Libertarian Paternalism

Freedom of choice is one of the fundamental pillars of a democratic society…

Yet, don't you think it is better to influence the choices in a way that will make choosers better off instead of presenting choices ‘neutrally,’ which may lead to poorer results?

As an example, consider a school cafeteria that serves food to students of age 12-18. Would you arrange the food in the cafeteria so that the students are more likely to make healthier food? Or would you prefer to present the food randomly and let the students choose their food without any influence and assume that the ones who prefer (or are conscious about) healthy food would take it anyway?

Unless profit generated by unhealthy food is higher and you have a stake in the cafeteria's profits, we bet the odds that you would go with the first option are higher.

And if you lean towards option one, your stance is actually closer to the concept of ‘libertarian paternalism’…

The concept of libertarian paternalism

The libertarian paternalism term was introduced to literature by Nobel Prize winner behavioral economist Richard Thaler and legal scholar Cass Sunstein. 

In their article published in the American Economic Review in 2003, Thaler and Sunstein describe libertarian paternalism as taking actions to influence affected parties' choices to make those parties better off, given that no coercion is involved in the actions.

Both libertarian and paternalistic… Is it possible?

Even though the terms ‘libertarian’ and ‘paternalistic’ seem to be a bit contradictory, the concept is easy to apprehend if it is thought out of the dogmatic box.

The concept’s libertarian aspect asserts that people should be ‘free to choose.’ Thus, libertarian paternalists are liberty preservers who strive to maintain or increase the freedom of choice and do not want to burden the people who want to exercise their freedom.

The paternalistic aspect of the concept lies in the assertion that it is legitimate to influence people's choices to make their lives better. In other words, according to libertarian paternalism, influencing people to avoid bad decisions -which they would not have made if they had paid full attention and possessed full information- is completely legitimate.

Libertarian paternalism is a relatively soft and non-intrusive type of paternalism as choices are not blocked or fenced-off regardless of how bad the choice may be. People will be given the freedom to smoke, eat a lot of junk food, misspend their money, etc., yet the design of the system will influence them to decrease the probability of choosing those bad decisions.

Libertarian paternalism works…

The empirical results also show that libertarian paternalism works. In other words, if the choices are designed and arranged to influence the choosers to take the better option, the overall wellbeing is improved.

For example, Austria has designed its organ donation system as ‘opt-out,’ - meaning that anyone who did not explicitly refuse to donate their organs in the case of an accident is considered (or assumed) to be a voluntary organ donor. Austria, with this opt-out system, has an organ donation consent rate of 99.98%. Meanwhile, Germany, which has a very similar culture and economic situation to Austria, adopted an ‘opt-in’ system and required the donors to accept to donate their organs explicitly. Germany's organ donation consent rate happened to be only 12%.

What about the critics?

Even though libertarian paternalism seems to be a quite balanced and plausible policy, given that it both gives people freedom of choice and helps them to avoid bad choices, it has also been criticized for failing to appreciate the merits of uninfluenced libertarianism, which asserts that liberty enhances the power and dignity of human beings. The concept also raised whether it is possible and legitimate to affect behavior while also respecting freedom of choice.

The critics assert that people learn from their errors and vices more effectively, and thus, uninfluenced liberty enables experience more meaningful and makes learning more enduring. Besides, if people are not influenced in a paternalistic way, they will act on their own knowledge, which will let them understand their limitations and force them to improve and develop.

The critics are also concerned about the degree of influence. They claim that the examples given by libertarian paternalists are too naïve (like requiring shops to place soda and cigarettes at the back of the store rather than near checkout stands or encouraging citizens to save for retirement by automatically opting them into a specified investment plan) to represent all cases. The degree of influence may end in manipulating the choices, which may be misused or even abused by the paternal choice designer.

A more practical criticism comes from the belief that ‘it is the person himself who knows best what is good for himself.’ By definition, libertarian paternalists accept that the designers of the choices know your interest better than you, and they will influence your choices in the way they think is better for you.

A good policy, but…

Libertarian paternalism has become popular in recent years, and it is for sure that it can be instrumental in certain cases. Yet, despite the widespread interest, confusion reigns as to what exactly the influence should be and how and when it should be applied…

Dr. Genco Fas

References

Sunstein, C. R. and Thaler, R. H. 2003. ‘Libertarian Paternalism is Not an Oxymoron’. University of Chicago Law Review 70(4), 1159–202.

Hansen, P. G. 2016. ‘The Definition of Nudge and Libertarian Paternalism: Does the Hand Fit the Glove?’, European Journal of Risk Regulation, Volume 7, Issue 1, March 2016, 155-174.

Kahneman, D. 2011. Thinking Fast and Slow, UK: Penguin Books, 342-345.

Klein, D. B. 2004. ‘Statist Quo Bias’, Economic Journal Watch 1, 260–71.

Thaler, R. H., and Sunstein, C. R. 2003. ‘Libertarian Paternalism’. The American Economic Review 93, 175–79.

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