Posted by Ilya Somin:
Political Ignorance and Libertarian Paternalism:
http://volokh.com/archives/archive_2007_05_27-2007_06_02.shtml#1180408346
"Libertarian Paternalism" is all the rage in law and economics circles
these days. To slightly oversimplify, libertarian paternalists claim
that people systematically mistakes as a result of cognitive errors
and biases. Afterwards, they end up with outcomes that they themselves
consider inferior to at least some of the alternatives they could have
gotten by making a different decision in the first place. As a result,
third party intervention (usually, but not always, the government) can
help people make the "right" decision. The difference between the new
paternalism and the old is that the former defines "right" by
reference to the actor's own preferences, not by some "objective"
theory of morality or utility imposed by others. For an introduction
to the concept by David Thaler (a leading proponet) and a critique by
NYU economist Mario Rizzo, see [1]this debate in the Wall Street
Journal Econoblog.
At least tentatively, I agree with libertarian paternalists that
cognitive errors often lead people to make mistakes that they
afterwards regret. The question is, however, compared to what? To
justify paternalistic policies ("libertarian" or otherwise), advocates
must prove not only that autonomous individuals make mistakes, but
that the government will make fewer mistakes if you let it constrain
individual choices.
If government policy is subject to democratic control, the key
question is whether people are more irrational and ill-informed when
they act as consumers than when they act as voters. Regular VC readers
won't be surprised to learn that my answer to this question is an
emphatic "no." Ignorance and irrationality heavily influence voting
decisions, and voters are [2]routinely ignorant about very basic
things, such as the mere existence of extremely important government
policies. They also hold irrational and ill-founded beliefs about even
simple political issues (e.g. -[3] believing that the economy is a
zero-sum game and that free trade reduces national wealth instead of
increasing it). While direct comparisons with markets are hard to come
by, few if any market errors are as widespread as numerous voter
errors (of which the free trade example is a notable case). Similarly,
few consumers are likely to be as ignorant of the basic
characteristics of the products they buy as the[4] 70 percent of
voters who unaware of the very existence of President Bush's medicare
prescription drug plan, the largest and most expensive new government
program voters have "bought" over the last 40 years.
The key point is that overcoming bias and cognitive error requires
effort and dedication. In political markets,[5] voters have only an
infinitesmal chance of influencing the outcome (less than 1 in 100
million in a presidential election, for example). That gives you very
little incentive to do the hard work of increasing your knowledge and
overcoming your biases. By contrast, when you choose to buy a product
in the market, your individual choice is highly likely to be decisive
in determining what you get. That gives you a much stronger incentive
to try to choose wisely. Casual empiricism bears out this hypothesis.
I have yet to meet a person of any ideological persuasion who spends
more time and effort deciding which candidate to support for president
than they do deciding which car to buy. And it's certainly not because
the presidency is less complicated than your car, or less important!
Libertarian paternalists may be right to be pessimistic about how well
people make decisions in market settings (though my colleague [6]Josh
Wright has an excellent article questioning this). They are, however,
implicitly overoptimistic about the quality of the decisions we make
as voters.
For some libertarian paternalists, of course, the alternative to
market decisionmaking is not democracy but decisionmaking by
government experts. I will take up this possibility in a follow-up
post.
References
1. http://online.wsj.com/article/SB117977357721809835.html?mod=blogs
2. http://www.cato.org/pub_display.php?pub_id=2832
3. http://volokh.com/posts/1179450214.shtml
4. http://www.cato.org/pub_display.php?pub_id=2832
5. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=916963
6. http://mason.gmu.edu/~jwrightg/publications.html
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