Libertarian Quasi-Paternalism.

• Author: Goldin, Jacob
• Position: Evaluating Nudge: A Decade of Libertarian Paternalism

1. INTRODUCTION

   Suppose you are in charge of designing a retirement savings plan for some group of people (e.g., employees at your firm, residents in your state) and your goal is to make the people in that group as well-off as possible. The specific choice you face is whether individuals will be automatically enrolled in the savings plan with an option to opt out, or whether the enrollment default will be non-participation and individuals will have an option to opt in. Although the other features of the savings plan itself will be the same in either case, you know from past experience that more people will choose to participate when enrollment is opt-out than when it is opt-in. (1) Which design should you choose, and how can you make this decision in a non-paternalistic way?

   Answering questions like this requires, first and foremost, a definition of paternalism, but traditional notions of paternalism are not up for the task. As the concept is usually understood, a policy counts as paternalistic if it is justified on the belief that it will make a person better off than if the person had been left to choose between the available options for him or herself. But in many settings, such as the savings plan example described above, recognizing and accounting for individual mistakes is the only reasonable way to go about designing policy. That is, when individuals' choices vary according to seemingl -arbitrary features of the choice environment (such as which option is the default), policymakers can conclude one of two things: either (1) some people are making systematic mistakes (i.e., selecting the default option when they would have been better off under the non-default), or (2) which option people prefer truly depends on the feature of the choice environment that varies (i.e., the enrollment default). Often, it is impossible to maintain the latter claim with a straight face--does anyone seriously believe that the amount most people should be saving for retirement turns on which plan they happen to have been defaulted into? In such cases, one reaches the unappealing conclusion that any sensible approach to policymaking is necessarily paternalistic. (2)

   In this short article, I propose a distinction between two different forms of paternalism. As a starting point, we can divide decision-makers into two groups. "Inconsistent choosers" are those whose choices vary based on some arbitrary factor under the government's control (like defaults), and "consistent choosers" are those whose choices are not sensitive to such factors. The basic idea in this article is that in some sense it is more paternalistic to make policy assuming that the consistent choosers are making a mistake than it is to make policy assuming that the inconsistent choosers are doing so. Specifically, a policy is consistent choice paternalistic if it is based on the belief that it improves the decisions of the consistent decision-makers--i.e., if it assumes that individuals' voluntary choices are mistaken even when those choices do not vary based on any arbitrary factor. In contrast, a policy is only quasi-paternalistic if it is designed to improve the choices of the inconsistent decision-makers but takes the choices of the consistent decision-makers to be correct. (3)

   Returning to the savings plan example, quasi-paternalistic policymaking assumes that those employees who decide to enroll in the savings plan under both the opt-out and opt-in enrollment defaults are actually better off participating than not participating. And similarly, a quasi-paternalist policy assumes that those who choose not to participate under both enrollment defaults are in fact better off not participating than participating. In contrast, quasi-paternalism does not dictate anything about what policymakers should take to be the preferences over participation of those employees whose enrollment decisions vary based on whether or not participation is the default. Because of this, quasi-paternalism can accommodate the belief that the inconsistent choosers are erring under one enrollment default or the other.

   A key feature of the proposed distinction between quasi-paternalism and consistent choice paternalism is that it provides a way for traditional anti-paternalist concerns to inform decisions about choice architecture. Critics of paternalism argue that paternalist policies are flawed because they interfere with individuals' autonomy and because people know their own preferences better than the government does. (4) As I argue below, quasi-paternalist nudges are as consistent with these principles as possible while simultaneously acknowledging the subset of decisions that appear likely to be mistakes.

   Although it is possible to nudge in a way that is quasi-paternalistic, some nudges go beyond quasi-paternalism. Nudges are consistent choice paternalistic when the arguments used to support them are based on presumptions about the preferences of the consistent decision-makers that disregard the actual, observed choices of the people in that group. In fact, many of the arguments that have been advanced to support nudges fall into this camp. For example, in the savings context advocates for nudging have argued that decision-makers are present-biased and myopic, (5) which could apply equally to both the consistent and inconsistent decision-makers.

   In contrast to the possibility that nudges can be quasi-paternalistic, I argue that mandates justified on behavioral grounds are necessarily consistent choice paternalistic. This is not for the usual reason--i.e., that mandates restrict peopl 's choices; paternalism, as I use the term, is about the assumptions policymakers make about people's choices and preferences when designing policy, not the substance of the policy itself. Rather, mandates are not quasi-paternalistic because a mandate can be justified over a nudge on behavioral grounds only in settings where policymakers believe that the consistent choosers are making systematic mistakes. To illustrate, consider a mandate to participate in the retirement savings plan discussed above. Intuitively, under a nudge (i.e., setting participation to be the default), all the inconsistent choosers select the default option. Under a mandate, all the consistent and also all of the inconsistent decision-makers do so. Since the inconsistent choosers end up making the same decision under both the mandate and the nudge, a necessary condition for the mandate to achieve higher social welfare than the nudge is that it makes the consistent choosers better off (relative to the nudge). But for this to be true, it must be the case that the consistent choosers who choose against enrolling in the plan would actually be better off if they were forced to enroll. This assumptio --that the preferences revealed by the consistent choosers' choices are mistaken--is the very condition that disqualifies a policy from being quasi-paternalistic.

   There is a large and ongoing debate among legal scholars about whether paternalistic policies are an appropriate response to the findings of behavioral economics. My goal in this short article is not to persuade anti-paternalists that all forms of behaviorally motivated policy interventions are justifiable but simply that such concerns are differently implicated according to whether a policy is consistent choice paternalistic or quasi-paternalistic. And similarly, for those who are already convinced that the presence of individual mistakes makes deviations from traditional non-paternalism desirable, my goal is to argue that the concerns informing traditional non-paternalism can usefully enter the debate about which types of behaviorally informed policies to adopt.

   The remainder of this article proceeds as follows. Part I briefly describes a number of background concepts and reviews the reason nudging is seen to be paternalistic. Part II then sets out the notion of quasi-paternalism and describes several of its features. Part III illustrates the concept by explaining how quasi-paternalism provides a ground for preferring nudges to other policy tools that restrict choice, such as mandates.

2. BACKGROUND AND TERMINOLOGY

   Consider a group of individuals who each face an identical choice. Each must select one option from a set of available alternatives. Each has some set of priorities for what he or she cares about, reflecting the person's goals and values (whatever they may be). A person's "preferences" over the available options refer to the relative ranking of the options according to how consistent each is with the furtherance of the person's priorities. (6) For example, if Bob prefers option X to option Y, this means that X is more consistent with Bob's priorities than is Y.

   Following a number of recent papers, (7) I define nudges in terms of a policymake 's choice of frame. A "frame" is a feature of the decision-making environment that affects what people choose (for at least some choosers) but that is irrelevant from the point of view of the...