Two Important New Books on Knowledge, Bias, and Paternalism
Traditional paternalists argue that they know what’s good for you regardless of your own preferences. Prohibition advocates, for example, claimed that people must be forced to stay away from “Demon Rum” no matter how much they like to drink, or how carefully they weigh the costs and benefits of doing so. Over the last twenty years, however, intellectually sophisticated paternalists have largely shifted to a different rationale for restricting freedom of choice: “libertarian paternalism.”
Unlike old-fashioned paternalists, advocates of LP argue that choice must sometimes be restricted in order to enable people to better pursue their own “true” preferences—to do what they themselves would want to do, but for the pernicious influence of ignorance and cognitive biases. LP enthusiasts also contend that policymakers can simultaneously improve decision-making and minimize coercion by using carefully calibrated “nudges” rather than the crude blunderbuss tactics of “hard” paternalists. For their part, critics claim that the behaviorial research underlying LP isn’t as robust as advocates assert, and that the new paternalistic policies have many of the same flaws as the old.
Two recently published books suggest that there may be more room for common ground between defenders and critics of LP than previously assumed. The first is Too Much Information: Understanding What You Don’t Want to Know by Harvard law professor Cass Sunstein, one of the leading advocates of LP. The second, Escaping Paternalism: Rationality, Behavioral Economics, and Public Policy, by economists Mario Rizzo and Glen Whitman (RW), perhaps the leading academic critics of LP. Sunstein and RW are longtime adversaries in the academic debate over paternalism. But these two books have so much in common that readers unfamiliar with the authors’ history might assume they are all on the same side.
I. Escaping Paternalism
Rizzo and Whitman’s book is by far the most thorough and insightful critique of “libertarian paternalism” published so far. The first half of the book criticizes paternalists’ arguments that individuals acting in the market and civil society are prone to systematic cognitive errors that justify policymakers in intervening to ensure that their actions better align with their “true” preferences. The second half assumes that these cognitive problems are real, but offers a wide-ranging critique of paternalistic claims that government regulators are likely to improve the situation rather than make it worse.
In the first part of their book, RW offer a helpful critique of the standard neoclassical economic conception of rationality (or at least more extreme versions thereof) underpinning many paternalist arguments. For example, they dispute the notion that it is necessarily irrational if a person lacks complete and consistent preferences that cover all possible choices that might come before her. In many cases, developing a complete set of preferences and ensuring that they are all consistent just isn’t worth the cost of doing so, in terms of time and effort.
Similarly, contrary to the assumptions of many scholars and others, there is nothing inherently irrational about “time discounting”—valuing present benefits more than similar future ones. People choose a dollar today over two dollars a year from now are not necessarily irrational, despite moral strictures to the contrary. Thus, we should be skeptical of claims that such preferences justify imposing forced savings of various kinds, as many paternalists argue.
Instead of what they criticize as a narrow “puppet” view of rational behavior, RW advocate a theory of “inclusive rationality,” which takes a much broader view of what qualifies as rational decision-making. Many supposedly irrational behaviors may actually be reasonable under the circumstances, or indications of “nonstandard” preferences. An obese person with an unhealthy diet could be irrational. But he might simply set a high value on eating his favorite foods and avoiding the discomfort of going on a diet—enough to outweigh the potential benefits of improving his health.
RW also summarize evidence indicating that many standard cognitive errors often cited as justification for paternalistic policies are overblown. For example, as the work of Charles Plott and Kathryn Zeiler indicates, the “endowment effect” (supposedly irrational preference for things you already own over assets of similar value that you might acquire in the future) is actually mostly a combination of flaws in experimental design and largely rational reasons for preferring the bird in hand over one in the bush, in some circumstances.
While there are many good points in the first half of the book, I agree with some of economist Bryan Caplan’s criticisms of it. As Caplan (who is otherwise highly sympathetic to RW) explains, their concept of “inclusive rationality” at times seems so broad that they seem unwilling to describe virtually any behavior as irrational. RW rightly point out that it can be difficult to separate out rati
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