The Rise of the New Paternalism

For as far back as memory reaches, people have been telling other people what’s good for them — and manipulating or forcing them to do it. But in recent years, a novel form of paternalism has emerged on the policy stage. Unlike the “old paternalism,” which sought to make people conform to religious or moralistic notions of goodness, the “new paternalism” seeks to make people better off by their own standards.

New paternalism has gone by many names, including “soft paternalism,” “libertarian paternalism,” and “asymmetric paternalism.” Whatever the name, it arose from the burgeoning field of behavioral economics, which studies the myriad ways in which real humans — unlike the agents who populate most economic models — deviate from pure rationality. Real people suffer from a variety of cognitive biases and errors, including lack of self-control, excessive optimism, status quo bias, susceptibility to framing of decisions, and so forth. To the extent such imperfections cause people to make choices inconsistent with their own best interests, paternalistic interventions promise to help them do better.

What sort of interventions? To the casual reader, the new paternalism might seem to have little to do with government at all. Cass Sunstein and Richard Thaler’s Nudge and Daniel Ariely’s Predictably Irrational, for instance, often read more like advice manuals than policy manifestos.

But if you dig deeper, you’ll find a wide-ranging policy agenda at work. In seminal journal articles by Sunstein & Thaler, Camerer et al., O’Donoghue and Rabin, and others, you’ll find a panoply of policy proposals from mild to downright intrusive. The story begins with the seemingly innocuous proposal to enroll all employees in savings plans automatically (with the ability to opt out). Then it progresses to new default rules in contracts, such as a presumption of “for cause” rather than “at will” employment, again with an opt-out. And then? Default rules that can be waived only through a cumbersome legal procedure. Then default rules with some options ruled out entirely — such as maximum hours that cannot be waived for less than time-and-a-half pay. Then cooling-off periods for high-cost purchases. Then sin taxes for fatty or sodium-rich foods. Then outright bans on ingredients like trans fats.

Not every new paternalist supports every one of these policies, and they don’t advocate them all with the same confidence. But they’re all on the list, and all justified by an appeal to behavioral economics.

The Claim to Moderation vs. The Slippery Slope

New paternalists often present their position as striking a reasonable middle ground between rigid anti-paternalism on the one hand and intrusive “hard” paternalism on the other. But as the list of policies above suggests, this claim to moderation is difficult to sustain.

My claim (along with my frequent coauthor, Mario Rizzo) is that the new paternalism carries a serious risk of expansion. Following its policy recommendations places us on a slippery slope from soft paternalism to hard. This would be true even if policymakers — including legislators, judges, bureaucrats, and voters — were completely rational. But the danger is especially great if policymakers exhibit the same cognitive biases attributed to the people they’re trying to help.

The slippery slope is not, of course, the only argument against new paternalism. The slippery slope is not intended as a solo knock-out argument against any and all new-paternalist policies. In some cases, their benefits might be high enough to justify their costs. The key point is that the slippery slope risk must be counted among the relevant costs.

Unfortunately, the very manner in which the new paternalism paradigm has been advanced makes it likely that risk will be ignored.

The Paternalism-Generating Framework

If behavioral economics has taught us anything, it’s that humans are vulnerable to framing effects. In other words, how people make choices turns on seemingly irrelevant aspects of the situation, such as the order in which options are presented, the other (unchosen) options presented at the same time, which option is designated as the “default,” and so on.

The new paternalists, having learned this lesson well, frame the public policy debate in a way that encourages paternalistic interventions. They have done so in at least three ways.

First, it is well-established that people exhibit extremeness aversion: a tendency to avoid positions that are presented as extremes. When choosing between a low-end camera and a medium-quality camera, for instance, potential buyers split about equally between the two — but when these two options are presented alongside a high-end camera, the medium-quality camera attracts substantially more buyers. The mere presence of an extreme option makes the middle option seem better. The new paternalists, intentionally or not, have exploited this same tendency by presenting their position as a middle-ground between laissez-faire and heavy-handed paternalism.

