Libertarian Paternalism 1

Notes for November 21

Main points

We spent a lot of time talking about the general rules for paternalistic nudges that are laid out in chapter four.

We ended with some discussion of Professor Brown’s question. If there is a sharp distinction between the preferences that people have when they are in a “hot” state and those that they have when they are in “cold” states, which one should we take into account when deciding what the person in those states really wants?

Chapter four

I don’t wish to be cranky about this, because I genuinely like the book. At the same time, I was struck by some gaps in the story when we turn to chapter four.

Specifically, it seemed to me that the rules for determining when nudges are necessary were not substantiated by the earlier chapters. In the earlier chapters, we are given many examples of how people make even routine, apparently simple decisions poorly. But in chapter four, we’re told that nudges are especially appropriate for decisions that are unique, important, and complex.

In part, this is a problem because the assertion about when nudges are especially necessary doesn’t develop from the evidence laid out in the previous chapters. Robert mentioned some reasons for thinking it might be a bigger deal than that: when you face a big decision, you think about it a lot. Think about choosing a college or person to marry. Maybe when these kinds of decisions have to be made the Reflective system takes over from the Automatic system. After all, there’s nothing automatic about a decision that you are making for the first time.

Do people make these decisions badly even though they only get a few chances to make them? Maybe they do! But I would like some evidence of that. I added that there are often market solutions to the problems posed by complex or difficult decisions. People hire professionals such as mortgage brokers, financial planners, doctors, or lawyers to guide their choices.

In short, the story about when nudges are needed is going to be more complex than the list of fraught choices in chapter four suggests. It has to be the case that people are likely to make the decision badly and that, for whatever reason, there is no way to overcome their decision making deficits.

Which preferences?

I think it’s fair to say that we decided that two distinctions do not line up:

  1. The distinction between decisions made in a “hot” state and those made in a “cold” state.
  2. The distinction between decisions that are good for you, in the sense of reflecting what you really want, and decisions that are bad for you, in the sense of not reflecting what you really want.

To cut to the chase, someone whose decisions exactly matched those that would be made in a cold state would be a cold person. And that person is not likely to lead a happy life.

Since most of us are neither cold people nor do we aspire to be cold people, we value at least some of the choices that we would make in a “hot” state.

This page was written by Michael Green for Freedom, Markets, & Well-being, PPE 160, Fall 2013. It was posted November 21, 2013.
Freedom, Markets, & Well-being