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20211023 – Escaping Paternalism

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MAIN IDEA:

The main idea is to review behavioral economics at a very detailed level and demonstrate that its promoters’ claims are often excessive, often based on research isolated from reality, and greatly simplify rationality or lack thereof in human behavior.  However, the overriding objective of this book is to provide viable intellectual tools for rejection of the attempts to limit individual freedom via the coercive intervention of bureaucrats and politicians into individual decision-making under the pretense of better knowledge of what people need than these people themselves.    

DETAILS:

1 Introduction:

The Rise of the New Paternalism

The Old versus the New Paternalism

A Sampling from the Behavioral Paternalist Agenda: Sin Taxes, Default Enrollment in Savings Plans, Cooling-Off Periods, Risk Narratives, Graphic Images, Employee-Friendly Terms in Labor Contracts, Outright Bans;

A Gauntlet of Challenges

Caveats and Clarifications: Arguments versus Policies, Behavioral Arguments for Nonpaternalist Policies, Freedom and Autonomy;

People, Not Puppets

This introduction describes the new paternalism recently developed from behavioral economics. Authors suggest that it is different from old paternalism, which stated that elite experts better know what is best for people than people themselves. The new paternalism forfeits this claim and claims not to dictate but discover peoples’ wants. The new paternalists also claim to know how to make better decisions, and they want the power to nudge people to act correctly. The authors define the key objective of the book as:” presenting the conceptual and consequentialist case against behavioral paternalism. Inasmuch as the case for behavioral paternalism rests on its supposedly beneficial consequences, our response in most respects constitutes an immanent critique.”

2 What Is Rationality?

Explicit and Implicit Components of Purposeful Behavior

Rules as a Tool of Rationality

Bounded Rationality and the Limits of Models

The Functional Value of Biases and Errors

Positive, Normative, and Prescriptive

This chapter defines the new notion of inclusive rationality:” Inclusive rationality means purposeful behavior based on subjective preferences and beliefs, in the presence of both environmental and cognitive constraints. This notion of rationality preserves the core notion of purposefulness, and in that sense, it should seem familiar. But unlike other notions of rationality – many of which were invented for modeling purposes but have since taken on a life of their own – inclusive rationality does not dictate the normative structure of preferences and beliefs a priori. Instead, it allows a wide range of possibilities in terms of how real people select their goals, form and revise their beliefs, structure their decisions, and conceptualize the world. Their preferences and beliefs may be inchoate, incomplete, inconsistent, mutable, and dependent on context. Inclusive rationality can thus encompass choices and strategies that would not make sense under more restrictive notions of rationality.” The authors present specific features of inclusive rationality and discuss how it differs from formal rationality and irrationality. They also discuss conscious and unconscious components of purposeful human behavior, bounded rationality that limits human reasoning abilities, and resulting deficiencies in human actions in achieving the best available results. Finally, the authors provide the list of issues that pretty much invalidates behavior economists’ claim to be able to improve people lives by manipulating their behavior in the “correct” direction:

  • They may assume, in accordance with ordinary conversational norms, that experimenters provide only information that is relevant to solving the problem – i.e., no irrelevant or “tricky” information. They do not immediately assume the experimenters are trying to fool them.
  • They may resist the distinction between the validity of a syllogistic inference (e.g., “People with red hair are Martians, John has red hair, therefore John is a Martian”) and the truth of a conclusion itself (John is not a Martian). Normally, in everyday life, it is the truth that is more important.
  • They may not assume that prior probabilities about something – such as the likelihood that someone has a disease – must be equal to the “base rates” from the population provided to them. Instead, their priors may be affected by their evaluation of the significance of the base rates to a particular problem in front of them – say, whether a specific person who chose to visit the doctor and chose to take a test has the disease. Treating priors in this way is fully consistent with the subjectivist Bayesian view that prior probabilities are subjective – a fact frequently ignored in the rush to deem subjects “irrational.”
  • They may not agree with model-builders on the informational equivalence of different descriptions of a situation. Instead, they may infer implicit information or advice from how a problem is presented. For example, they may perceive an important difference between a stated probability of success equal to 0.7 and a stated probability of failure equal to 0.3. Perhaps the former conveys greater optimism, despite the formal mathematical equivalence of the two statements. Conversational norms and expectations do not always align with logic and probability theory. The former can be adaptive in the real world while the latter is adaptive on experimental tests. Which is more important?
  • They may attach satisfaction or utility to things other than what the analysts expect. For instance, they may value an object more because it is theirs already. Or they may care about feelings of gain and loss experienced during the experiment, not just how much money they have when they leave the laboratory. Or they may gain satisfaction purely from having a particular belief, irrespective of its truth (“My wife is beautiful and my children are gifted”).

