When is a Paternalist not a Paternalist?

On the grading front: the end is in sight.

One housekeeping item from the Spring semester is a review of Thaler and Sunstein's Nudge, which I assigned in my intro to microeconomics course. Sunstein now works in the Obama Administration in a job designed to implement the sort of polices discussed in this book, so we have here a policy-relevant book. Well, at least it would be a policy relevant book if it had any, actual, well, policies to implement. And therein lies the tale.

Nudge is a hybrid book--one part discussion of some of the behavioral economics literature, one part recommendations for how to solve all the problems in the world. The behavioral economics part is good--behavioral economists are those people who go around and run and experiment on 25 undergrads to find out what makes them happy or act in the bizarre ways that undergrads and normal humans behave. Some of the experiments in that literature are fun, and thinking about happiness always makes me happy, so I like it.

But, as a straight review of the sort of thing behavioral economists like to do, there are better books (Ariely's Predictably Irrational, for example). This book gets it's kick by reframing the question. They start by talking about Choice Architects--people who frame choices for other people. Choice Architects are everywhere, literally everywhere--every time you do something which influences other people's choices, you are a choice architect. Thus, for example, if you ask someone what they want to do, you are being a choice architect--the way you ask that question can influence the choice being made. (Do you want to go see that surely most excellent and wonderfully reviewed movie Iron Man 2, the sequel to one of the best superhero movies ever made, or some movie called something like Letters to Julia or Juliette or Julie or some such name which is like the names in Julie and Julia and which I gather is some sappy romance like lots of other sappy romances, and everybody seems to hate it or at least they probably should hate it because it is probably just some grown-up version of Twilight, but there are probably lots of good seats available in the theater?) In other words, being a Choice Architect is easy; nothing too shocking here.

So, starting with this banality, Thaler and Sunstein proceed to advocate for framing all sorts of choices--dozens and dozens and dozens of choices. Underlying all of it is an argument for, and this really is the term they use, Libertarian Paternalism.

And Libertarian Paternalism is the punchline of the book. Thaler and Sustein are paternalists--the know what is best for you. But, they don't want the government to tell you to do what is best for you. They want the government to construct your choices in such a way that you will choose what they know is best for you, which, in order for this whole thing to make any sense, must be different than what you think is best for you. So, everything is nicely libertarian because the government doesn't actually require you to do anything. And everything is nicely paternalistic because, well, Thaler and Sunstein are going to trick you into behaving properly.

So, how do you pull off this nice trick? Ah, glad you asked. I have no idea either. The whole thing comes apart when you start reading the details. Credit cards companies trick people into paying too much in interest. So, the government will nudge you into using your credit card more responsibly by making the credit card companies use a bigger font on the statements showing you what you are paying in interest. Then, with the bigger font, you will notice you are paying lots of interest and suddenly you won't use your credit card so much. Simple, right? Except, one might wonder whether the bigger font on the statement will make any difference at all, in which case the nudge may not actually do anything. Then what? Even bigger font? Red ink? (As an added bonus, if you look at your credit card statement, you'll see that there is a box with a bigger font telling you about interest payments--you can thank Sunstein for that bigger box--and if you hadn't noticed it before now, well, you should send Sunstein a note telling him that his nudge didn't work too well since you didn't even notice it.)

Ultimately the libertarian paternalism shtick is relatively harmless in itself. But, what happens when a libertarian paternalist finds that the libertarian part doesn't get people to act in the right manner? We'll find out in a year or so when Sunstein and Obama get really frustrated that you still aren't acting in the right way.

All that being said, the book is thus a mixed bag--the behavioral economics part is mildly interesting, some of the nudges are cute, but in the end, it is not a very satisfying book.