Over the last couple of years, I think I have decided that I am a fan of libertarian paternalism. (That link goes to an old post from almost exactly two years ago, which is kind of funny, typos and all. Oh, passage of time…) I do think that part of the appeal is the oxymoronic nature of the term (it’s the “jumbo shrimp” of policy, really), but I mainly like that the goal of libertarian paternalism is to get you to make “good” choices (those you would make if you were patient, unbiased, rational, etc.) without actually forcing your hand or limiting your choice set. I think it’s because, while I REALLY don’t like being told what to do, I realize that I could use some help in the decision-making department sometimes. And I’ll go to the gym tomorrow, I swear.
Libertarian paternalism is exactly what Richard Thaler and Cass Sunstein talk about in their book Nudge: Improving Decisions About Health, Wealth, and Happiness. They review findings in behavioral economics and elsewhere to show that “choice architecture” actually matters in terms of how people think about the decisions that they face. I am very happy to see that the book is a best-seller, both because I think the subject matter is important and also because it’s generally uplifting to see big nerds succeed with a mainstream audience. (To the authors’ credit, the book is written in a very non-technical yet not oversimplified way.) My main hope is that the book becomes popular among those who are actually in charge of designing the choice architectures that the authors refer to, since there is more relevance to their thesis than merely providing more pop economics for public consumption.
If you’re curious, there is a pretty interesting Q&A with the authors on the Amazon page linked to above.
I swear I have a point here, aside from plugging the work of two fellow economists of course. The other day, I came across a post on the New York Times City Room blog entitled “Please Give the Disabled Your Seat. Or Else.” Apparently the signs requesting passengers to give up their seats for elderly and/or disabled passengers have been updated:
Basically, they’ve turned what used to be a subtle nudge into a more forceful one with a side of threatening. (Maybe I just think that because I am vaguely terrified of the large green stick figure man. If I ever run into him on the subway, I am getting off immediately…and calling my mommy.) Is this helpful? Apparently the MTA (Metropolitan Transit Authority) thinks so, but I would caution that perhaps they should be more careful with their nudges, since nudges sometimes have a pesky tendency to backfire. Consider the following example, from another really old blog post:
“Gneezy and Rustichini (2000, JLS) performed a field experiment with 10 day care centers in Haifa, Israel. These day care centers were having problems with parents picking up their children late, which (to me at least) is not surprising since there was no specific penalty for doing so. In order to combat this problem, the day care centers instituted a fine of 10 Shekels per child if a parent arrived more than 10 minutes late. Economic theory would obviously suggest that, since the price of picking up a child late has increased, there would be less of that activity. However, what the researchers saw was that more, rather than fewer, parents started picking up their children late. It is also important to note that this higher level of tardiness persisted even after the fine was taken away (at least for the period that the researchers observed.) The authors of the study make the claim that this evidence is consistent with the crowding-out of the original moral incentive.”
You can generally take “moral incentive” as “underlying preference for doing the right thing.” In the subway example, giving up your seat for the old lady with the cane is pretty clearly the right thing, unless of course she then yells at you for thinking she is too old to stand and hits you with said cane. (I’ve seen it happen, it’s kind of amazing. But no, that is not a good excuse for not offering.) Furthermore, even if it is the law to give up a seat in that situation, it’s not really one that is enforceable, though it would make for great societal pressure if train conductors could stop the train to give an uncooperative passenger a ticket. (”Behave or I swear I will turn this train around…”) As a result, it’s mainly the moral incentive, coupled with a sprinkling of desire to not look like a jackass, that makes people follow the law. If you remind people that it is in fact the law and not just the right thing to do, it’s quite possible that you are crowding out their moral incentive to do the right thing, which is, for the most part, the only thing driving behavior in this situation.
P.S. The comments on that article are pretty hysterical.
![[Post to Twitter]](http://www.economistsdoitwithmodels.com/wp-content/plugins/tweet-this/icons/tt-twitter-big4.png){kind=icon}
![[Post to StumbleUpon]](http://www.economistsdoitwithmodels.com/wp-content/plugins/tweet-this/icons/tt-su-big4.png){kind=icon}
10 responses so far ↓
1 LL Cool A // Jun 19, 2009 at 3:02 pm
I remember reading the findings of the Gneezy and Rustichini study. Only because Dr. Gneezy sounds like a long-lost member of the Wu-Tang Clan.
2 Henry Hildebrand // Jun 22, 2009 at 3:09 pm
When I was in elementary school, the after-school service ended promptly at 6:00 pm. The penalty for picking up your child after 6 was something like $10 per minute after 6. As long as the late penalty is high enough, people will be on time. I guess those in charge had read Gneezy’s study. And that name is hilarious.