This would be no great concern, were it not for the tendency of the middle ground to shift over time. A newly adopted middle-ground quickly becomes the status quo. Then a more intrusive option takes center stage, and what used to be the middle-ground becomes one of the bookends. To take just one example, legally mandated enrollment in savings plans (with exit option) seems like the middle ground right now. But once it becomes standard, it will occupy the laissez-faire position. Then a “Save More Tomorrow” policy (with exit option) becomes the new middle-ground. And once that has been adopted, it too becomes the low-end, while automatic enrollment with freedom to choose your investments but without the option to exit entirely becomes the middle. By this route, a series of minor steps can eventually make even mandatory enrollment with specified minimums, highly restricted investments, and no opt-out seem like the “reasonable middle.”

Sound paranoid? Anti-smoking regulations followed a similar path. Once upon a time, banning smoking on airplanes seemed like the reasonable middle ground. Now that’s the (relatively) laissez-faire position, smoking bans in bars and restaurants are the middle, and full-blown smoking bans have come to pass in some cities.

Second, as Daniel Kahneman has argued, “The basic principle of framing is the passive acceptance of the formulation given.” People tend to take the description of a situation as fixed, without reformulating it in different ways. And this tendency, too, is exploited by the new paternalists, who regularly present paternalism as inevitable. Sunstein and Thaler, for example, urge us to “abandon the less interesting question of whether to be paternalistic or not, and turn to the more constructive question of how to choose among the possible choice-influencing options.” Their basic argument is that choice situations often require some default, so why not choose the best one?

But alternative framings are available. Instead of positing paternalism as the default standard for selecting default rules, they could have said respecting customary expectations is the default standard for selecting default rules. Or they could have emphasized that in many domains of potential regulation, defaults are not required – and therefore paternalism is not inevitable in these areas. For instance, it is not inevitable for some contract options (like working overtime for regular pay) to be ruled out entirely.

Nevertheless, the new paternalists have framed the debate as being not whether there should be paternalism, but how much. Policymakers who adopt this frame of mind will naturally be led to introduce all manner of paternalistic interventions. “Since paternalism is inevitable,” they might think, “of course it’s my job to tinker with the terms of contracts, the conditions of employment, the ingredients of food, the content of exercise regimes,” ad infinitum.

Third, the new paternalists regularly present their policy agenda as existing on a continuum. Both Sunstein and Thaler and Camerer, et al., structure their proposals in an order much like the list I provided above: from the mild to the heavy-handed. More importantly, Sunstein and Thaler define the continuum in a way that elides crucial distinctions — such as the difference between private and public and between voluntary and coercive.

Sunstein and Thaler define their “libertarian paternalist” spectrum in terms of the cost of choice: “The libertarian paternalist insists on preserving choice, whereas the non-libertarian paternalist is willing to foreclose choice. But in all cases, a real question is the cost of exercising choice, and here there is a continuum rather than a sharp dichotomy.” Even outright bans, such as motorcycle helmet laws, lie on the spectrum because “[t]hose who are required to wear motorcycle helmets can decide to risk the relevant penalty, and to pay it if need be.” This framing ignores the question of who imposes the cost and how. To see why this is bizarre, notice that a 10-cent tax on Twinkies is relatively low-cost, while having to drive 20 miles to the nearest 7-11 is relatively high-cost. In Sunstein and Thaler’s rubric, the state-imposed tax is more “libertarian” than the self-imposed cost of living far from civilization.

In addition, many specific paternalist policies exist on a continuum. Sin taxes can range from tiny to exorbitant. Legal hurdles for opting-out of defaults can range from minimal (signing a waiver) to prohibitive (hiring a lawyer and attending hours of seminars).

Why does this matter? Because slippery slopes, as implied by the name, are more likely to occur in the presence of a continuum. As Eugene Volokh has observed, people display small-change tolerance, that is, a willingness to tolerate changes perceived as relatively small movements from the status quo. The tendency probably has both a rational basis (it’s costly to invest time and effort on changes whose effects are probably small) and an irrational one (it’s easy to miss the big picture when focusing on the problem at hand).

Small-change tolerance makes it relatively easy to move, by a series of small changes, a long way down the road to hard paternalism. Fat taxes may start small, but they won’t necessarily stay that way. Likewise for the impediments to opting out of state-chosen contractual defaults. And in the bigger picture, paternalist interventions can spread from one area to another — say, from labor contracts to product contracts, or from fat taxes to exercise subsidies, or from savings choices to spending choices. The overall effect? A gradual expansion of paternalistic interventions that started small.

