Put Away the Puppets

book cover
  • A Book Review of Escaping Paternalism: Rationality, Behavioral Economics, and Public Policy, by Mario J. Rizzo and Glen Whitman.

Are you saving enough for retirement? How do you know? How can I tell? What if there is a benchmark against which to compare your savings? If you meet it, all is well. But what if you do not? Should you? And if you should, but you do not, why don’t you? Maybe someone should make sure you meet that benchmark, since you are unable to do it on your own, even though you should. This is a simplified example of behavioral paternalism, a new form of paternalism which relies on the experimental results of behavioral economics to offer solutions to our shortcomings.

Are you saving enough for retirement? How do you know? How can I tell? What if there is a benchmark against which to compare your savings? If you meet it, all is well. But what if you do not? Should you? And if you should, but you do not, why don’t you? Maybe someone should make sure you meet that benchmark, since you are unable to do it on your own, even though you should. This is a simplified example of behavioral paternalism, a new form of paternalism which relies on the experimental results of behavioral economics to offer solutions to our shortcomings.

But who decides where that benchmark is? And is the benchmark that you should meet the same as the one I should meet? Is the help to help yourself what you actually want? Should this help, which is for your own good after all, be imposed on you? These are some of the many questions Mario Rizzo and Glen Whitman ask in Escaping Paternalism: Rationality, Behavioral Economics, and Public Policy.

In my eyes, Escaping Paternalism could be summarized with the following (long) quotation (not from their book but from Adam Smith’s The Theory of Moral Sentiments):

  • The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion beside that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go miserably, and the society must be at all times in the highest degree of disorder.
  • […] But to insist upon establishing […] in spite of all opposition, every thing which that idea may seem to require, must often be the highest degree of arrogance. It is to erect his own judgment into the supreme standard of right and wrong. It is to fancy himself the only wise and worthy man in the commonwealth, and that his fellow-citizens should accommodate themselves to him and not to them. (TMS IV.ii.2.17-18)

Behavioral paternalists can determine your optimal saving behavior (saving is just one of the many examples Rizzo and Whitman use). They have a very clear and beautiful model (system) of the rational amount to save. If you do not meet it, your behavior is irrational. So they will help you do what you really should do, and what you yourself would do, if you had not been moved by the irrational forces of your own biases. And they, like the man of system, imagine they can move people like pieces on a chess-board, or like puppets, in the words of Rizzo and Whitman, through a series of arrangements more or less imposed by law.
And just as the man of system arrogantly erects his own judgment as the only standard of right and wrong, behavioral paternalists erect their own definition of rationality as the only standard of evaluation possible—what Rizzo and Whitman call puppet rationality. