Part I: Libertarian Paternalism and Nudges

by

By Brian Chiglinsky

J.J. Abrams aside, none of us is perfect.**

As a wealth of psychological research shows, we’re not always the best at making decisions. Even Michael Jordan thought baseball was a good idea. But it’s not just in major, career-defining decisions that we fall short. Even in small, day-to-day decisions, we often stumble and make choices that are suboptimal. Humans are sometimes brilliant and often reasoned, and have built an entire system of economics centered on their ability to express preferences through conscious choice, but can often be poor decision-makers.

And we’re predictably poor. Psychological research for decades has illuminated some common stumbling blocks for people as they try to exercise their rights and express their preferences.

We’re susceptible to social cues. Imagine coming back to your car after a day of work to find a flyer stuck to the windshield. Would you take the flyer and recycle it? Or toss it on the ground? You’ve probably had a lifetime to clarify your moral and ethical stance on littering. But researchers have found that you’ll be a whopping four times more likely to throw it to the ground if you see that most other cars had done so.

We tire easily. Imagine yourself grocery shopping and coming across a stand of assorted flavors of jelly. You’ve probably had a lifetime, and countless elementary school PB&J lunches, to clarify your preference for jelly flavor. But research has shown that, as the number of flavors on display grows, your ability to pick one and buy it drops. As consumers, we’re more likely to walk away from a complicated choice.

Social cues and choice exhaustion don’t just apply to flyers and jelly. They have deeper implications for a number of policy issues. Social cues can push a student to apply for college, or can push her to believe that college doesn’t apply to people like her. Choice exhaustion can discourage a single mother trying to apply for social benefits from even starting the paperwork. Most importantly, these factors can lead to decisions that the people themselves, when given the time and space to think about their own preferences, wouldn’t make.

We know this heuristics, these mental shortcuts, can become stumbling blocks. We see them consistently in experiments and in practice. So what do we do about them?

This is where modern libertarianism faces a choice. If libertarianism is defined as a philosophy solely in opposition to the state, there’s little public policy can do to ameliorate these shortcomings. That would be the purview of rational market forces.

But what if market forces aren’t self-correcting? What if they end up solidifying instead of smoothing out these inefficiencies? That’s the argument that economists Robert Shiller and George Akerlof make in their new book, Phishing for Phools. As a Washington Post interview summarized:

Gyms, for instance, make their money off rigid long-term contracts because they know people overestimate their commitment to working out. Snack food companies count on us being bad at controlling our diets. What some might regard as personal failures — laziness, or lack of self-control — Akerlof and Shiller see as universally human weaknesses that the market is particularly good at manipulating. At its worst, they say, this kind of manipulation leads to addiction, bankruptcy, political corruption, and diseases like diabetes and cancer.

A philosophy of libertarianism focused solely on liberty from the state isn’t able to address these shortcomings. But a libertarianism that is broader and proactive can.

Libertarianism is built on the foundation of individual freedom – the freedom to choose our path and build our future. But many more things than the state can infringe on that freedom. Market forces certainly can, and will if there is a profit to be made. And even our own environment can infringe on that freedom. To expand personal liberty, we can’t just focus on freedom from one of those and ignore the others. Rather, we should use the wealth of tools available – market, social and even public policy to help individuals make choices better.

This is the philosophy behind behavioral economics, perhaps most popularly summarized in the behavioral economic work of Richard Thaler and Cass Sunstein. With their concept of libertarian-paternalism, Thaler and Sunstein look at how “nudges”, or changes to the ways choices are framed, can help people make decisions that are easier and ultimately more in line with their actual preferences. These are ideas like defaults – for example, companies that default employees into 401k plans with an easy way to opt-out of those plans. They can also be as light as making sure that healthier food options are placed near the cash register, making us less likely to give into our exhaustion and buy a TastyCake stuffed with cream filling and regret. In other words, how do we make it easier to make better choices?

Naturally, the “paternalist” half of that title should give libertarian thinkers pause. And Thaler and Sunstein are explicit in how we ensure that these “nudges” aren’t turned into tools of coercion or trickery. These nudges, they explain, need to be transparent. They need to be developed in the sunlight of democratic debate. And they need to have easy and clear ways to opt-out.

But at their core, nudges, libertarian-paternalism, and behavioral science are right in line with libertarian thought. There are barriers between individuals and the actions they truly want to take to build the future of their choosing. And we should all be working to remove those barriers. There are enormous stakes in how we design policy, how the public and private sectors can partner most effectively, and how we fight poverty.

Even higher stakes, I’ll admit, than the new Star Wars movie.

** If this turns out poorly, the author promises to issue a heartfelt correction through his bitter tears.