Behavioral Economics As Self-Help

by Mario Rizzo  

For quite a number of years I have been saying that I have no objection to behavioral economics per se, aside from the legal paternalism wing. After all, why shouldn’t people use science to make their lives better?  

So now MIT economist Dan Ariely has adapted some of the findings of behavioral economics to helping people regulate their own behavior. This is his advice on how to avoid eating too much on Thanksgiving, but it is applicable more generally to avoiding poor eating.  

Yes, this is where the legal paternalists should shift their considerable skills: self-help books.

 

New Paternalism on the Slippery Slopes, Part 6: Rent Seekers

by Glen Whitman

As discussed in the previous post, the “experts” in charge of implementing new paternalist policies will have a tendency to simplify their own theories to make them useful for crafting policy. That alone creates slippery-slope potential. But that potential is magnified by the existence of rent-seekers – that is, interest groups whose agenda is to change policy for their own interests. Such interests can be ideological, monetary, or simply personal. In the paper, we illustrate the power of rent-seekers to distort the facts and confuse the debate with two issues: environmental tobacco-smoke (ETS) and obesity. With respect to ETS, however, we have to run off a potential objection: that ETS is not really a paternalist cause at all, because smoke harms non-smokers (p. 714):

We should note that although policies addressing exposure to secondhand smoke (“environmental tobacco smoke” or ETS) are not strictly paternalistic, inasmuch as secondhand smoke can potentially harm bystanders, paternalist arguments have played an important supporting role. Most importantly, many actual and proposed anti-smoking regulations limit the ability of individuals who may not be bothered by smoke to expose themselves voluntarily to secondhand smoke as customers or employees of restaurants and bars. Furthermore, by creating a hostile environment for smokers, the ETS argument easily slides into the paternalistic. Thus, even some ETS arguments must be regarded as partially paternalistic either in intention or merely in effect.

New Paternalism on the Slippery Slopes, Part 5: Deference to Authority

by Glen Whitman

Another problem with the new paternalism is that it necessarily involves greater deference to the authority of experts. Here is the basic logic (p. 710):

Substantial deference to authority is inherent in the application of new paternalist ideas to public policy. This is because the complexities, vagueness, and indeterminism of their analysis (previously discussed) raise the costs of decision-making on the part of voters, politicians, and bureaucrats. The locus of effective decision-making will then quite reasonably shift to experts (“authorities”) or to simplifiers of technical ideas who may have agendas of their own. As Eugene Volokh puts it, “The more complicated a question seems, the more likely it is that voters will assume that they can’t figure it out themselves and should therefore defer to the expert judgment of authoritative institutions . . . .” There will thus be a tendency for policy to slide away from the values of the targeted agents themselves toward those of outsiders regarded as authorities. This happens in at least two ways. First, experts simplify their own theories to make them applicable in a policy context. Second, people seeking to advance their own interests will further simplify the theory and distort the facts to suit their purposes.

New Paternalism on the Slippery Slopes, Part 4: Context Dependence

by Glen Whitman

New paternalists have also relied on the notion of context dependence to justify their policies. But as with hyperbolic discounting, they unjustifiably assume the existence of an inconsistency of preferences gives the policymaker license to choose among the inconsistent preferences. That assumption is the paper’s next target (pp. 703-704):

For a variety of decisions, people are subject to what behavioral economists call context-dependence. This means that how they choose among two or more options depends on seemingly irrelevant aspects of how the situation is described. For example, medical patients are more likely to assent to a treatment with a 90% survival rate than one with a 10% death rate, even though these are the same. In this case, people seem to favor “positive” over “negative” framing. People also seem to prefer options framed as the existing or a baseline position; this may be called status-quo bias. Another example of the power of framing is the persistent difference between willingness-to-pay (WTP) and willingness-to-accept (WTA), meaning that people will demand more money to part with an item than they will pay to acquire it, even when the item’s value is a trivial portion of their wealth or income.

New Paternalism on the Slippery Slopes, Part 3: Hyperbolic Discounting

by Glen Whitman

New paternalists often rely on the phenomenon of “hyperbolic discounting” to justify their policies. Hyperbolic discounting is difficult to define in a non-mathematical way. It is sometimes summarized as excessive impatience, but that’s an over-simplification. A person with a high-but-consistent rate of time discounting would not be a hyperbolic discounter. What hyperbolic discounting really means is having inconsistent rates of time-discounting. One consequence is that a hyperbolic discounter may exhibit “time inconsistency,” a tendency to make choices and then reverse them. After explaining hyperbolic discounting (in more technical terms that I have here), Mario and I explain how paternalists have made unjustified leaps in their use of the concept (pp. 699-700):

In short, hyperbolic discounting means that people at first make long-term plans for saving or dieting but then, when the time comes to implement these plans, they succumb to the desire for short-term gratification. For the new paternalists, this type of behavior suggests an opening for paternalist intervention or correction. Examples include the previously mentioned proposal to automatically enroll people in savings plans, and to impose a sin tax (on unhealthy foods, cigarettes, and so forth) to provide additional incentive for impatient people to resist their temptations.

