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 “new paternalism” is a set of policy prescriptions based on recent findings in behavioral economics whose purpose is to help individuals overcome a wide variety of behavior and cognitive biases. According to its proponents, it does not aim at replacing the preferences of individuals with those of the paternalist but rather to uncover the “true” preferences of individuals, that is, the preferences they would have if they had perfect knowledge, unlimited cognitive abilities and no lack of willpower.
The purpose of this Article is to show that new paternalist policies founder on the shoals of a profound knowledge problem revealed in Friedrich Hayek’s famous critique of central planning. Feasible policies require not only accurate scientific knowledge but also accurate knowledge of “the particular circumstances of time and place” that constitute the local and personal knowledge of individuals. This knowledge is not accessible by paternalists.
This Article takes the findings of the behavioral economic and psychological literature seriously and shows that new paternalist policies can reliably increase welfare only if they take account of individual circumstances. These circumstances include the extent of biases, the existence and degree of self-debiasing, the interaction of different biases, and the unraveling of self-regulation due to paternalist policies.
New paternalists must also deal with the indeterminacy of true preferences in the context of conflicting preferences within individuals. We do not argue that individuals always make welfare-enhancing choices. Instead, we argue that despite individuals’ mistakes, the paternalist does not know better in the concrete sense of what would be welfare-enhancing in particular circumstances and at particular times. Thus the new paternalist project fails to attain its self-imposed goals.