Unbiased Analysis of Today's Healthcare Issues

Book Review: Free Market Maddess

Written By: Jason Shafrin - Dec• 19•08

I was recently read the book Free Market Madness by Peter A. Ubel.  The book may be interesting for those who are unfamiliar with recent work by behavioral economists, but overall I was not overly impressed.  The main thesis is that individuals do not always act rationally (duh) and that the government can do some things–but not too much–to improve individual’s happiness.

The book reviews the work of Kahneman and Tversky,  Cass and Sunstein, Laibson, Rabin and others.  For instance, Ubel summarizes economic studies on addiction and problems with self control.  For instance, if I was at a movie theater, I likely would thank my fiancee for not buying popcorn because I know she bought it, I would eat it.  A neo-classical economist might wonder, however, if limiting our choices improve utility?

The book asks an important philosophical question: “When a sixty-year-old diabetic man purchases a pound of beef from a butcher, a six-pack of beer from the liquor store, and a dozen donuts from the bakers, how convince would any of us be that he has just maximized his best interests.”  Should the government “help” individuals to maximize their happiness?  Dr. Ubel seems to agree with Cass and Sunstein’s libertarian paternalism espoused in Nudge.  Generally, small steps such as changing the default contribution for a worker’s 401(k) or mandating the disclosure of calorie content in chain restaurants may be useful but their application, in my opinion, are limited.  Ubel suggests capping interest rates on pay-day loans makes sense, but I tend to agree with the N.Y. Times that Pay Day loan businesses are not as bad as they seem.

The book also focuses on the problem of obesity.  It notes that the cost of food–especially processed food–has dropped.  Further, with the increase in the percentage of office jobs compared to manual labor positions, the cost to exercise has increased.  Can we solve ‘obesity?’  Dr. Ubel offers a few suggestions, but most are unsatisfactory.  Further, the book has a condescending air: the author can exhibit self-control but others can not and need help.  “…I recognize it’s easier for me, a wealthy doctor, to exert self control over my health than it is for a single mother working a low wage job.”

Dr. Ubel does a good job of showing how individuals are irrational and often act in ways that do not seem to maximize their utility.  The question, however, is whether or not the government would do a better job of maximizing and individual’s utility.  In some circumstances (i.e., the 401(k) default), it seems that the government could relatively unobtrusively improve utility.  Nevertheless, I remain unconvinced that, in general, the government superior job of  improving individual happiness.  Ubel believes that “Because the free market fails to protect consumer interests, a good government should find appropriate ways to protect us from ourselves.” Even if individuals fail to maximize their happiness, I would prefer to give individuals the freedom to choose their own path.

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