Finally, at the end of the chapter, the authors clearly state their position:” The simple fact that individuals do not behave in accordance with standard theories is not evidence of failure in this broader normative sense. It is certainly not evidence in favor of fixing their behavior. The norms of standard neoclassical rationality are not prescriptions for better behavior. Behavioral economists have unfortunately accepted the prescriptive relevance of the received theory even as they have rejected its predictive accuracy in a wide range of behavior. In this book, the authors are mainly concerned with the normative and prescriptive aspects of rationality. Therefore, their disagreement is with both standard and behavioral economics, given that both are wedded to the same prescriptive view of rationality.

3 Rationality for Puppets:

The Axioms of Preference Rationality

Neoclassical Rationality as the Behavioral Welfare Standard

The Origin of Neoclassical Rationality in Economic Theory

Rational Violations of “Rational Preference”: Preference Discovery, Preference Formation, Economizing on Cognitive and Noncognitive Effort, Preference Rotation, Illustrative Examples;

What About the Money Pump?

Description and Redescription

The Non-Sequitur of Resolving Preference Inconsistencies

Interpreting Behavioral Inconsistency
Authors’ Conclusions:
“Behavioral paternalists rest their case on the evidence that normal people violate basic tenets of rationality. But what do they mean by rationality? It turns out behavioral economists use the same definition of rationality as their neoclassical counterparts. Neoclassical or “puppet” rationality rests on two axioms – completeness and transitivity – that together impose a form of consistency on the structure of people’s preferences. Other characteristics of neoclassical rationality, such as framing invariance and independence of irrelevant alternatives, derive from these more basic axioms. Although behavioral paternalists have rejected neoclassical rationality as a positive description of human behavior, they have nevertheless maintained it as a normative standard. In this chapter, we have argued that this was a mistake. The axiomatic definition of rationality was developed primarily, if not entirely, for positive (i.e., descriptive or explanatory) analysis. The axioms justified the use of utility functions, an important step along the path to proving propositions such as the existence of a competitive market equilibrium. They made economic models mathematically tractable, and they facilitated the generation of testable hypotheses. In short, they enabled the creation of simple, functional, and often quite useful puppets to populate economic models, thereby satisfying the needs of the model-builders. But however useful the neoclassical axioms may have been for positive purposes; they never had a strong normative justification. They may be violated in many reasonable ways. Normal people may be found in the process of discovering their preferences, or even the process of creating them. They may decide, consciously or otherwise, that the costs of completely rationalizing their preferences exceed the benefits of doing so, and so they allow their preferences to remain inconsistent. A variety of examples show that people’s preferences may be incomplete or intransitive for understandable reasons that do not obviously demand correction. Our inclusive notion of rationality allows for all of these deviations from the neoclassical structure. The simplistic axioms of puppet rationality cannot capture the breadth and variety of how real human beings evaluate options and make choices. Many of the problems discussed in this chapter are not new, but presenting them together here demonstrates that the normative case for puppet rationality is extraordinarily weak, at least outside of special cases. The neoclassical axioms of preference may have descriptive or explanatory value – or, given the work of behavioral economists, they may not. But to call them “rationality requirements” is normatively arbitrary. If we gave them another name – say, “structural assumptions” – they would still perform the function for which they were created without deceiving economists or the public into thinking that nonconforming behavior or preferences need to be “fixed.”

