Paternalism and Nudge Theory

The subject of paternalism in nudge theory remains a debated one, for the most part because paternalism remains an objectionable position in some circles. I do not offer a comprehensive dissection of what paternalism is. This article is far less ambitious: I merely wish to discuss the role of paternalism as it has classically be discussed and debated in nudge theory. I will assume, on occasion, some degree of background knowledge.

Two definitions of paternalism are given by Thaler and Sunstein. Thaler and Sunstein (2003, p. 175) write:

“In our understanding, a policy counts as “paternalistic” if it is selected with the goal of influencing the choices of affected parties in a way that will make those parties better off. We intend “better off” to be measured as objectively as possible.”

By contrast, Thaler and Sunstein (2008, p. 5) write:

“In our understanding, a policy is “paternalistic” if it tries to influence choices in a way that will make choosers better off, as judged by themselves” (original emphasis).

This change in how “better off” is determined borrows from Van De Veer (1986). The immediate question which emerges from this contrast is: how can the judgments of decision-makers be determined, such that this 2008 understanding of paternalism can be achieved? After all, Thaler and Sunstein rule revealed preferences out as a means of determination in both 2003 and 2008: “we clearly do not always equate revealed preference with welfare” (Thaler and Sunstein, 2003, p. 175); “we show that, in many cases, individuals make pretty bad decisions” (Thaler and Sunstein, 2008, p. 5). As such, two approaches remain when considering the 2008 interpretation.

The first suggests a tendency of nudging towards a more personalised approach; different individuals may determine different outcomes will leave them “better off,” and thus a paternalistic nudge, under the 2008 understanding, must be able to distinguish between these individuals. While personalised nudges are a developing field (Mills, forthcoming; Peer et al., 2020; Sunstein, 2012), the vast majority of nudges continue to be impersonal (Mills, 2020).

The second approach is to recognise the importance of the “as judged by themselves” qualification as an ambition, but adopt a pragmatic approach which leads one to revert back to the 2003 understanding of “better off.” This is quite intuitive — where determining the judgments of decision-makers is not possible, or insufficiently worthwhile,[1] basing interventions on an as-close-as-possible-to-objective calculation would seem sensible. As such, given the difficulties of realising the 2008 understanding, but the desires to nudge, the 2003 understanding comes to dominate insofar as paternalism is generally understood in nudging.

This leaves an consideration, however. Namely, how is “better off” “measured as objectively as possible”?

Rizzo and Whitman (2019) argue that, by objective, choice architects mean towards homo economicus. Following this argument, someone is rendered better off if they are nudged towards the outcomes which a perfectly rational individual, following the standard axioms of economic rationality, would select.[2]

Rebuttal of this argument is not assisted by Thaler and Sunstein (2008), who write: “[I]ndividuals make pretty bad decisions — decisions they would not have made if they had paid full attention and possessed complete information, unlimited cognitive abilities, and complete self-control” (p. 5). However, Thaler and Sunstein (2008) do push back slightly: “To qualify as Econs [homo economicus], people are not required to make unbiased forecasts (that would require omniscience), but they are required to make unbiased forecasts” (p. 7). As such, Thaler and Sunstein (2008) may not advocate the homo economic-ification of ordinary people, but insofar as they advocate nudging, they do so to reduce the level of bias with which people make decisions. They continue: “In accordance with our definition [of a nudge], a nudge is any factor that significantly alters the behavior of Humans, even though it would be ignored by Econs” (p. 8).

Theoretically, then, the standard against which an objective “better off” is determined remains disputable. Certainly, the quotes presented above suggest some sympathies for a homo economicus mindset, but no direct statement to the effect of ‘nudges try to make people perfectly rational, economically speaking.’

Theory can only progress discussion so far, and as so-called Ostrom’s law attests, what works in practice must also work in theory. By considering what actually existing nudges generally encourage people to do, Rizzo and Whitman’s (2019) assertion that nudges seek to encourage humans to behave as homo economicus do can perhaps be dismissed. For instance, nudges which encourage people to save encourage people to save something, not necessarily the utility maximising amount as homo economicus would. Another example: nudges which encourage people to reduce their energy usage encourage some reduction, not — once more — a utility maximising reduction. Finally, nudges which encourage healthier eating encourage the choosing of salad over cake, not a complete cost-benefit analysis of dietary options with the intention of maximising the number of years lived.

