Libertarian
paternalism
Week 6
21st of February 2024
Linda Karlsdóttir
Introduction (i)
• The most wanted man in America
Introduction (ii)
• Economists are different from psychologists, lawyers, and
philosophers who are less strictly against paternalism.
• Economists are important because they are the most
important agents for policy advice.
• Consumer sovereignty: perfectly rational consumers maximize
their utility given their preferences, which are not to be
questioned.
• Sole purpose of policy intervention: prevent/cure cases of
market failure.
• Main justification:
– Liberal values: individual is autonomous.
– Epistemic privilege: individual knows best.
Introduction (iii)
• We do not deal with how behavioural interventions
work.
– “Can nudges change behaviour?”
• We deal with whether it is good or bad that they work?
– “Should nudges be used to change behaviour?”
Why?
• Nudging is becoming increasingly influential.
• The “Nudge Debate” is everywhere.
• The Nudge Debate is at times of low quality, driven
more by emotion than reasoning.
• Today we start thinking about the ethics of nudge. It is
not about directing your thoughts.
"Economists against Paternalism"
• Explicit and robust value judgment in Economics:
"Paternalism is bad"
•
Agenda
• Nudges -Basic Demarcations
• Why Nudge?
• Why Avoid Nudging?
• Conclusion
Nudges: Basic demarcations
• Paternalism vs. Externalities
• Soft vs. Hard Paternalism
• Means vs. Ends Paternalism
Paternalism vs. Externalities
• Paternalistic Nudges
– Help individuals to get what they want
• Market failure Nudges
– For the greater good (e.g. Environment)
– Externality-reducing nudges
– Prisoner’s dilemma nudges
– Coordination nudges
Soft vs. Hard paternalism (i)
• Material costs: Hard paternalism
– Bans, mandates, taxes
• Immaterial costs: Soft paternalism
– Nudges
Soft vs. Hard paternalism (ii)
• Distinction based on (material and immaterial) costs.
Intervention with high psychological costs may be less
soft than intervention with low material costs.
Means vs. Ends Paternalism (i)
• Means Paternalism:
– Supports people to achieve their aims.
• Ends Paternalism:
– Paternalist defines what makes people better.
Means vs. Ends Paternalism (ii)
• The line between Means and Ends is not always sharp.
• IF End = Great, happy, healthy, wealthy life
– THEN all paternalism is Ends Paternalism.
• IF End = Buy chocolate cookie today,
– THEN all paternalism is Means Paternalism.
• It is very difficult to think of means paternalism with
multiple selves approaches and present bias (means
for future self, end for present self ).
Libertarian Paternalism
• The choice-architecture is changed so
that . . .
• . . . choosers are made better off, as
judged by themselves (“Paternalism”).
• . . . the individual freedom of choice is
maintained and incentives are not
changed significantly (“Libertarian”).
•
Classiffcation of Libertarian Paternalism
• Most objections are much weakened when we talk about Soft
and Means Paternalism, not about Hard and Ends Paternalism
(CS, 2014).
Why nudge? (i)
(a) Choice architecture is inevitable:
• Some kind of design has to be in place. Ináuences are
omnipresent and cannot be avoided. "Even Nature
nudges"
• It is reasonable to object to particular nudges, but not
to nudging in general (the abstraction trap).
• No/small costs of modifying the design. Better to
constructively ask:
– How should the design be built?
Why nudge? (ii)
(b) The Epistemic Privilege (= the individual knows best) is
wrong.
• Affective forecasting, Miswanting, Decision overload, Status
quo bias, Endowment effect, Myopia, Inertia,
Procrastination, Conformatory bias, . . .
• Significant welfare gains are possible and welfare losses
can be minimized.
• Suggested Rule: If nudges lead to large benefits and
small costs, they are acceptable.
Why nudge? (iii)
• Fairness: Cognitive abilities are not equally distributed.
• Autonomy: Not interfering with choices might threaten
autonomy (Trout, 2005).
• Faulty preference learning: Nudges can replace
dysfunctional preference learning (e.g. endogenous
preferences) with more functional preference learning.
Why avoid nudging?
• Objections based on welfare.
• Objections based on autonomy.
• Objections based on role of public officials.
• Objections based on dynamics.
• Further points.
