Why opting out is no "third way": the perplexing banality of "libertarian paternalism".

• Author: Wilkinson, Will
• Position: Nudge: Improving Decisions About Health, Wealth, and Happiness - Critical essay

Nudge: Improving Decisions About Health, Wealth, and Happiness, by Richard H. Thaler and Cass R. Sunstein, New Haven: Yale University Press, 282 pages, $26

AT FIRST BLUSH, "libertarian paternalism" seems a linguistic miscarriage, a self-crippling idea condemned to limp aimlessly in eternal darkness on the island of misfit creeds alongside "humanitarian sadism" and "color-blind racism." But that hasn't stopped Richard Thaler and Cass Sunstein, law and economics superstars at the University of Chicago, from pushing the catchphrase and concept as a solution to the nation's problems for a hail-decade now. And this year libertarian paternalism has achieved manifesto status with the new Thaler/Sunstein book, Nudge: Improving Decisions about Health, Wealth, and Happiness.

In Nudge, Thaler and Sunstein argue that new findings in psychology should be used to help people and thereby chart an exciting "third way" beyond the exhausted politics of left and right. The book offers a list of inventive policy tweaks, some with a welcome libertarian flavor. But the modesty of the proposals mocks the occasional grandeur of the rhetoric and should put to rest any hopes or fears that the authors' brand of applied "behavioral economics" will soon transform the ideological landscape. Remember when that dork chariot, the Segway, was supposed to utterly reshape transportation? Libertarian paternalism is a lot like that: an innovative but overhyped dud.

Nudge is the highly anticipated book-length sequel to two 2003 papers, "Libertarian Paternalism" and the protests-too-much "Libertarian Paternalism Is Not an Oxymoron?' The papers and the book argue that we often make poor choices, and that unobtrusive fiddling with the context in which our choices occur (i.e., "nudges") can improve our decisions and lives. If a cafeteria puts its key lime pie a bit out of the way, fewer people will succumb to delicious temptation. If employees are not required to fill out confusing paperwork to enroll in a savings plan, more of them will enroll. To grasp why these papers caused a bit of a sensation among policy wonks, despite their seemingly anodyne recommendations, you've got to understand the promise and threat of behavioral economics, a fast-growing discipline that enlivens the dismal science by probing the quirks of real-world decision making.

Begin with the influential Chicago school of free market economics and its Nobel-winning notables, such as Milton Friedman and Gary Becker. Suppose you assume that the best (or only) argument for something approaching social and economic laissez faire is the Chicago school argument, an argument that rests on the traditional Homo economicus model in which people are purely rational calculators. Now suppose you discover that Homo economicus is little more than a character in a math nerd's fairy tale. You might well conclude that the case for laissez faire is doomed.

That is indeed what many behavioral economists conclude, despite the fact that neither Adam Smith nor Friedrich Hayek relied on the existence of a hyper-rational economic calculator to make their cases for laissez faire. The behavioralists...