The New Paternalism

by Dave

Nudge is an insightful entertaining read. I hope more policy-makers pay heed. For some reason reminded me of the Keynes quote “Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”

What does a peculiar pattern on the road have to do with fixing the nation’s health-care woes, protecting the environment, resolving the thorny issue of gay marriage, and increasing donations to charity? Everything, according to Thaler and Cass R. Sunstein, a professor of law and political science at the University of Chicago. They are authors of a new book, Nudge: Improving Decisions About Health, Wealth, and Happiness (Yale University Press), in which they articulate an approach to designing social and economic policies that incorporates an understanding of people’s cognitive limitations.

They call this governing philosophy “libertarian paternalism.” That is not an oxymoron, they insist in their book. Rather it is a corrective to the longstanding assumption of policy makers that the average person is capable of thinking like Albert Einstein, storing as much memory as IBM’s Big Blue, and exercising the willpower of Mahatma Gandhi. That is simply not how people are, they say. In reality human beings are lazy, busy, impulsive, inert, and irrational creatures highly susceptible to predictable biases and errors. That’s why they can be nudged in socially desirable directions.

Sunstein explains the appeal of libertarian paternalism: “For too
long, the United States [ed. for that matter most countries] has been trapped in a debate between the
laissez-faire types who believe markets will solve all our problems and
the command-and-control types who believe that if there is a market
failure then you need a mandate
.” That debate has been exhausted, he

“The laissez-faire types are right that … government can blunder, so
opt-outs are important,” he says. “The mandate types are right that
people are fallible, and they make mistakes, and sometimes people who
are specialists know better and can steer people in directions that
will make their lives better.”

Sunstein argues that understanding human irrationality can improve
how public and private institutions shape policy by increasing the
likelihood that people will make decisions that are in their own
Most important, he and Thaler insist, such nudges can be
executed while protecting freedom of choice.

Take two examples in their book. Studies show that placing fruit at eye
level in school cafeterias enhances its popularity by as much as 25
percent. Or consider this stroke of creativity by an economist in
Amsterdam charged with cleaning up the restrooms at the Schiphol
Airport: He had a fly etched into the wells of urinals, giving male
patrons something to aim at. Spillage was reduced by 80 percent. The
problems of childhood obesity and foul restrooms are remedied with very
little inconvenience to people — or cost. Children remain free to grab
that piece of chocolate cake, and there is nothing preventing visitors
to Schiphol’s restrooms from ignoring the fly and aiming elsewhere. It
is merely less likely that either group will do so.

[Sunnstein and Thaler] are eager to portray libertarian paternalism as a bipartisan
On many issues, including environmental protection, family
law, and school choice, they argue for less government coercion. “If
incentives and nudges replace requirements and bans, government will be
both smaller and more modest,” they write. “We are not for bigger government, just for better governance.