David R. Henderson  

What Nudge Really Says

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The SAT Puzzle... Nudged...

Co-bloggers Arnold and Bryan have posted recently on their view that "libertarian paternalism" would be more attractive if its advocates pushed to replace existing paternalist policies with softer "nudging" paternalist policies. Scott Sumner has said something similar.

But as I pointed out in my review of Nudge, that's exactly what Richard Thaler and Cass Sunstein have done. I won't vouch for Thaler's latest argument that regulating smoking is about externalities. I've written on that at length (here and here). When you have privately owned rooms in which smoking occurs, there are no externalities within the rooms.

But in their book, Thaler and Sunstein advocate many reductions of straight paternalism. Here are some paragraphs from my Summer 2008 review in Regulation:

The authors also advocate moving in a libertarian direction on motorcycle helmet laws. They approvingly cite New York Times columnist John Tierney's proposal that people be allowed to go without helmets if they take an extra driving course and submit proof of health insurance. Again, this is a move away from the crushing paternalism most states impose by banning choice altogether.
Perhaps my favorite of their moves away from paternalism is on the issue of medical malpractice. They point out that patients now cannot sign a legally enforceable contract in which they promise not to sue for malpractice. The result is what the authors call a "forced lottery ticket": courts are capricious in these cases, finding negligence where there is none and missing negligence where it exists. And the lottery ticket is not cheap: they cite estimates that exposure to medical liability accounts for 5-9 percent of hospital expenditures, which gets reflected in higher premiums for health insurance. Why do courts block the kind of contracts that Thaler and Sunstein claim that patients would want? They write, "The answer is non-libertarian paternalism, pure and simple." They advocate letting patients, or their employers who buy the insurance, have an option that forbids malpractice suits. The nudge to get people to give up their lottery ticket is a default option whereby the patient gives up his right. Interestingly, the nudge here is not a big part of their proposal. What they advocate -- letting people contract out of the right to sue -- has been advocated for many years by many libertarians, with or without a nudge.
In a chapter titled "Privatizing Marriage," Thaler and Sunstein advocate, quite sensibly, moving in a libertarian direction by separating marriage and state. They point out that, despite the evidence, almost 100 percent of people who get married think that they are highly unlikely to get divorced. This is one of those systematic, but wrong, biases that people have. People also think that arranging pre-nuptial agreements will "spoil the mood." The result? Most people are vulnerable to "a legal system that has an astonishing degree of uncertainty." They advocate a nudge: a default contract that favors the weakest parties, typically women. Then, people would be free to avoid the default by tailoring a contract to their desires. They also suggest that taking marriage away from the state would, with one fell swoop, solve the thorny problem of gay marriage. Let churches and other organizations choose whatever marriages they want to approve and let people choose their churches. Interestingly, their nudge is a small part of this proposal, just as with their proposal on malpractice.
As I also point out in the review, Thaler and Sunstein mess up in their discussion of Social Security, seeing the elderly as people who somehow have a property right to be financed by the young. So they don't give us libertarians everything that we want. But when they do give us what we want, shouldn't we be willing to take Yes for an answer?

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COMMENTS (11 to date)
Daniel Klein writes:

And in Nudge they tepidly smile on school choice, as I recall.

But this list of four movements in the liberal direction still seems scanty in the face of the myriad hard paternalistic/"consumer protection" coercions.

Why don't they apply libertarian paternalism to drug prohibition, gambling, prostitution, FDA, occupational licensing, housing codes, etc. etc.?

Your posted is a good tonic but I think the Sumner/Kling/Caplan point still basically stands. When we consider the vast range of hard coercions ripe for their so-called libertarianization, the list of four begins to look like a gesture.

Daniel Klein writes:

Incidentally, in the book Nudge they discuss and favor opt-out on organ donation. It seems to me that that would be a violation of the liberty principle. I might favor it nonetheless.

R Richard Schweitzer writes:

Just another way for some to assert that they know better how others should live and interact with one another.

Conceit!