4 Preference Biases:

Intertemporal Trade-Offs and Time-Discounting Inconsistencies: Time: Objective and Subjective, Preference Reversal, Intransitive Intertemporal Choices, Do Nonstandard Intertemporal Decision-Makers Suffer?

Endowment Effects: Loss Aversion as a Cause of Endowment Effects, Status Quo Bias as a Cause of Endowment Effects; Mere Ownership as a Cause of Endowment Effects, Contrary Evidence;

Affective Forecasting: Impact Bias as Procedural Artifact? Cognitive Feedback: Attention and Learning;

Authors’ Conclusions: “In this chapter we have shown that the phenomena known as “preference biases” are far more complex than they are often portrayed to be. Sometimes more penetrating analysis shows that the evidence for their existence is weak. Other times they are (at least partially) artifacts of imprecise or misdirected questioning of subjects. And yet other times, evidence suggests they may function as adaptations to a broader set of behavioral and environmental factors than are normally considered. Even more importantly, the normative analysis of biases is often arbitrary. Biases are typically demonstrated by showing inconsistencies in preferences and then choosing one set as normative. But alleging inconsistencies does not in itself enable us to say which preferences are normative – particularly when other behavioral factors play a role in generating the behavior in question. For example, there is good evidence to suggest that both short- and long-run discount rates are “contaminated” and therefore neither has a clearly better claim to superiority. Or, as we’d rather say, neither is contaminated; they just are what they are. Agents do not typically exhibit pure neoclassical preferences. And this is not obviously a bad thing. In the real world, agents need not be worse off by their own lights when their behavior exhibits what outside observers would regard as bias.”

5 The Rationality of Beliefs:
The Functions of Beliefs and Learning:
Optimistic Beliefs;

Rational Irrationality;

Rational Violations of Classical Logic: Logical Equivalence versus Informational Equivalence, Wason Selection Test: Confirmation Bias? Nonmonotonicity, Wason Selection Test as Maximizing Expected Information Gain;

The Conjunctive Effect:

Conversational Norms and the Maxim of Relevance, Interpretation of Intersecting Events as Mutually Exclusive, Inductive Confirmation of Hypotheses;

Bayes’ Rule, Base-Rate Neglect, and Belief Revision: Base Rates Are Not Necessarily Prior Probabilities, Changing Causal Structure and Base-Rate Instability, False-Alarm Rates and Hit Rates May Not Be Independent of Base Rates, Magnification of Errors in a Noisy World, Not All Base Rates Are Created Equal;

Availability Bias and Frequency Judgments: Pinning Down the Meaning of Availability, Diagnosticity and Availability,

Salience;

Overconfidence and Probability Judgments: How to Make Guesses on Trivia Questions, Degrees of Confidence versus Subjective Probabilities, Subjective Probabilities and Objective Frequencies, When Is the Implied Expectation Consistent with the Actual Frequency, When Is the Implied Expectation “Overconfident” but the Frequency Judgement Accurate? Coherence or Adapted Frameworks? The Data: Extreme Format Dependence, The Economics of Prediction: Trade-Offs
Authors’ Conclusions:
“We have covered a wide range of cognitive operations and phenomena in this chapter – from the logical to the probabilistic. We have found that the literature on cognitive biases, vast though it is, tends to fail in one fundamental respect: recognizing the pragmatic and contextual nature of rational decision-making. The mistake that is constantly and consistently made is to equate rationality with an abstract system of thought unrelated to the purposes and plans of individuals in the environments in which they find themselves. In a related manner, the literature also fails to take into account the socially legitimate expectations of the participants in experiments that the researchers should not provide extraneous or misleading information. These are problems that go to the very heart of the “heuristics and biases” research program. Our perspective, by contrast, recognizes that beliefs serve a purpose – and that purpose is not always truth-tracking. Beliefs can direct attention and provide motivation. Beliefs can be a source of direct satisfaction. Even when beliefs perform a primarily truth-tracking function, there is no uniquely correct way to form and revise beliefs in real-world environments characterized by uncertainty and change. Most importantly, people in realistic contexts do not think like strict logicians and probability theorists – nor should they. While economists and psychologists are greatly concerned with the deductive consistency of beliefs, regular people need not share that concern. People acquire tools for different types of challenge in the wild, and they should not be expected to abandon all such tools when they enter the laboratory. In the study of beliefs, just as in the study of preferences, behavioral researchers have made the mistake of conflating their models with reality – and, when reality fails to conform to the model, judging it deficient.”

6 Deficient Foundations for Behavioral Policymaking:  
Context-Specificity of Psychological Findings:
Contextuality of the Effect of Moods and Emotions, Contextuality of Loss Aversion and Reference Points, Context-Specificity in Context
Generalizing Quantitative Results from the Lab to the Real World: Stated Choice and Revealed Choice, Quantitative Generalizability, Reproducibility, The Population of Relevance;
Failure to Account Adequately for Incentives: Incentives: Clearing Away the Confounds, Incentive Effects, Learning and Experience, Learning and Errors, Policy Implications of Learning and Incentives
Small-Group Debiasing: Small Groups and Task Performance (Conjunctive Effect. Wason Selection Test. First-Order Stochastic Dominance. Probability Assessment. Probability Matching.) Small Groups and Preference Biases (Myopic Loss Aversion. Present Bias.)

Self-Regulation: Context-Dependence of Self-Regulation, Automaticity of Much Self-Regulation, Biases as Self-Regulation, Self-Regulatory Processes Mistaken for Agent Naivete, Significance of Underestimating the Extent of Self-Regulation, Self-Regulation and the Opportunity Costs of Executive Function
Authors’ Conclusions: “In a survey of the literature on the use of technical research by policy actors, Bogenschneider and Corbett (2010) identify twelve criteria by which the usefulness of research is evaluated for policy purposes. Among those, three stand out as having critical significance for the behavioral and cognitive research we have discussed in this chapter. They are:

  • Definitiveness: Results are clear.
  • Generalizability: Results are applicable to the jurisdictions or populations of interest to the policymaker.
  • Policy Implications: The links between results and policy are clear.

Unfortunately for behavioral paternalism, the research displays serious deficiencies with regard to these criteria. First, it is hard to claim that the results are clear-cut. When incentives, learning, group debiasing, and self-regulation have not been adequately assessed, it is not clear which results we can confidently export to the world of public policy. Second, generalizability is uncertain because the results are highly contextual, the rate of reproducibility is unknown and possibly quite low, and the populations studied do not necessarily resemble those targeted by policy. Finally, the link between results and policy recommendations is far from clear. What appear as biases may in specific contexts actually be debiasing techniques. And the failure of quantitative results to generalize opens the real possibility of overcompensating for perceived biases. Recall our introductory remarks that the claims in this chapter constitute immanent criticism. Even if we agreed that the standard rationality norms of neoclassical and behavioral economics provided an appropriate basis for prescribing public policy, the tools that real people use to achieve their goals and to shape their own behavior are multifarious and resistant to description by simple models. To craft policies that help agents reduce their biases, we still need reliable scientific knowledge about how, when, and where those biases operate, their strength in real-life settings, the extent to which agents learn about and correct biases on their own, and so on. These questions are still largely unanswered, although we can hope that future research will begin to fill in the blank spaces.”

