Richard Thaler was awarded the 2017 Nobel Memorial Prize in Economic Sciences for his contributions to the field of behavioural economics. He’s most famous outside the academy for his collaborations with Cass Sunstein on what they call “libertarian paternalism”—the so-called “nudge” approach, which has been discussed in popular magazines and textbooks in political philosophy. Let’s have a look at how this works.

The title of their 2003 law review article, “Libertarian Paternalism Is Not an Oxymoron,” states both their thesis and acknowledges what might be controversial about it. In general, libertarianism and paternalism are opposing concepts. Proponents of the former typically argue that, at least as a general rule, each (adult) individual is the best judge of his or her own best interests. For example, this is the move John Stuart Mill makes in his On Liberty:

[T]he sole end for which mankind are warranted, individually or collectively, in interfering with the liberty of action of any of their number, is self-protection… 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. His own good, either physical or moral, is not a sufficient warrant. 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 opinions of others, to do so would be wise, or even right. These are good reasons for remonstrating with him, or reasoning with him, or persuading him, or entreating him, but not for compelling him, or visiting him with any evil in case he do otherwise. To justify that, the conduct from which it is desired to deter him, must be calculated to produce evil to someone else. The only part of the conduct of any one, for which he is amenable to society, is that which concerns others. In the part which merely concerns himself, his independence is, of right, absolute. Over himself, over his own body and mind, the individual is sovereign.

Mill understands that sometimes people are mistaken about their best interests; his point is that in general we can’t assume that someone else is in a better position to know. His primary concern is with state action: the use of coercion to enforce behavioural standards with the justification “it’s for your own good.” This is the rationale for things such as prohibition of gambling, 64-ounce sodas, and, well, prohibition. If booze or butter or gambling or Coke (or coke) is bad for you, it will be forbidden.

But it goes beyond substances: how much should you exercise? With whom should you have intimate relations? What, if any, religion should you practise? What artworks are edifying as opposed to corrupting? How much should you be saving for retirement? If allegedly wise and benevolent rulers made all these decisions for us, wouldn’t we be better off?

There are at least two reasons to think not.

One is Mill’s point (arguably also Aristotle’s point) that such paternalism inhibits the person’s self-development and thus is ultimately self-defeating. The other is that even though Jones is sometimes wrong about his own good, it’s also possible for the rulers to be wrong about Jones’ own good. Keeping these objections in mind, let’s look at Thaler and Sunstein’s position more closely.

Again, their very choice of title shows they are aware of the tension between paternalism and individual freedom. They want to show that there are ways the government can “nudge” people in a paternalistic fashion while preserving freedom of choice. Part of what makes this work is the (empirically demonstrable) idea that the framework for choice-making has an influence on the choice-making.

The framing of the issue can take into account common cognitive failures such as innumeracy as well as simple laziness. For example, if the less healthy products are harder to access, I’m less likely to select them, even though I am still free to do so. One of their examples: if patients contemplating a certain surgical procedure are told that 90 per cent of people who have it are still alive after five years, as opposed to being told that 10 per cent are dead after five years, they’ll be more likely to agree to the procedure, despite those being mathematically equivalent claims.

So they suggest that governments can be paternalistic without sacrificing freedom of choice by adopting “nudging” tactics that design the choice architecture in such a way as to favour the better choice, without actually removing the choice (as, for instance, bans would).

This is a vast improvement over the tyrannical impulses of prohibitionists, who see no value in individual freedom of choice. Sunstein and Thaler specifically note that they “do not aim to defend any approach that blocks individual choices.” One wonders if they would consistently extend that freedom of choice to many of the activities currently banned, monopolized or regulated, but it’s at least a favourable step.

They claim that there’s no danger of a slippery slope because their proposal is constrained by rights to opt out of whatever the choice architecture is nudging towards. If the opt-out condition is robust, that would be a safeguard.
Another concern, though, is whether we can know that the benevolent rulers doing the nudging are in fact nudging us to our best choices.

I accept the argument that choice architecture can influence decision-making, and that it’s therefore possible to create beneficial nudges—put the more nutritious food at the beginning of the school lunch line. But the reality is that legislators who create these nudges are not the perfectly wise and just rulers of idealized regimes. They are, first of all, just as susceptible to being mistaken about the nature of the good as anyone else, and second, more importantly, they may have countervailing incentives.

As theorists of the “public choice” approach have pointed out for decades, politicians are as self-interested as everyone else, which means they are susceptible to lobbying and the demands of the reelection process. One example. In the late 1970s and early 1980s, Americans were told they “ought to” eat 11 servings of bread per day. Current nutritional science doesn’t support that at all, but that’s no surprise, since the government agency that issues the recommendation was influenced not by scientists, but by lobbying from the grain industry.

In general, there’s a legitimate concern that legislators will be incentivized to nudge us towards choices that may or may not be in our best interests, but will certainly be in theirs.

Vaping is a new way to ingest the addictive chemical nicotine. Most physicians think you’re better off not being a nicotine addict. So, should the government nudge people away from vaping? It’s not clear that this is the right answer—vaping is much less harmful than smoking, and is proven helpful in helping smokers quit. Would it be a surprise to discover that much anti-vaping lobbying is sponsored by tobacco companies?

“Libertarian paternalism” may not be a literal oxymoron, and it’s reassuring to see Sunstein and Thaler insist on freedom-preserving opt-out conditions, but we should nevertheless remain skeptical about “nudge” legislation as long as politicians remain susceptible to lobbying and rent-seeking behaviour that are just as likely to nudge us in the wrong direction.

After all, the theorists who pioneered investigation into these phenomena also got Nobel Prizes.