Tag Archives | Rule of Experts

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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