Why avoid nudging? Welfare based objections (i)
• Classical view:
– The individual knows best what increases his/her
welfare.
– No choice architect can know better. Hence,
interventions by government do not increase
welfare.
• A Behavioural view:
– “If we know that peopleís choices lead them in the
wrong direction, why should we insist on
approaches that preserve freedom of choice?”
(Sunstein, 2014, Nudges vs. Shoves)
•
Why avoid nudging? Welfare based objections (ii)
How can public officials detect the true preferences?
Whose ends are we talking about?
– Informed preferences?
– Short-term or long-term preferences? System 1?
System 2?
True preferences cannot be identified when preferences
are not stable
• Hyperbolic discounting, Framing effects, Hot vs
cold preferences
• SWB is one way to measure what makes people
better off
Why avoid nudging? Welfare based objections (iii)
• People are diverse (heterogeneity)
• One size fits all solutions can reduce welfare.
• CS: Soft paternalism better than hard paternalism, as
people to go their own way.
– Paternalism can be personalised, e.g. based on
demographics. New problem: privacy.
– We need choice architecture to un-bias existing
prejudices.
Why avoid nudging? Autonomy based objections
(i)
• Autonomy as an ingredient of welfare.
• Autonomy as freedom to choose (~dignity).
• Autonomy to make conscious decisions.
Why avoid nudging? Autonomy based objections
(ii)
• Nudges vs Shoves: Nudges recognize that freedom of
choice can be seen, and often is seen, as an intrinsic good,
which government should respect if it is to treat people with
dignity
Why avoid nudging? Autonomy based objections
(iii)
• Autonomy (= freedom of choice) is an ingredient of welfare.
• People dislike having their choices overridden.
• Right to choose has intrinsic value:
– Bans and taxes decrease welfare; nudges should be ok.
What increases welfare - Right to choose or choosing?
– Defaults ok in former, but welfare-reducing in latter.
• CS: Autonomy should be part of welfare calculus.
– LP can increase autonomy and freedom.
Why avoid nudging? Dynamics (i)
• Short-term success is consistent with long-term
failures.
• Is this true for Nudges, as well? (infantilization and
decreased responsibility for own welfare).
• Do we need stronger nudges over time as they wear
off?
• Empirical questions! We do not know it yet.
Why avoid nudging? Dynamics (ii)
• Today’s policies shape future decision environment
– more nudges and harder nudges
• LP is only the start (slippery slopes). Measures will get
increasingly hard (Rizzo and Whitman 2009)
• The exploration of more and more biases will allow more and
more interventions
• But: No evidence for this trend. Slippery slopes can also go
in direction of less paternalism. (Empirical evidence for this is
scarce however)
Why avoid nudging? Dynamics (iii)
• Private learning through trial and error is reduced by
Nudges (Glaeser 2006, Schnellenbach 2012).
• Paternalism can infantilize citizens, leading to reduced
welfare over time.
• Learning + Autonomy: Nudges are preferable that allow
individuals to learn to make better decisions in the
future.
– Interventions might lead to more lasting success.
Why avoid nudging? Dynamics (iv)
• CS: Argument is more hypothetical than real. Without
default rules, people would be overwhelmed, and less
able to learn what truly concerns them.
• Existence of bias shows that there is not enough learning.
• Is it sensible to learn via trial and error? Why not social
learning or imitation learning (Kirchgassner 2012).
Why avoid nudging? Role of public officials
(i)
• Public officials have own interests. Do they have the right
incentives?
• Lobby groups can use biases.
• Who regulates the nudgers?
• CS: True. Still it is better to find rules that limit problems
than to destroy all attempts.
• Government itself is a mechanism that relies mainly on S2
processing.
• Also, choice architecture is inevitable.
Why avoid nudging? Role of public officials
(ii)
Conclusion (i)
• Radical anti-paternalism is not sensible.
• Especially when choice architecture is inevitable, do not
simply close your eyes.
• Most objections are much weakened when we talk about
Soft and Means Paternalism, not about Hard and Ends
Paternalism (SC, 2014). What about the other demarcations?
• Remember to evaluate costs and benefits of interventions
Conclusion (ii)
• (Libertarian) Paternalism is here to stay.
• Create rules that indicate what is acceptable and what
not (based on cost-benefit analysis).
• Today, we do not yet have such rules