David R. Henderson writes:

Dan,
Good points, but I don't see any recognition of the points I made in Kling, Caplan, or Sumner. Furthermore, major progress on marriage law and medical malpractice, two major issues of the day, doesn't strike me as tepid.

Bill Drissel writes:

The nudge always means, "I know what's best for you." And then step-by-step to the toilet that doesn't flush and compulsory medical insurance.

Regards,
Bill Drissel

ThomasL writes:

I've often thought about privatizing marriage.

However, there is the obviously prickly point that so much of the law distinguishes between single and married--tax, inheritance, medicine, prohibition against a spouse being compelled to give testimony, etc.

When most of this law was written the definition was unambiguously understood, but now one is compelled to define it or people will suggest it to mean anything at all.

That is partly the law's fault, as the disparity in treatment on items like taxes between single and married would on its own tempt people to redefine marriage to take advantage.

That is the easiest item corrected, but the others remain. The trickiest of all is about testimony. I would never want to do away with that limit, but I also don't see how leaving it intact will allow "spouse" to go undefined.

Doc Merlin writes:

"As I also point out in the review, Thaler and Sunstein mess up in their discussion of Social Security, seeing the elderly as people who somehow have a property right to be financed by the young. "

This is very dangerous.

This is an attack that democratic socialists (Not saying that Sunstein and Thaler are socialists!) use against libertarians. They just say that the state has a property right to a percentage of our property. Its like the old theory that the king owns all the land and just lets people use it at his pleasure.

Tracy W writes:

I don't think much of the "getting the state out of marriage" thing either. The problems with private marriage occurr when one party has an incentive to claim the marriage exists and another to claim that no marriage took place. Take a case of two flatmates, whose relationship turns non-Platonic, and then one is hit by a bus and winds up in a coma in hospital, and the other flatmate, who has some weird ideas about medical treatment from her religion, claims that they were married and thus she should be making decisions about his medical treatment as next-of-kin, not his parents. Oh, and her church backs up her claim that they were married, but his parents and friends say they know nothing about this. He can't be questioned, as he's in a coma. How are the courts meant to decide who should be making the medical decisions?

A marriage license with witnesses who can be called and questioned, and a licence registered with the government, hopefully well before any problems like this emerge, is not impossible to fake, but it does make it harder and offers more options for leaving traces while doing so.

And as for the default contract, isn't that what marriage laws already offer?

liberty writes:

Out of trillions of dollars of government programs and tens of thousands of pages of paternalistic laws, all they could come up with is helmet laws, medical malpractice and marriage?

Yeah, I'd keep this in the category of "It would be nice if they proposed reducing the existing paternalism" -- this is more of a joke than Bush being a "fiscal conservative" -- at least Bush actually suggested privatizing social security: if these guys were the least bit libertarian that would be the first thing on the chopping block, as a private opt-out program fits perfectly with their concept of the nudge.

But these guys have no interest in seeing (or proposing) an actual reduction in paternalism. This is obvious when you see their teensy suggestions, and even among the teensy suggestions they cannot just say "suggest a helmet, warn the driver, but let him choose to go against your advice" but instead suggest that if you want to (god forbid) not wear a helmet, you must take an extra driving course AND show proof of insurance.

This is not, by the way, a step away from paternalism for many states. It may be a step away from paternalism in New Jersey, where you can't even pump your own gas, but in New Mexico, Arizona, Utah, Nevada, and a dozen other states, you need not take a test at all in the first place, nor show proof of insurance, nor wear a helmet. You can just drive your motorcycle because you are a grown up and are capable of taking a calculated risk on your own, no help from nanny.

http://www.iihs.org/laws/HelmetUseCurrent.aspx

liberty writes:

Pardon me, I meant to say you need not take a COURSE in the first place (not a test, for most states presumably you DO need to take a test).

Drscroogemcduck writes:

I think there can still be externalities from smoking in private rooms. The problem isn't private/public property. The problem is transaction costs. If transaction costs are too high people won't be able to negotiate an optimal solution. Though, I guess if private property is involved a good assumption is that there will be lower tx costs.

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