Choosing Among Preferences

What does “irrationality” look like? How can you prove someone is irrational, rather than simply having preferences you don’t share? After all, there is nothing per se irrational about strongly valuing the present relative to the future, or enjoying food more than you enjoy good health.

To demonstrate irrationality, behavioral economists frequently point to inconsistent behaviors that suggest inconsistent underlying preferences. For instance, people make long-term plans for saving or dieting but then, when the time comes, reverse those plans and succumb to the desire for short-term gratification. They also make different choices in different emotional states — such as saying they would never sleep with an obese person, then reversing that preference when sufficiently aroused. (Yes, an experiment by Dan Ariely has actually shown that.)

There is some dispute as to whether all such behavioral inconsistencies reveal irrationality. But let’s say they do. Even so, that fact does not license a third party to choose among competing preferences. If a person is more patient when thinking about trade-offs in the distant future, but less patient when thinking about trade-offs near the present, which level of patience is “correct”? If you would sleep with a given person when you’re in a “hot” state but not in a “cool” state, which sexual preference is “correct”? Neither theory nor evidence provides a basis for answering these questions. As some new paternalists admit, behavioral inconsistencies may indicate that “true” preferences simply don’t exist.

Nevertheless, new paternalists have not hesitated to pick and choose the “right” preferences. O’Donoghue and Rabin, for instance, define “optimal sin taxes” in terms of a person’s most patient rate of time preference. Similarly, the new paternalists favor the preferences we display in a cool state (calm and sober reflection) over those we have in a hot state (fear, anxiety, arousal, etc.), even though arguably the “hot” preferences might do a better job of revealing our true desires.

So how are the paternalists choosing, if not on the basis of hard science? It’s not hard to see: they are favoring their own preferences, which also happen to be the socially approved ones.

In short, either the new paternalist scholars have made a subtle error in reasoning, or they’ve simplified their analysis for mass consumption. But if the scholars cannot resist favoring some preferences over others, can we expect policymakers to do any better? On the contrary, many already would like to do so — and with the new paternalists’ help, they can indulge that impulse under the cover of seemingly objective science.

And that is where the slope threat arises. If it’s okay to impose our own preferences, why do so only when convincing evidence shows an internal contradiction? That’s an academic distinction, easily lost on your average voter, bureaucrat, or congressman. The simple takeaway conclusion is that “science” shows that some preferences are irrational per se. And from this conclusion, any number of policy proposals arise. The top of the slope is gentle nudges to save more and eat less. The bottom of the slope is forceful shoves to eat right, drink right, exercise right, sleep right, have sex right, choose our professions right, and pick our lifestyles right.

Policy Temptations and Political Myopia

Policymakers have short time horizons for various reasons. The policies they consider can produce costs and benefits in the distant future, when they may no longer hold office. Besides, voters have short memories, and it’s hard to discern which policy choices in the past have generated lousy results in the present. Given these factors, it can be quite rational for policymakers to ignore the long-term effects of their choices.

But if behavioral economists are right, it’s worse than that. Like the rest of us, policymakers have problems with self-control and difficulty working through complex chains of cause and effect. As a result, they tend to focus myopically on the problem-of-the-moment. And just as regular people can succumb to present temptations like desserts and cigarettes, policymakers can succumb to policy temptations that promise short-term political gains.

Sadly, we all know how this plays out with respect to the federal budget and entitlement programs. But what about slippery slopes? By definition, slippery slopes happen over time. A proposed policy seems like a good idea now, but critics warn that it will open the door to worse policies in the future. Proponents respond, “Pshaw! We’ll do the right thing now, and then resist doing the wrong thing later.” But that promise is suspect if policymakers have the same cognitive biases as everyone else.

Nevertheless, Sunstein and Thaler (in Nudge) respond to the slippery-slope argument by saying we should “make progress on those [initial proposals], and do whatever it takes to pour sand on the slope.” Saying we should go forward with the initial interventions is akin to saying we should do something because it promises present benefits, while downplaying potential future costs. This is exactly the kind of error in private choice that new paternalists think demands correction. The slope risk must be counted among the costs of the initial intervention.

