Friends of the Behavioral Economics Club, this week we present the paper “Future Imperfect: Behavioral Economics and Government Paternalism” by Le Grand, J. (2018), in which the author reflects about the paternalists decisions of the government and their relationship with behavioral economics.
Numerous economists, psychologists, and other experts have used the growing number of empirical research in behavioral economics to understand paternalistic government policies.
The main argument is that people make mistakes in judgment when it comes to their goals; consequently, governments intervene in politics to correct these errors and, therefore, help people to achieve their proposed ends.
The interventions would exist in a wide variety of areas: taxes, licenses, the prohibition of potentially harmful activities for health, subsidies, and so on.
However, many other experts have questioned these arguments and the government policies associated with them, commenting that they unjustifiably and arbitrarily offer privileges to a particular set of preferences. In this article, the author reflects about this idea.
He first explains that there are two types of paternalism: the one related to the means and the one related to the ends. The idea is that individuals have objectives, goals, values, which are part of our life plan, among which we choose, looking for ways to achieve them.
Paternalism related to ends occurs when a government agency considers that some individuals have not adequately considered their own ends or objectives and, therefore, replaces them according to its own conception of what is good, trying to alter the behaviors of the individuals that are relevant for its achievement.
The paternalism related to the means occurs when the agency accepts the ends of the individuals, that is, it accepts their conception of life and the objectives they pursue, but observes that individuals make mistakes when trying to achieve these objectives and decides to intervene to correct them.
How can we relate the challenges of this issue to behavioral economics?
Experts who defend this position of the government comment that it is a way of adjusting decision-making to the neoclassical axioms of rationality.
To correctly understand this whole idea, the author proposes an example.
When 18-year-old Jane goes to buy a pack of cigarettes, the agency considers that if she does this, she will be at high risk for lung cancer and/or other smoking-related diseases in the future. Furthermore, the agency judges that this will reduce the expected value of her future utility and welfare. Therefore, the agency considers that it is justified to try to interfere in some way with Jane buying those cigarettes.
The main objection that occurs to all of us is that this intervention would interfere with Jane’s autonomy, so it could only be tolerated if the harms to Jane’s autonomy were minimized as much as possible with the methods chosen for the intervention.
In addition to damaging the autonomy of the individual, the agency would also be questioning her decision-making process.
Returning to Jane’s example: no one on the planet is unaware that smoking is a health risk, so it is reasonable to think that she knows it too and has taken this knowledge into account in some way in the judgment that led her to make her decision . So what is the agency’s basis for deciding that Jane’s judgment should be superseded by their own judgment?
Well, there are some reasons why the agency might consider this idea. First, they may believe that Jane is making her decision based on misinformation. In this case, the agency’s responsibility would be to provide her with correct information or to ensure that she has access to it.
Later, the agency might think that the decision is wrong because in her judgment, Jane is using the wrong discount rate in her expected value calculations. That is, when Jane evaluates the contributions that current and future actions make to her lifetime utility, she considers present actions more important than future actions, contrary to what the agency believes.
The reason Jane acts like this is likely due to her assessment of the uncertainties involved in any assessment of the future. If the government agency has a different assessment of this uncertainty, their role would be to provide Jane with this information and then allow her to make her decision. If the agency were to hinder or impede Jane’s activities due to lack of information about the risks, it would be unjustifiably paternalizing.
There is also the idea that the agency is defending the benefits of the Jane of the future while Jane is defending the benefits of the Jane of the present.
As we can see, we could reflect long and hard on this topic, since human decision-making is a complex process, like everything that derives from human behavior.
This article accepts that government interventions may favor certain preferences, but not arbitrarily. Furthermore, it could be justified by the desire of the individual’s governments to maximize his life well. The idea is that the future will never be perfect, but with proper government intervention it can be improved.
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