In other words, the normative standard by which “better off” is commonly determined when nudges are used in practice is not homo economicus, just as “better off” is rarely determined based on the judgments of decision-makers. Instead, nudges, and by extension the version of paternalism on which they are based, act in accord with homo heuristica , heuristic man. While a choice architect may not be able to know or determine the amount of saving which would be required to maximise the utility of a given individual, they and the individual probably agree that generally saving is a good activity. Likewise, while the choice architect probably cannot determine how much energy the individual should reduce their usage by in an economically rational world, both choice architect and individual probably agree that reducing energy usage is good. Finally, while the choice architect may not understanding the individual’s biochemistry and so cannot determine how much cake should be permissible in their diet, both choice architect and individual probably think more salad and less cake, in general, is better for one’s health. In short, the paternalism under which nudges operate in the real-world generally follows simple rules-of-thumb about how to lead a good life, rather than precise utility maximising calculations.

This is hardly a novel conclusion: Thaler and Sunstein (2003) never speak of optimal outcomes, only outcomes which would leave a person “better off.” Equally, Sunstein (2014) as roundly robust the criticism of nudges as being bad because they do not nudge optimal towards optimal outcomes, a conversation Conly (2013) also supplies. Furthermore, this approach does not necessarily need to depart from a discussion of rationality, but instead simply adopt a broader notion of rationality than is typically used in economic theory. By this, rationality has classically been understood as acting with reason, which is to say, an action was performed for a discernable reason, even if the reason is — under some conditions — questionable (Schafer, 2018).

To conclude, paternalism in nudging may have an ambition of respecting individual determinations of “better off” (“as judged by themselves”), but often reverts to an understanding of “better off” which follows from some normative standard. This normative standard could be homo economicus, but this remains largely a theoretical debate. In practice, “better off” is typically understood from the perspective of what I have called here heuristic man. If an action probably leads to a better outcomes, and this is generally agreed upon within society, nudging towards this action may be said to leave an individual better off. This, in my opinion, is the most helpful approach to paternalism in nudge theory.

[1] For instance, if the loss of privacy in gathering information by which to determine the decision-maker’s judgment was greater than the welfare benefit expected to be received by the intervention.

[2] For a comprehensive discussion of these axioms in relation to behavioural economics, see Rizzo and Whitman (2019).

References

Conly, S (2013) ‘Against Autonomy: Justifying Coercive Paternalism’ Cambridge University Press: UK

Mills, S (forthcoming) ‘Personalized Nudging’ Behavioural Public Policy. DOI: 10.1017/bpp.2020.7

Mills, S (2020) ‘A Theory of Personalised Nudging: Integrating Heterogeneity and Behavioural Science into Political Decision-Making’ Doctoral Thesis.

Peer, E, Egelman, S, Harbach, M, Malkin, N, Mathur, A, Frik, A (2020) ‘Nudge me right: Personalizing online security nudges to people’s decision-making styles’ Computers in Human Behavior, 109, pp. 106437

Rizzo, M, Whitman, G (2019) ‘Escaping Paternalism: Rationality, Behavioural Economics, and Public Policy’ Cambridge University Press: UK

Schafer, K (2018) ‘A Brief History of Rationality: Reason, Reasonableness, Rationality, and Reasons’ Manuscrito, 41(4), pp. 501–529

Sunstein, C (2012) ‘Impersonal Default Rules vs. Active Choices vs. Personalized Default Rules: A Triptych’ SSRN. Available at: ssrn.com/abstract=2171343

Sunstein, C (2014) ‘The Storrs Lectures: Behavioral Economics and Paternalism’ The Yale Law Journal, 122(7), pp. 1670–2105

Thaler, R, Sunstein, C (2003) ‘Libertarian Paternalism’ American Economic Review, 93(2), pp. 175–179

Thaler, R, Sunstein, C (2008) ‘Nudge: Improving Decisions about Health, Wealth and Happiness’ Penguin Books: UK

Behavioural Science Fellow at the LSE. Personal Blog. twitter.com/stuart_mmills

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