Nudges and Libertarian Paternalism

Conservative economists have long stressed that since people are rational, the best thing a government can do is to guarantee a fair market and to otherwise get out of the way. However, in the real world, scholars claim that people are subject to all sorts of biases and quirks. In the book Nudge, authors Cass Sunstein and Richard Thaler introduce a concept called “libertarian paternalism” as a way to preserve liberty. Their claim is that libertarian paternalists want to make it easy for people to go their own way without burdening those who want to exercise their freedom. Skeptics of this philosophy, such as Bill Dyer, argue that libertarian paternalism is just another way for the government to manipulate you to do something that they want you to do in such a subtle manner that you might even think it was your own idea. Is libertarian paternalism a legitimate way of “nudging” people to make the right choice? Or is it simply a way for government to push their own interests onto the public? Let us look at both arguments.

According to a study of residents of Iowa, 97% said that they supported organ donation. However, out of those who supported organ donation, only 43% had the box checked on their driver’s license. It appears that either respondents lied about how they felt, or there is something that is deterring them from registering to donate. Many libertarian paternalists feel that the latter is true because under current Iowa law, all citizens are born under the default option of not being an organ donor. If a citizen decides that he or she wants to be an organ donor, certain steps have to be taken before they are qualified.

A libertarian paternalistic view on how to increase the number of organ donors is the application of presumed consent. Under this policy, people are to be presumed as consenting donors but with the option to opt out if they choose so. Personally, I feel as if it is a great way to apply how people feel without making it too difficult for them. The statistics out of Iowa show that the majority of respondents feel strongly about organ donation but fail to act upon it. This policy is the essence of libertarian paternalism in that it allows people to “go their own way” without burdening those who want to exercise their freedom.

Many people object to the policy of presumed consent because the idea of “presuming” anything gives them the impression that they are being forced into organ donation. I agree with these skeptics in that sometimes it is hard to see the difference between guiding a person’s choices and manipulating them. This leads to the key problem that those who are trying to push the “nudge” style policy onto the public assume they understand what people want better than the people themselves. I know this is untrue because policy makers are susceptible to the same biases as the rest of the public. The bias in particular I am talking about is overconfidence.

Sunstein did a study where he asked new business owners two questions: (a) What do you think is the chance of success for a typical business like yours? (b) What is your chance of success? The most common answers that he received were 50% and 90%, respectively, and many said 100% to the second question. Respondents knew the difficulties of running a successful business in the long run (hence the 50% chance of success), but when asked about their own chances of success, they seemed to skew the probability in their favor.

In the same way that the business owners were overly optimistic about their business prospects, it’s possible that the policy makers are too at times overly optimistic and overconfident in their abilities to project what they believe to be the “right” decision onto the general public.

In the case of organ donation, Sunstein and Thaler support the idea of mandated choice; this policy would require drivers renewing their license to have to choose whether or not to be an organ donor. They feel that rather than having to settle for the default option of not being an organ donor, the simple act of having to choose will nudge Americans in the direction of becoming one.

I agree with Sunstein and Thaler in that people should be displayed their options, make their choice, and not have to go through long, tedious measures to opt in or out of their preference like they would see in a policy that involves a default option.

Again, like I previously stated, it is very possible that policy makers who support libertarian paternalism are incorrect in their projections onto the public, however, at the same time, I sense a little bit of paranoia coming from the anti-paternalists.

A common misconception is that paternalism always involves coercion. People, for the most part, don’t like to feel as if they are being forced to do anything. These people oppose paternalism, or at least think they do, and they feel threatened by nudges. Sunstein and Thaler believe that the anti-paternalist skepticism is based on the false assumption that almost all people, almost all of the time, make choices that are in their best interest or at the very least better than the choices that would be made by someone else, especially the government.

Many people worry that governments cannot be trusted to be competent or beneficent and this is where I believe the paranoia stems from. Indeed, in US economic history, there at times have been conflicts of interests between policy makers and the people they represent. I believe that people use their availability bias to overemphasize the frequency of these conflicts of interest, therefore causing them to oppose any type of nudge from the government.

It’s possible that the skepticism that people feel towards government can be deterred by making public the underlying reasons why policy makers support certain policies. Sunstein and Thaler feel this could be done by requiring government officials to put all their votes and contributions on their Web sites. I believe that doing so would educate the public on how they would benefit from certain policy changes, and if they aren’t the ones benefiting, then this could possibly give them an insight on who is.

The policies involving libertarian paternalism can be viewed as either harmless nudges or full-fledged shoves, depending on the context. Critics of the policy feel the need to question the intentions of the policy makers, while those who praise it see no harm in guiding people to make the best choice (in their opinion). Ultimately, I feel there is no harm done in libertarian paternalistic policies because those who agree with the policy can easily go along with it, and those who oppose, can easily seek other options if they feel strongly enough.

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