acquire the disease?  Something here to offend almost everyone in this debate, if one takes it very far down to fundamentals.

Update: Thanks, Glenn, for the Instalanche! While I am thinking of this, please note that I am not the Dr. Kenneth Anderson, MD, Harvard Medical School, who is a real expert on vaccines and viruses and appears to have done some interviews and other media stuff on Gardasil.  I gather from a couple of comments that I have either tried some readers’ patience or else exceeded their attention spans.  There is not a lot of careful organization of this post, because I inserted paragraphs in between editing something unrelated; this is not my day job.  However, to the extent there is a structure, it is this:

  • (a) Opening that you might find clever or not, but is designed to raise at least three multiple, indeed really different, ways in which mandatory vaccinations of either all girls, or all boys, or all girls and boys, with Gardasil could raise liberty and rights issues.
  • (b) A short mention of what Gardasil is and why it was controversial back in 2006 when it was introduced, for those who haven’t closely followed
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Hayek on the Use of Superior Expert Knowledge as a Justification for Paternalism

In my most recent post on paternalism, I criticized claims that paternalistic policies can be justified on the grounds that government-appointed experts have greater knowledge than consumers and are less likely to be influenced to cognitive error. Among other points, I emphasized that government experts have no way of determining how much benefit consumers get from potentially risky products and therefore no good way of deciding which products should be banned or restricted on the grounds that their costs outweigh their benefits. In a recent e-mail, NYU economist Mario Rizzo (himself a leading academic critic of paternalism) points out that F.A. Hayek made a similar point in his classic 1945 article, “The Use of Knowledge in Society”:

It may be admitted that, as far as scientific knowledge is concerned, a body of suitably chosen experts may be in the best position to command all the best knowledge available—though this is of course merely shifting the difficulty to the problem of selecting the experts. What I wish to point out is that, even assuming that this problem can be readily solved, it is only a small part of the wider problem.

Today it is almost heresy to suggest that scientific knowledge is not the sum of all knowledge. But a little reflection will show that there is beyond question a body of very important but unorganized knowledge which cannot possibly be called scientific in the sense of knowledge of general rules: the knowledge of the particular circumstances of time and place. It is with respect to this that practically every individual has some advantage over all others because he possesses unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him or are

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Pitfalls of Paternalism

In recent years, advocates of paternalistic policies, such as economist Richard Thaler, argue that government-appointed experts should limit the choices available to consumers in order to prevent them from making poor decisions because of ignorance or cognitive bias. After all, they claim, experts are likely to know better than ordinary consumers which products are too risky for us to use. This kind of “new paternalism” (also known as “libertarian paternalism”) has had a lot of influence in the academic world. It has also caught on in the Obama Administration, which has based major policy initiatives on it such as the proposed Consumer Financial Protection Agency.

In this recent essay, New Zealand economist Eric Crampton points out a serious flaw in the logic underlying the new paternalism. Experts may be better than consumers at figuring out the health risks posed by various products. But they usually have no reliable way to estimate the benefits the consumers get from them. Paternalism can only be justified, if at all, in cases where the risks posed by the product outweigh the benefit purchasers derive from it. Experts who have no way of estimating those benefits are in no position to determine which products should be regulated or banned:

None of us holds health as our only goal. Every time we take a slight risk in traffic, or decide to drive at all, we’re trading the risk of accident against the benefits of getting to where we’d like to go. When we decide to go skiing, we trade off fun against the risks of a broken leg or worse. Even where our children are concerned, we make trade-offs. We could always choose to purchase a little more safety for them than we do. We could spend a little more on the slightly

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