2 Cheers for Libertarian Paternalism!

by Thomas Rodham Wells

Capture-20130202-233245‘Libertarian paternalism' is how Richard Thaler and Cass Sunstein characterise their big idea, redesigning how choices look so that we will be nudged to choose the option in our own best interests. Their proposal has come in for fierce and sustained academic criticism, from both left and right, and from both philosophers and economists. But all the critiques I've read seem misguided in important ways.

Thaler and Sunstein argue that the behavioral economics evidence is quite clear that people do not choose as rationally as standard economic theory (or our folk psychology) suggest. In particular, people's choices are often strongly influenced by what should be irrelevant features of how their choices are framed. People tend to put more food on their plate if the plate they are handed is bigger; most of us go along with whatever the default option is for choices about pension contributions and organ donation; and so on. In many cases it seems that we don't have an existing specific preference over outcomes and are therefore open to having our subjective valuations shaped or induced by how the options are presented.

Libertarian paternalism is the ethical thesis that, since how people make many choices is so influenced by their framing, it is right and proper for governments to try to design the choices people face in a helpful way (paternalism). Yet nothing about designing the presentation of choices forces people to choose what the designers had in mind. People are still as free as ever to choose what they want, if they know what they want (libertarian). (Sunstein went on to try to put some of his ideas into practice as Administrator of the Office of Information and Regulatory Affairs from 2009-12.)

Now, the critics of this approach have landed a couple of good blows.

First, how do we know what the 'rational' choice is that people should be making? In order to design choice architectures that nudge people to make the 'correct' choice – e.g. about signing up as an organ donor – policymakers must believe that they know the correct answers to these. In other words, government civil servants (no doubt with the assistance of behavioural economics consultants) are supposed to be able to work out what is in the best interests of 'ordinary' people more accurately and reliably than we can.

The challenge is whether this is plausible, or whether governments are likely to do something else instead. Are governments really able and interested in working out what their people really want (i.e. what we would choose if our cognitive biases didn't pull us in other directions)? Or is it more likely that governments will instead take the opportunity to decide on what the correct choice should be – of course people should eat less, become organ donors, use less electricity.

The second challenge relates to this. Given that policymakers are apt to substitute their own value scheme for those of the people concerned, the way that libertarian paternalist policies work becomes very worrying. Recall that the problem Sunstein and Thaler identify is that people's choices are influenced 'behind their back' by how those choices are presented to them. Yet the solution they propose does not attempt to address this problem. Instead they propose to use the exact same 'behind your back' method to manipulate people into making the correct choices.

This, as several critics have noted, makes libertarian paternalism a rather insidious project. Perhaps more objectionable even than regular paternalism. Normally when the government wants you to do something (or stop doing something) they use very clear and obvious measures. They either ban things (like heroin or driving without insurance) or put whacking great taxes on them (like tobacco). These sanctions work by constraining or reshaping the options people have and their costs and benefits. Liberals since JS Mill have a principled objection to such treatment. It is obnoxious to have the state forcing us to behave in certain ways 'for our own benefit'. What right does the government have to control what I do if it doesn't hurt anyone else?

Yet there is an advantage to a government being so obnoxiously direct about its paternalism: one can politicise and challenge the government's limitation of our choices. This may not be possible if the state instead tries to change how we behave by exploiting our cognitive weaknesses about how we understand the choices we face. How can you criticise such manipulation if you can't see it? How can you demand your freedom back if you never actually lost it? Democracy itself may seem to take on a reflexive character in this model: we choose a government on the basis of our understanding of our interests and values, but then the government shapes our understanding in turn.

These criticisms suggest a need for public transparency and accountability over any government nudge programme. But they don't undermine its legitimacy per se because it is still the ethically superior option once we can no longer pretend that government inaction is neutral. Indeed, it is the underlying research findings of behavioral economics about the limits of human psychology that the critics seem to be really complaining about, rather than Thaler and Sunstein's specific proposal. Liberalism is built on the normative ideal that human persons are sovereign, that we should have the right to decide for ourselves on matters that primarily concern ourselves. But it turns out that many liberals also make an empirical assumption that individuals are in fact the best judges of our own interests and are therefore best able to make decisions for ourselves. Behavioral economics research has shown that this convenient conjunction doesn't hold. This is upsetting to many people. Mainstream economists for example.

The core assumption of neoclassical economics is that agents are rational and markets are neutral. Market outcomes are naturalised because they are the outcome of the laws of supply and demand operating over rational agents; they are efficient because they allocate on the basis of rational effective demand; they are just because that allocation reflects agents' own free and rational decisions in furthering their own interests (of which only they can judge). If people aren't rational after all, and 'markets' are manufactured contexts (like supermarkets) that are not neutral, then markets cannot be counted upon to produce either efficiency or justice.

Even forcing people to make an explicit choice – for example requiring people to choose whether they want to donate their organs after death without a default option – imposes framing effects. It doesn't only reveal people's real preferences. Since most people don't have pre-existing preference rankings for a great many options we come across, we make our decisions about what we want in the face of the choice we are presented with in a way that is always systematically biased by the framing of that choice. This inconvenient fact has long been known to profit making companies, who exploit it to pull us into choosing expensive credit cards, the strangely expensive chocolate bars at cash registers, and so on. Indeed, this line of academic research has done much to help such companies organise their ad hoc methods more systematically.

Thaler and Sunstein's essential argument is that once one recognises the real world significance of framing, governments have an ethical obligation to step in to mitigate its potential to undermine people's ability to choose prudently – to safeguard and further their interests in health and wealth. Choosing not to try to frame choices better does not leave citizens free to make their own choices. It leaves us vulnerable to contingency and to exploitation by the corporations who employ framing effects to sell us stuff.

Indeed paternalsim is arguably essential to much of the freedom we take for granted, a point particularly emphasised by the development economist, Esther Duflo. In her 2012 Tanner Lectures she notes that rich world critics of paternalistic policies generally don't realise how far they themselves benefit from their own government having made default decisions in a helpful way, such as the drinkable water that comes straight out of the tap, immunisations arranged and scheduled at each stage of a child's life, automatic enrolment in state pension systems, and so on. Poor people are often criticised for their lack of will power and judgement. But this relates to the hard fact that poor people face the stress of vast numbers of significant choices every day where the default option is bad. Clean water is something they have to go out and find, likewise immunisations and schooling for their children, healthcare that isn't quackery, and so on. Choosing well is difficult and mistakes can be fatal.

The ability to easily choose prudently is something we take for granted. We'd like to think that it is something about us, but in general it turns out to a feature of the framing of the choices we face, like the rumble strips on motorway exit ramps designed to make you feel how fast you are still going and slow down. The idea that freedom consists in figuring all this out for yourself is a strange and unsustainable one. This is what institutions were invented for. In any case, there is a reason this approach is called libertarian paternalism: if you already know what you want, or you are so smart that you can see through framing effects all by yourself, you remain just as free as ever to figure out what choice is best for you.