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Libertarian Paternalism

By Chris | January 25, 2009

I just finished Nudge, by Richard Thaler and Cass Sunstein. These University of Chicago professors advocate “libertarian paternalism” which recognizes that people often act irrationally and recommends that governments “nudge” people to make better choices. In their own words:

Libertarian paternalism is a weak, soft, and non-intrusive type of paternalism because choices are not blocked fenced off, or significantly burdened…Still the approach we recommend does count as paternalistic, because private and public choice architects are not merely trying to track or implement people’s choices. Rather, they are self-consciously attempting to move people in directions that will make their lives better. They nudge.

Thaler and Sunstein, reference psychological literature that says that people use two different systems of the thinking: The Automatic System and the Reflective System. The Automatic System is working when we flinch, respond with emotion, or shoot a three-pointer. The Reflective System is at work when we are making deliberate, and conscious decisions like solving an algebra problem. Often, our two systems are in conflict. Your Automatic System tells you to take an extra scoop of ice cream, even though your Reflective System decided last week that you needed to cut back. Over Christmas break, my Automatic System told me to keep playing ping-pong with my brother while my Reflective System told me that I needed to get to sleep before 2:00 am or I’d be a piece of meat the next day.

Often our mind loses the battle, and our Automatic System has it’s way. Nudge is a book about how government can structure choices to encourage us to make better decisions – the decisions our Reflective System wants us to make. I enjoyed the book, although I found the chapters on retirement savings and Medicare choices a bit dull. That might just be a generational thing though, Medicare probably won’t even be around by the time I’m eligible for benefits. Thaler and Sunstein make a lot of practical policy recommendations, many of which I would advocate. However, I take issue with their assumption that our true preferences are always those made by our Reflective System.

Part of what makes us different from animals is that we can think abstract thoughts and control our impulses. Clearly, our Automatic System gets us into trouble sometimes. We overeat, we procrastinate, we take stupid risks, we make choices today that we’ll regret tomorrow. However, our Reflective System also make systemic errors. It often does a very poor job of anticipating the costs and pleasures that will be very salient at a moment in time. When my Reflective System commits to running stairs early in the morning it underestimates both the joy of a little more sleep and the pain my calves will endure. A malfunctioning Reflective System is at fault when someone commits to an ambitious hike only to collapse from exhaustion before he can complete it. Poor reflective decisions cause us to overextend ourselves and stress us out. As an undergraduate, my Reflective System decided to take an overly ambitious course load that left me burnt out and exhausted half-way through the semester.

Moreover, we need our Automatic System to motivate and inspire us. I occasionally write letters to the editor of my collegiate newspaper. My Reflective Systems tells me this is something I would like to do, but my emotional response to truly bad editorials motivates to respond. And, my emotional response is what makes my letter worth reading. Try writing a touching letter, toast, or speech without accessing the emotional, personal, side of yourself. You will fail.

Libertarian paternalism has a lot of merit. We should structure choices to encourage people to save more, donate their organs, make smart investments, and consider the true costs of their actions. But, the Reflective System isn’t infallible and it isn’t always possible to tell what is in someone’s best interest. It is easy to say that I should have studied more for a test. I might even want to engage in a binding commitment to study more in the future. But, the Reflective System often ignores the opportunity cost of doing so: playing basketball, reading a book, cooking a meal, talking with a friend. Quality of life can’t be encompassed by stationary measures like our weight, savings etc. We shouldn’t ignore the utility from a fleeting pleasure, be it chocolate or sleep.

Topics: Behavioral Economics, Book Reviews, Economics, Political Science | 14 Comments »

14 Responses to “Libertarian Paternalism”

  1. Ron Says:
    January 30th, 2009 at 8:40 pm

    I see. Eating a pan of brownies at one sitting is automatic. A gradual consumption of carrots and green peppers over a week is reflective.

  2. Terry Says:
    January 18th, 2010 at 7:00 pm

    So Nudge advocates my loss of conscious choice?

  3. Matt Says:
    February 28th, 2010 at 6:11 pm

    No Terry,

    Nudge makes the point that we often do not make conscious choice at all.

    If you read into any depth into the study of choice you will quickly see that the way humans usually come to hold a belief based on “conscious” thought is to come to an end conclusion and work backward to fill in our reasoning after the fact. Often a person will make a choice that is fundamentally detrimental to their well being and will create a justification for it out of whole cloth.

    We are rarely aware of how we come to decisions and beliefs or why we hold them. We just do. Our brain is a “black box” that takes inputs from myriad sources and throws us output in the form of physical, emotional and thoughtful responses. Often our beliefs can change over a period of time and we are not even aware of this change and will even avow that no such change has occurred.

  4. Rob Bryan Says:
    March 18th, 2010 at 5:10 pm

    If you liked “Nudge”, you’ll love “Predictably Irrational: The Hidden Forces That Shape Our Decisions”
    by Dan Ariely.

  5. Using Incentives to Improve Education: TIME is paying kids to do better in school « Computing Education Blog Says:
    April 12th, 2010 at 7:06 pm

    […] didn’t have the Nudge or Freakonomics authors comment on the story — it’s directly libertarian […]

  6. A. Slave Says:
    March 12th, 2011 at 7:37 pm

    government is a garbage in garbage out system. if people are idiots then they will pick idiots. if they are smart, then they can make their own choices without government.

    it is incredibly naive to believe in the tooth fairy, big foot, good government, and santa claus.

  7. A. Slave Says:
    March 12th, 2011 at 7:38 pm

    look past your magic scrolls if you wish to grow intellectually and emotionally.

  8. Jack Says:
    October 31st, 2011 at 1:23 pm

    I think the notion of “libertarian paternalism” is quite oxymoronic. I mean there is no definitive differnce between liberty and coercion.

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