Unbiased Analysis of Today's Healthcare Issues

Libertarian Paternalism

Written By: Jason Shafrin - Jan• 17•07

The latest oxymoron to come across my desk is ‘Libertarian Paternalism.’ Richard Thalar and Cass Sunstein (2003) claim that people often make choices that are not in their best interest. The authors “…emphasize the possibility that in some cases individuals make inferior choices, choices that they would change if they had complete information, unlimited cognitive abilities, and no lack of willpower.” The authors cite the Madrian and Shea (2001) and Choi, et al. (2002) papers that find that 401(k) enrollment rises significantly when the default setting for new employees is automatic enrollment. If individuals were perfectly rational, the default setting would have no impact on the choices made.

A more abstract example is given in the paper:

“Consider the problem facing the director of a company cafeteria who discovers that the order in which food is arranged influences the choices people make. To simplify, consider three alternative strategies: (1) she could make choices that she thinks would make the customers bets off; (2) she could make choices at random; or (3) she could maliciously choose items that she thinks would make the customers as obese as possible. Option 1 appears to be paternalistic, which it is, but would anyone advocate options 2 or 3?”

The article claims that paternalism is inevitable—which is true in a limited sense. Given that a regulation is made, the details of the regulations can, and likely should, be made in a paternalistic manner. One could, of course, not have the regulation in the first place. While the “libertarian paternalism” appears to be a moderate doctrine at first glance, I think it is more or less good old paternalism in new clothes. When should paternalism should be considered of the libertarian variety and when should it be considered invasive government action.

If this paper is seen as call for pragmatism (i.e.: libertarianism should be tempered by the complexities of reality), I think it is a success. Seeing libertarian pragmatism as a cure-all for most policy issues, however, I believe is naive.

Cafe Hayek has more discussion of libertarian paternalism.

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One Comment

  1. There is a fourth option that the example doesn’t give and that is to make the arrangement such that it does not benefit the customer but rather drives the customer toward purchases that benefit the cafeteria, without necessarily being deleterious to the customer’s health. Grocery stores do it every day without consciously deciding to drive customers toward items which will make them “as obese as possible.” So the broader point is, there is an option out there that is not “paternalistic” but also is not directly malicious (though it may have unintended negative effects). That’s a more insidious scenario as it undermines the authors’ point that people make choices that are not in their best interest: given the opportunity to make personal gains that do not have directly traceable negative impacts on others, people generally will make that choice and point out that others are free to not engage in whatever activity they are providing – at a profit – that is the root of the problem.