Saturday, April 08, 2006

The Softer Side of the Hand That Slaps You

As evidenced by it’s appearance in a lengthy article and editorial in The Economist recently, the idea of “soft paternalism” (aka “libertarian paternalism”) has been receiving a bit of mainstream attention lately…at least in the circles in which I travel. The gist of the theory is that governments should provide a guiding hand rather than hard rules about human behavior (the “hard paternalism” that myself and other libertarians find so objectionable).

There are some good examples of how soft paternalism might be successful. For instance, a study of optional pension plans demonstrated that the percentage of people enrolled almost doubled when the default option became enrollment rather than non-participation. People still had the choice to remove themselves from the plan, but a much greater number decided to stay in – the barriers to entry in terms of time and comprehension appear to have been keeping people out of a program they would actually like to be in. In this instance, however, it must be noted that we might be merely seeing an example of the endowment effect, in which it has been demonstrated time and time again that people value losses more highly than gains (in other words, people find it worse to lose something they already have, compared to gaining something new) rather than an unqualified increase in utility. This pension plan example feels to me, at first blush, like a reasonable application of government influence. Another commonly cited proposal is a list for compulsive gamblers that they can self-select for, thereby banning themselves from casinos.

Without question, I prefer the soft form of paternalism to the hard from so commonly practiced by governments today. And since, realistically, we’re not going to be seeing them get out of these types of social engineering schemes anytime soon, I’m willing to offer cautious support for soft paternalism, given the set of options we are am actually faced with. It’s non-coercive, so I like that. However, I am rather suspicious of this new kinder, gentler parenting by the state, for a couple of reasons.

The first, and most obvious concern I have is that soft paternalism can quickly and easily morph into hard paternalism. If the government doesn’t get the results they “want” (and they know what they want…just like they know what YOU want), then it’s extremely easy to imagine that they will abandon soft coercion for hard-and-fast laws. Smoking follows this pattern, historically: when the dangers of smoking were discovered, the government began an information campaign to raise people’s awareness . Good! (although arguably a waste of taxpayer’s money, but I can live with it). Then, over time, we’ve seen the anti-smoking lobby transform our cities into places where the government has completely forgotten the principles of private property and individual choice that underpin the structure of our economy and are the foundations of our common-law. Bad! (and remember, this is coming from a non-smoker who really likes smoke-free bars).

The more hazy concern I have with soft paternalism addresses the wisdom of those making decisions. I have no doubts that people make very bad decisions sometimes, and act in ways that are at odds with rational thinking (seemingly, at least – but we shouldn’t rule out the possibility that the hedonic pleasure someone gets from (for example) risk-taking behavior outweighs the potential downsides, for that individual). Making incorrect choices is a big part of how we learn, and a fundamental aspect of human nature. So with that in mind, why is that we often assume that if we outsource the decisions to another body (i.e. the government), that is comprised of other human beings, that they are somehow immune to making poor decisions? I would also argue that potentially, they have even less incentive to get the answers right, because in theory they aren’t the ones being affected. Government is not infallible - because it is made up of human beings who are perfectly capable of committing errors in judgment. Is it the “wisdom of crowds” mentality that leads so many people to believe that the state is a more rational decision maker than the individual? The problem with that theory is that the concept behind of the wisdom of crowds is that a large group of individuals will on average reach an optimal decision, but only through the free interaction of individuals – having one person speak for the group will not result in the same outcome. In essence, I am saying that the government is prone to errors in judgment, just like people are. And they clearly don’t have as good information about the personal lives of the people being governed as those individuals do about themselves, making them actually more likely to make mistakes. Ed Glaser makes this case in this paper entitled "Paternalism and Psychology" in the U. of Chicago Law Review, where he argues very convincingly that “the flaws in human cognition should make us more, not less, wary about trusting government decision-making”. He has a number of behavioral economic models that support this thesis, and I agree with his conclusions. While soft paternalism can no doubt result in positive outcomes, we still need to be careful about placing too much control in the hands of others about just what constitutes a “positive outcome”. The Economist puts it very well:

Its champions will say that soft paternalism should only be used for ends that are unarguably good: on the side of sobriety, prudence and restraint. But private virtues such as these are as likely to wither as to flourish when public bodies take charge of them. And life would be duller if every reckless spirit could outsource self-discipline to the state.

And we need to make sure that it stays strictly voluntary. But given the imperfect nanny-state in which we live I can say bring on the soft and cuddly panda-brand paternalism, because I’d way rather ignore a public service message about some bad decision I’m making than get thrown in jail for it!


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