New Paternalism on the Slippery Slopes, Part 2: How New Paternalism Creates Gradients

by Glen Whitman

A key conclusion of the literature on slippery slopes is that they are especially likely in the presence of gradients — meaning situations in which there is a relatively smooth continuum from one policy to another, and in which it is difficult to draw sharp distinctions. Gradients don’t guarantee slippery slope events, but they increase their probability in the presence of other slope processes.

In “Little Brother,” Mario and I review the literature on gradients and slippery slopes, and then we consider how the new paternalists deliberately frame policy choice in terms of gradients (pp. 693-694):

The new paternalist paradigm, as presented by its leading advocates, relies on discarding sharp distinctions in favor of gradients. Specifically, they reject standard distinctions between choice and coercion and between public and private action. Cass Sunstein and Richard Thaler minimize the importance of the distinction between paternalism in the private and in the public sectors. In explaining their concept of “libertarian paternalism,” they say that the distinction between libertarian and non-libertarian paternalism “is not simple and rigid.” Moreover, they explicitly state that libertarian and non-libertarian paternalism lie on a continuum: “The libertarian paternalist insists on preserving choice, whereas the non-libertarian paternalist is willing to foreclose choice. But in all cases, a real question is the cost of exercising choice, and here there is a continuum rather than a sharp dichotomy . . . .”

Sunstein and Thaler thus present us with a gradient on which choice is characterized by low costs of escaping the prescribed course of action, while coercion corresponds to higher costs of escape. Who imposes the costs of escape and how these costs are imposed are regarded as unimportant questions.

New Paternalism on the Slippery Slopes, Part 1

by Glen Whitman

As Mario has already announced, we’ve just published a new article, “Little Brother Is Watching You: New Paternalism on the Slippery Slopes,” in Arizona Law Review. You can find the full text here.

The article is quite long. As a result, I expect few people will read the whole thing. I’ve therefore decided to excerpt the article in a series of blog posts. I won’t be covering all of our arguments in the paper, but I’ll be pulling out some passages that I particularly like — and that might otherwise be missed.

Little Brother Is Watching You: New Paternalism on the Slippery Slopes

by Mario Rizzo  

Glen Whitman and I have published another article about the new paternalism – it appears in the Arizona Law Review, volume 51, no. 3 (2009). You can get it here. 

This article applies a slippery-slope or policy-dynamic analysis to the “moderate” policies proposed by some new paternalists. (The general slippery-slope analysis was first laid out in a UCLA Law Review article Glen and I published in 2003.)  

The following is a summary of the article:  

“The “new paternalism” claims that careful policy interventions can help people make better decisions in terms of their own welfare, with only mild or nonexistent infringement of personal autonomy and choice.  This claim to moderation is not sustainable.  Applying the insights of the modern literature on slippery slopes to new paternalist policies suggests that such policies are particularly vulnerable to expansion.  This is true even if policymakers are fully rational.  More importantly, the slippery-slope potential is especially great if policymakers are not fully rational, but instead share the behavioral and cognitive biases attributed to the people their policies are supposed to help.  Accepting the new paternalist approach creates a risk of accepting, in the long run, greater restrictions on individual autonomy than have been heretofore acknowledged.”  

The Knowledge Problem of New Paternalism

by Mario Rizzo 

Glen Whitman’s and my long-awaited (by us!) paper on the knowledge problem of the new paternalism is finally appearing in The Brigham Young University Law Review this fall. The interested reader can access the final version here. (You may download the paper when you reach The Berkeley Electronic Press page linked.)

There have been many critiques of the new paternalism but none, to our knowledge, that applies an aspect of the Hayekian knowledge problem to its policies. This Article deals with both theoretical and policy-oriented issues. We hope it launches a new line of criticism of paternalistic policies.  

Here is the Abstract:  

The Political Element In Empirical Data?

by Mario Rizzo  

In a recent article in the Financial Times Joseph Stiglitz argues for a more comprehensive measure of social well-being than Gross Domestic Product (GDP).  

As all principles of economics students know, GDP leaves out many interesting things. When I was a student the prime example was: When a man marries his paid housekeeper GDP falls. I am not sure how to adjust this if the housekeeper is also a man and they move to a state with gay marriage. Humor aside, you get the point. GDP misses stuff.  

Nevertheless, Stiglitz has bigger fish to fry. This is just a sample:  

“What we measure affects what we do. If we have the wrong metrics, we will strive for the wrong things. In the quest to increase GDP, we may end up with a society in which most citizens have become worse off. We care, moreover, not just for how well off we are today but how well off we will be in the future. If we are borrowing unsustainably from this future, we should want to know.” 

Did I get all the “we’s”?