7 Knowledge Problems in Paternalist Policymaking:
A Typology of Knowledge Requirements:
Knowledge of True Preferences, Knowledge of the Extent of Bias, Knowledge of Self-Debiasing and Small-Group Debiasing, Knowledge of Dynamic Impacts on Self-Regulation, Knowledge of Counteracting Behaviors, Knowledge of Bias Interactions, Knowledge of Population Heterogeneity;

The Empirical Search for True Preferences: Augmented Revelatory Frame Approach, Unified Behavioral Revealed Preference
The Practically Insurmountable Knowledge Problem;

Authors’ Conclusions: “Behavioral economists overreach when they confidently attribute the increase in 401(k) participation after automatic enrollment to countering biases by creating sticky defaults that people passively accept. Much of the increase in participation is likely attributable to improved information and the recommendation effect of the new default. Biases such as anchoring, limited salient options, and loss aversion do not seem as plausible in this context. While present bias may be operative with regard to decision-making costs, its importance is diminished as decision complexity is reduced. Since automatic enrollment improves the information position of agents, it reduces the complexity of decision-making. Thus, even if employees overweight initial decision costs due to present bias, the impact of this bias is substantially reduced due to the fall in decision costs. Policy-oriented behavioralists are also mistaken in suggesting that the welfare effects of automatic enrollment are unambiguously positive to all groups. There are heterogeneous effects, especially in the class of former optimizers and, in general, when the knowledge of the planners is poor. There are distributional effects within the category of retirement benefits. In addition, there are also a number of substantial unintended consequences, including increased consumer debt and early withdrawal of retirement savings. These have been ignored in previous research because of the narrow focus on 401(k) activity. Behavioralists are also likely mistaken in claiming that the greater use of automatic enrollment observed in recent years is a consequence of private paternalism. The appearance of such may be the result of an excessively loose or vague concept of paternalism – a topic we will address directly in Chapter 10. Employers in the United States are not currently required to provide an automatic-enrollment default. They are still maximizing profits and engaging in mutually advantageous bargains with their employees. How likely is it that they have suddenly become benevolent paternalists under the influence of behavioral economics? Finally, we have to wonder why so much attention has been focused on automatic enrollment versus other options. Given the evidence that information and recommendation effects play a significant role in explaining default stickiness, why not advocate explicitly providing the information and recommendations in question?68 Such messages could be provided in the presence of either the traditional default or active choice. Changing the default rule seems a very indirect way of conveying messages that could be provided directly, especially since implicit messages can easily be misunderstood. We surmise that the focus on automatic enrollment derives from the presence of other (or additional) motives – specifically, the desire to increase retirement savings irrespective of whether that is what any particular individual truly wants”.

8 The Political Economy of Paternalist Policymaking
Rational and Irrational Mechanisms of Government Failure
Rational Ignorance
Concentrated Benefits, Diffuse Costs
Self-Interested Regulators
Bootleggers and Baptists
Public choice Paternalism in Practice:
The Definition of Overweightness and Obesity, Regulation of Cigarettes and Vaping, USDA Nutritional Guidelines
Public Sector Irrationality
Types of Bias that Affect Policymaking:
Action Bias, Overconfidence and the Illusion of Explanatory Depth, Confirmation Bias, Availability and Salience Effects, Affect and Prototype Heuristics, Present Bias and Hyperbolic Discounting
Authors’ Conclusions: Even if policymakers (including voters) were perfectly rational, there would be good reason to doubt that democratic government would generate well-designed paternalist policies. The diffusion of responsibility and accountability inherent in our form of government creates poor incentives for people to become well informed and to demand policies that genuinely track the public interest. Instead, legislators and bureaucrats will tend to promote laws and regulations that garner the support of highly motivated parties, including moralists and activists who want to promote values that others may not share, experts and academics who wish to see their research make an impact, and special-interest groups that stand to benefit financially from paternalistic laws. If policymakers are subject to the same cognitive biases that behavioral economists attribute to regular people, we should expect the policymaking process to be even worse. Such biases are more worrisome in the public sector than the private sector, because the public sector offers far worse incentives for people to curb their irrational tendencies and numerous opportunities to indulge pleasing beliefs and prejudices at low cost. Furthermore, poor decisions in the public sector almost by definition affect large numbers of people who have little or no input into them; in other words, government policy is rife with externalities. As a result, we should expect paternalist (and other) policymaking to suffer from the effects of action bias, overconfidence, the illusion of explanatory depth, confirmation bias, availability bias, and other cognitive limitations. Although we have considered both rational and irrational contributors to government failure separately, it’s worth taking a moment to consider how they interact. Behavioral economics indicates that certain types of argument will be more likely to succeed in the political sphere: those that emphasize the urgent need for taking action; those that downplay complexity and emphasize simple solutions; those that flatter people’s current beliefs and attitudes; those that rely on easily recalled and vivid illustrations of alleged problems; and those that emphasize the benevolent goals of the policies in question. Given these tendencies, we should expect the highly motivated parties mentioned earlier to exploit them to advance their agendas. Activists, academics, experts, and industry lobbyists have strong rational incentives to craft their policy proposals so as to maximize their appeal to irrational voters and legislators.