3 econgirl // Jun 22, 2009 at 3:40 pm
Oh, see, I figured if there was going to be an academic in that group it would be Doc…or Grumpy…
4 Rod // Jun 23, 2009 at 10:28 am
There’s a write up abou this in Tyler Cowan’s “Discover your inner Economist”.
5 Tim // Jun 24, 2009 at 12:27 am
I’m also somewhat of a fan of libertarian paternalism as well, since you pointed it out to me, but it is incredibly important that whenever it is brought up to point out that in order for it to be libertarian and not just paternalism there must be an easy way for people to “opt out” or make a choice other than the preferred one of the choice architecture. I fear that politicians and others will distort this and just use it as a justification for plain old paternalism.
Also I don’t want to be too critical but it seems to me that any laws or social norms about giving up one’s seat for the elderly are enacted for the elderly’s benefit and not the individual giving up his seat, so that example is not paternalism but an attempt to legislate against the “harm” caused by refraining from helping the elderly. Like the day care example it is excellent for pointing out the crowding out of a moral incentive but does not seem to illustrate a case of restricting individual choice for that individual’s own benefit.
6 Dan L // Jun 29, 2009 at 5:04 pm
There’s a Gneezy in my cheezy! I think he’s friends with Foo Foo the Snu.
7 lazyfair // Aug 28, 2009 at 3:42 am
I see some flaws in this reasoning. Isn’t there an assumption here that decision makers know what are the right decisions to nudge people in the direction? You have a classic knowledge problem here.
A centrally planned economy can’t come close to the massive information transmission brought about by the spontaneously ordered price system of a market economy. How can policy experts (let’s assume they’re are both all knowing with the absolute best of intentions) possibly collect the quantity and quality of information necessary to make decisions on what the “right” decisions of millions of individuals with their own interests, needs, and desires? The transactions costs seem to be insurmountable.
Furthermore, in designing policies to nudge people towards any decision (right or wrong) you will have consequences - some of them unintended. The experts (again, pure genius with a heart of gold) have no practical or theoretical methods of controlling or predicting the unintended consequences of those policies.
Multiply the knowledge problems with the unintended consequences and I am not convinced the costs will be less than the perceived suboptimal outcomes of leaving people be.
8 econgirl // Aug 28, 2009 at 3:42 pm
@lazyfair: Those who support libertarian paternalism generally point out that it is extremely difficult to design any sort of “choice architecture” without giving an implied default option. Because of this, it’s basically impossible to entirely refrain from nudging people at all. Therefore, they argue, given that you have to nudge people in some direction, wouldn’t you want to nudge in a direction that you at least think is good as opposed to the default nudge being chosen randomly or in a thoughtless manner?
9 lazfair // Aug 30, 2009 at 4:06 pm
@econgirl Thanks for the response. Not having read the book and at risk for misunderstanding the position, my question would be why is it assumed that any group of people must intently “design any sort of ‘choice architecture’” for everyone else? Surely the above observation is correct once you’ve carefully narrowed the world of possibility to one in which a handful of technocratic experts and policy wonks are allowed to make decisions for, and have them forced upon, the general populous. But there are many questionable assumptions inherent in that logic.
You say -”wouldn’t you want to nudge in a direction that you at least think is good as opposed to the default nudge being chosen randomly or in a thoughtless manner?” If we must have social engineers, then yes I hope they make good decisions as opposed to bad ones. But what I might think is good you might think not so much….and so goes the technocrat. Surely, all policy is viewed by those designing it as “good” to those designing it. But “good” is a subjective value judgement and the outcomes of decisions based on those value judgments are completely independent of how “good” the policy maker thinks them. Which brings us back to unintended consequences and knowledge problems. Good intentions are not rational means of overcoming these issues. [insert Road to Hell comment here]
Again I question the assumption that *you* must nudge people. That depends on who *you* is and by what justification they are acting. Undoubtedly our choices are continuously influenced by a myriad of exogenous inputs. To that extent we are nudged. But it does not follow from this that our current system of policy making and centralized coercion is just, moral, or effective. The question is in what sort of framework shall we live in and have our choices influenced? One of which our “choice architecture” is spontaneously ordered through the daily interactions of individuals operating in the face of incentives and constraints, and of which the outcomes carry the massively more complex information transmission inherent in such processes, thereby minimizing unintended consequences? Or by which a centralized policy apparatus devises schemes for millions of people of which they have very little possibility of understanding, based on their good intentions and subjective opinions on what is good for everyone else?
10 lazfair // Aug 30, 2009 at 4:38 pm
Love the site by the way!
Leave a Comment