On Libertarian Paternalism

I'd like you to do me a favor. Read the following article by Richard Thaler, one of the authors of Nudge. It is a response to an academic colleague, Professor Whitman and Rizzo. The article is labeled a Reaction Essay, presumable because its a response to Whitman and Rizzo, but I had quite a reaction to it myself. Since Behavioral finance is part psychology, I almost wonder if he is referring to the reaction in readers. I'd like to hear about others reactions to this article. I've given mine below, but make sure to read the article before being contaminated by mine.

My Reaction
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I have to say, the ratio of insults to rational arguments is quite high here. This supposed reply might make Thaler feel better, but its not going to convince anyone who doesn’t agree with him. I don’t know what the rest of this discussion between thaler and whitman looks like, but this is certainly not the dispassionate rational discourse one would hope for between academics. Like the referee who seems to only see the retaliation, I might be laying blame on one side, when it belongs on both. Indeed, coming from a hard sciences background, I find it a bit disturbing. Thaler sounds more like a politician than a scientist…. Come to think of it, many noted economists sound more like politicians then scientists. I wonder why that is? (for some reason when I read this question it sounds rhetorical, but I mean it. Why do famous economists seem to view themselves, and behave more like politicians, than like scientists trying to explain the economic world?)

In fact his main claim, that “we call a policy paternalistic “if it tries to influence choices in a way that makes choosers better off, as judged by themselves.” (The emphasis is in the original.) ” is not only completely unsupported, but directly contradicted in his discussion of health care where he says there is no other choice, but for the choice architect to choose what SHE thinks is best for everyone. This is not surprising as its hard to imagine how a central authority/choice architect would be able to solve two apparently unsolvable problems and both read the minds of each individual and then nudge each individual in the direction they themselves would like to go.

I'd also like to point out that this definition is in contradiction to what I think most people would regard as the definition of good parenting. A parent make decisions that they think are best for their child, because the child does not know enough to make their own decisions yet. Later say in teenage years, a parent might guide instead of decide, but they guide towards what experience has taught them their kids will wish they had wanted ten years from now, not what they actually want now. (Hmm you know you'll meet just as many girls at college as you will on tour with your garage band...) I think why I and others react so strongly to the idea of libertarian paternalism, is that it implies that yet never comes. We are never really able to make our own decisions and we need help from our betters. How are those betters defined... Who get to do the nudging...

I find it hard to imagine how Thaler could so blatantly ignore what is supposedly the central point of the article. This is why I'm curious if I'm reading through colored glasses. Did I miss some support for this definition? If so, or if not, can someone even explain how it is possible to nudge each person to what they themselves want without a) mind reading and b) the number of necessary nudges being proportional to the number or people?

Dr. Trisco :P

By the way I came across the above article through the fabulous Simoleon Sense. A great content aggregater for behavioral finance and investing that links and previews more great articles and videos then one could possible read. Though somehow, I suppose Miguel, the man behind the site actually does.