New paternalists, like many well-meaning advocates of expanded government, imagine conscientious policymakers carefully evaluating all the evidence, considering alternatives, consulting unbiased experts, and acting only when the benefits clearly outweigh the costs. That’s the idealized picture that comes to mind when Camerer, et al., call their perspective “a careful, cautious, and disciplined approach” to paternalism.

In political reality, legislators and bureaucrats face a constant stream of policy temptations, including both new policies and expansions of old ones. Rather than considering each new law on its merits, policymakers do what normal people do — they use simple heuristics and rules of thumb. They display what behavioral economists call extension neglect: the tendency to focus on “prototypes” instead of measuring the true degree and extent of a problem. In the paternalist context, the prototype citizens are chain-smokers and junk-food junkies. And the new paternalists have made sure the prototype policies are gentle nudges like reordering the food selections in cafeteria lines. These prototypes are, unfortunately, more likely to guide policy than studious consideration of behavioral economic research.

To make matters worse, policymakers will be influenced not only by supposedly neutral experts, but by special interests as well. Some will support policies for financial reasons — like milk producers who favor ever-greater restrictions on the availability of soft drinks, or financial services firms that favor ever-larger requirements for people to save and invest. Others will have a moral or ideological agenda, as in the case of temperance organizations (like Mothers Against Drunk Driving) or personal health advocates (like the Center for Science in the Public Interest). These groups may not share the new paternalists’ stated concern for the subjective preferences of targeted people.

As Bruce Yandle points out, both Baptists and bootleggers had reason to support Prohibition. Behavioral economists are in serious danger of playing the Baptist when it comes to paternalism.

Conclusion

Real people are susceptible to cognitive biases that can lead to poor decisions. It’s only natural to want to help them make better choices.

But no one is immune to bias. Not social scientists, and certainly not policymakers. In translating behavioral science into policy, we may be led astray by the very same cognitive defects we wish to correct. New paternalist policies, and indeed the intellectual framework of new paternalism itself, create a serious risk of slippery slopes toward ever more intrusive paternalism.

Instead of a paternalism-generating framework, I recommend a slope-resisting framework — one that stresses private options and opportunities for self-correction, and that emphasizes important distinctions such as public vs. private and coercive vs. voluntary. That doesn’t mean we will never adopt any new paternalist policies. But if we do, we will hopefully stand a better chance of not slipping down the slope.

References

Dan Ariely, Predictably Irrational, HarperCollins, 2009.

Colin Camerer, et al., “Regulation for Conservatives: Behavioral Economics and the Case for ‘Asymmetric Paternalism,’” 151 University of Pennsylvania Law Review, 2003.

Daniel Kahneman, “Maps of Bounded Rationality: Psychology for Behavioral Economics,” 93 American Economic Review, 2003.

Ted O’Donogue and Matthew Rabin, “Optimal Sin Taxes,” 90 Journal of Public Economics, 2006.

Mario J. Rizzo and Douglas Glen Whitman, “The Camel’s Nose Is in the Tent: Rules, Theories, and Slippery Slopes,” 51(2) UCLA Law Review, 2003.

Mario J. Rizzo and Douglas Glen Whitman, “Little Brother Is Watching You: New Paternalism on the Slippery Slopes,” 51 Arizona Law Review, 2009.

Cass R. Sunstein and Richard H. Thaler, “Libertarian Paternalism Is Not an Oxymoron,” 70 University of Chicago Law Review, 2003.

Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness, Yale University Press, 2008.

Douglas Glen Whitman and Mario J. Rizzo, “The Knowledge Problem of New Paternalism,” 4 BYU Law Review, 2009.

Douglas Glen Whitman and Mario J. Rizzo, “Paternalist Slopes,” 2 NYU Journal of Law & Liberty, 2007.

Glen Whitman, “Against the New Paternalism: Internalities and the Economics of Self-Control,” Cato Policy Analysis No. 563, 2006.

Eugene Volokh, “The Mechanisms of the Slippery Slope,” 116 Harvard Law Review, 2003.