One of the common complaints against the idea of ‘libertarian paternalism’ - the idea that the state, or indeed the market should help us overcome our biases - is that it’s a slippery slope. Mandate that fruit be served before cakes in the cafeteria (because want people really ‘want’ is to be healthy but their short term desire to binge gets the better of them) will lead to all sorts of increasingly oppressive mandates.
I’m not convinced. The slippery slope argument can be summed up the following way:
Man: Will you sleep with me for a million dollars?
Woman: OK
Man: Actually, how about 10 dollars
Woman: get outta here!
Man: well, you’ve expressed your preferences, now we’re just arguing over price.
In the case of libertarian paternalism, it’s also often forgotten that something as benign as changing the default on a 401(k) is welfare improving, even though I’m sure Richard Thaler would concede that it’s not the optimal policy, in any normative sense. As one commenter at the economist blog points out, perhaps opting out is optimal, if the (absolute) returns are enhanced, but when you’re turning down employer contributions, and returns follow a random walk, that’s a difficult argument to maintain.
Finally, would Professor Rizzo have a problem if the choices under soft paternalism were made through market mechanisms, as in the case of Swedish social security*?
The simple fact is that our brains and psychology are largely wired to prefer short-term pleasure to pleasure in the long-run. But that’s not to say that all short-term choices are poor. I’ve had great fun blowing money on an expensive meal; then regretting it some days later, but still, actually, thinking that “it was worth it”. But at other times, I really do regret it.
That’s the challenge for any sort of paternalistic policy, whether implemented by Government or induced by the market. There are some short term pleasures that we want, but don’t want, but actually, we really do, probably. How do you differentiate these from pleasures that you think you want, but probably don’t?
addendum: confusion over policy may also arise because of the term ‘preference’. In the Samuelson sense, preference equates with choices, but much literature interprets preference as a value, desire, or thought. This needn’t be a problem, in fact multiple interpretations of the word highlight that there may be a wide range of applicable ‘preference’ based approaches, invoking different characteristics of the individual, depending on context. Time may be one such consideration, in combination of irreversability of choices (e.g. at 65, you just can’t decide to get a pension) where we may want to have a different approach to say, choosing the wrong sort of milk.
* Design choices in privatized social security systems: learning from the Swedish experience, Cronqvist, H, Thaler, R. H (2004) AER, Vol 94 (2) pp424-428
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