9 Slippery Slopes in Paternalist Policymaking
The Logic of Slippery Slopes
Gradients and Vagueness in Behavioral Paternalism:
How Behavioral Paternalism Creates New Gradients, How Behavioral Paternalism Exploits Existing Gradients;
Slippery Slopes with Rational Policymakers: Altered Incentives Slopes, Authority and Simplification Slopes, Expanding Justification Slopes, Application to Smoking Bans, On Experts versus Ordinary People;
Slippery Slopes with Cognitively Biased Policymakers: Action Bias, Overconfidence, and Confirmation, Present Bias and Hyperbolic Discounting,

Availability and Salience, Framing and Extremeness Aversion, Affect and Prototype Heuristics
The Paternalism-Generating Framework
Rejoinders to Behavioral Paternalist Responses

Authors’ Conclusions: “Slippery-slope arguments are often treated dismissively, sometimes even consigned to lists of logical fallacies as a form of spurious reasoning. Without doubt, some writers do deploy slippery-slope arguments in a casual and imprecise way by simply asserting that seemingly attractive policy A will lead to clearly awful policy B. But this error does not mean all slippery-slope arguments are invalid. Rather, it means that we should pay attention to the specific processes – often probabilistic rather than deterministic – that connect one policy to another, as we have sought to do in this chapter. The slippery slope is a broad category, and many different mechanisms and processes fall under its umbrella. As such, it can be difficult to describe all slippery slopes in summary form. Nevertheless, certain features characterize many, though not all, types of slope. In particular, slopes tend to occur in the presence of vague and ill-defined concepts – what we have called gradients. Consequently, the same features of behavioral paternalism that are problematic on a conceptual level also raise concerns on a pragmatic level. In the earlier chapters of this book, we argued that the theoretical and empirical foundation of behavioral paternalism is fundamentally vague. It relies on distinctions that often fail to hold up under scrutiny, and that in any case cannot be reliably identified in practice. Policies based on such unstable moorings are almost bound to drift from their original justifications, because the justifications were weak and imprecise to begin with. Another common feature of slippery slopes is the presence of multiple and diffuse decision-makers, many lacking in accountability for outcomes. When accountability is lacking due to diffuse responsibility, delayed consequences, and unclear objectives, decision-makers will typically display both rational ignorance and rational irrationality. Whatever cognitive biases are present in the private sector will tend to be magnified in the public sector, thereby creating the room necessary for the gradual drift of policies away from their initial purposes as well as the purposeful movement of policy under the influence of moralists and rent-seekers. If behavioral paternalists genuinely care about personal autonomy, as some claim, then they ought to take slippery-slope concerns more seriously than they have thus far. And if behavioral paternalists care about the implementation of thoughtful and well-designed policies, as virtually all of them claim, then they should worry about how slope processes could warp their nuanced justifications and well-intentioned plans. To ignore the risk of slippery slopes is to commit an error that behavioral paternalists often caution against: focusing on present gains at the expense of future (and uncertain) losses. To repeat: the slope risk must be counted among the costs of the initial policy intervention. What, then, can be done to avoid, or more realistically to minimize, the danger of paternalist slopes? We have suggested some of the answers in this chapter. They involve, among other things, rejecting the paternalism-generating framework suggested by behaviorally minded thinkers, and adopting instead a paternalism-resisting framework. Such a framework would emphasize the distinction between voluntary and coercive action, as well as the distinction between private and state action.”

