When Behavioral Economists Get Power: Nudges - Part I

Welcome to a new philosophical exploration! This series will be diving into a bit of modern social philosophy. More specifically, we will be covering the idea of "nudges", which are a political device of sorts that gained massive popularity as one of the biggest-scale transplants of philosophy into politics of all time. It's creators, Nobel laureate Richard Thaler and Harvard law professor Cass Sunstein, acted as advisors to Obama during his presidency, and many of the public policies in his campaign were shaped using nudges. In this article, I will introduce the parent philosophy of nudges, something called "libertarian paternalism", along with what nudges roughly are, and the main moral motivation behind them. In the following parts, we will go beyond their original philosophy, looking at the debates and the critiques that followed their work, as well as existing problems and ideas to make a better political philosophy using them.

1. Introduction: 

Paternalism, in its simplest sense, is the act of limiting or influencing the choices and decisions of an individual against their will on the grounds that it would be beneficial for the individual in question. Libertarians usually view paternalism as ‘derogatory’ [3] – they think that the compromise of complete liberty is not warranted for the sake of being ‘better off’ by the government’s perspective. However, behavioral economist Thaler and Obama administration advisory Sunstein authored a groundbreaking book, Nudge, which pioneers the idea of ‘liberal paternalism’ – a political ideology that aims to push people to make better decisions without limiting their liberty. The main tool to implement this framework is the ‘nudge’, which is characterized as a psychological or contextual entity that is designed to sway decision-making without enforcing behavior – thus, according to them, preserving the spirit of liberty. 

Before we can start considering the ramifications of such a paternalistic government, many questions come to mind about its viability – can ‘liberal paternalism’ truly be both libertarian and paternal? Should a government be given the power to be paternal in a democracy? What are the ethics of nudging, and do we run the risk of bypassing individual autonomy? The aim of this paper is to investigate the framework of liberal paternalism and the debate of whether nudging is ultimately morally permissible or not. I will draw from various sources and give an account of how nudges play into libertarian paternalism, the current state of the debate on nudging, and review the question of whether there exists a form of nudging that objectively supports beneficence without tipping over the line of bypassing autonomy.  

2. Paternalism vs Liberal Paternalism: 

The main contention with paternalism lies in the motivation behind the coercion, and if it is good enough to justify the interference. John Mill famously proclaims against paternalism as follows in On Liberty: 

“That the only purpose for which power can be rightfully exercised over any member of a civilized community, against his will, is to prevent harm to others. He cannot rightfully be compelled to do or forbear because it will be better for him to do so, because it will make him happier, because, in the opinion of others, to do so would be wise, or even right.” [2]

In saying this, Mill speaks from a strongly utilitarian perspective and comes to a simple inferential conclusion – freedom of choice is of great intrinsic good and paternal interference lessens freedom of choice. The connotation of ‘good’ or being ‘better off’ is taken in a general manner and considered to be achieved if an individual makes a decision that maximizes the attainment of their desires. Mill (and his advocates) disfavor the limiting of the so-called ‘choice set’ of the individual as it directly stands against the individual’s right to equally weigh and access every possible decision. 

Regardless of the negative outcomes of a few choices, the fact that paternalism blocks them off and subsequently enforces behavior is enough to reject it as a libertarian methodology. 

Liberal paternalism, then, sounds like an oxymoron – it needs to satisfy both libertarianism’s requirements of freedom of choice and paternalism’s constraints of ensuring objective beneficence. Conventional wisdom pits both against each other; Thaler and Sunstein argue that a marriage of both would “… offer a real Third Way—one that can break through some of the least 4 tractable debates in contemporary democracies.” [1] They maintain that if no coercion is involved, some forms of paternalism should be acceptable to liberals, and this is the core of their idea. [4] 

I will simplify their ‘savings plan’ [3] example to illustrate the difference between conventional (‘hard’) paternalism and liberal paternalism: let us consider an employer who wants to increase the savings rates of their employees. Option 1 is to set a default of enrolling all employees in a 401k plan unless the employee requests not to be enrolled. Option 2 is to provide employees with a choice to agree to increase their contributions to savings with every raise. Both work towards achieving the employer’s goals – however, Option 1 sets the default setting to encourage savings while Option 2 sets the default setting such that all earnings will only contribute to current income. In this scenario, an automatic opt-in design can be considered purely paternalistic since it steers employees towards saving earlier. It even retains high enrollment rates by playing into the employee’s psychology to stick to the status quo and avoid extra effort for a retrospectively irrational choice. However, this is clearly non-libertarian paternalism since it presents the choices on an unbalanced scale to the employee in the first place. On the other hand, the latter option can be said to pass the libertarian test since the default design features are not constructed such that one choice is heavily pushed over the other; it meets “libertarian muster” [3] in the sense that no choice is any less available or accessible than the other. 

Hopefully that whets your appetite for what's coming next - we will go deeper into the details of libertarian paternalism and how the nudge became a convergent point that epitomizes its philosophy.

REFERENCES:

[1] Thaler, R. H., & Sunstein, C. R. (2008). Nudge: Improving decisions about health, wealth, and happiness. Yale University Press.

[2] Mill, J. S. (2002). On Liberty. Dover Publications.

[3] Thaler, R. H., & Sunstein, C. R. (2003). Libertarian Paternalism. The American Economic Review, 93(2), 175–179. http://www.jstor.org/stable/3132220

[4] Sunstein, C. R., & Thaler, R. H. (2003). Libertarian Paternalism Is Not an Oxymoron. The University of Chicago Law Review, 70(4), 1159–1202. https://doi.org/10.2307/1600573