10 Common Threads, Escape Routes, and Paths Forward
Common Threads:
The Complexity of Inclusive Rationality, The Indeterminacy of Welfare Criteria, The Role of Incentives and Learning, The Rush to Policy
Escape Routes: Revert to Objective-Welfare Paternalism, Appeal to Obviousness, Shift the Burden of Proof, Loosen the Definition of Paternalism, Rely on the “Libertarian Condition”, Invoke the Inevitability of Choice Architecture, Focus on the Irrational Subset of the Population, Rely on Extreme Cases, Treat Behavioral Paternalism as a Toolbox, Invoke Fiscal Externalities
Recommendations: Replace Puppet Rationality with Inclusive Rationality, Reject the Paternalism-Generating Framework, Have Reasonable Expectations of Policymakers, Maintain Important Distinctions
A Better Path Forward: The authors begin discussion here with the Harm Principle: “the idea that we are justified in coercing people only for the purpose of preventing harm to others “. The authors stated their believe that the behavioral paternalists reject this principle, sometimes explicitly demanding coercion use for “the better good” but sometimes implicitly by trying create conditions when people forced to do what is “good for them”.  The author also stated their position:” we believe others may be making mistakes that harm their well-being, we are free to tell them so. We may even beg and plead if the situation warrants. The advantage of this approach is that it offers potentially useful information and perspective while still respecting people’s right to choose for themselves. After all, they probably have information and perspective on their own lives that outsiders lack. “

The authors also discuss the promotion of behavioral economics as a form of self-help, which they do not mind: “Behavioral economists and psychologists have produced a great body of insights on how human beings make decisions. While many of these insights are not as solid as we’ve been led to believe, they have nevertheless advanced our knowledge of the human mind. Our exploration of behavioral paternalism has forced us to question ideas and concepts that we once thought unassailable. We have, among other things, become more acutely aware of the failings of the neoclassical model of preferences and beliefs – which in turn drove us toward the notion of inclusive rationality that we have presented in this book. Therefore, we should not be understood as rejecting the whole of behavioral economics.” What they do mind are attempts to use it as tools of coercive policymaking: “It is jarring, to say the least, to see social scientists pointing out the errors of private individuals – and then failing to consider that social scientists and policymakers are also subject to error. It is frustrating to see behavioral researchers demonstrating the complexity of real decision-making processes – and then ignoring that complexity when recommending regulatory corrections of those very processes. It is simply baffling to see behavioral economists showing how real behavior deviates from neoclassical norms – and then insisting that behavior must conform to those norms or else be judged deficient.”

In the end, the authors reject entirely the behavior economists’ attitude: “…approach humanity from a position of presumed superiority, like puppet masters correcting the behavior of errant puppets.” Instead, the authors insist on:” approach them as fellow human beings doing the best they can, trying to improve their own choices, and offering friendly advice on how others might do the same.”

In short, the experts’ advice should remain advice, not a coercive policy.

MY TAKE ON IT:

I greatly appreciate the authors’ effort in producing such a detailed and effective review of behavioral economics and the attempts of its application to policymaking. It is clearly a critical part of the contemporary clash of ideologies. On one side is the ideology of freedom when people do what they want if it does not harm anybody. On the other side is the ideology of the “better” people making decisions for everybody. It is interesting how people transformed the latter ideology throughout time: from God-appointed kings and aristocracy to all-knowing “scientific” socialist and communists, to “scientific” experts wielding not theoretical works of Marks, but experimental research of behavioral economics. As far as I am concerned, I do not want anybody making decisions for me for the simple reason that whatever is the decision, I’ll pay the cost. This book also reasonably demonstrated that the scientific foundation of behavioral economics is quite shaky, so the quality of decisions would be poor. I hope that the currently growing wave of rejection to the rule of “betters” would get solid scientific backing from this book and other works like that.


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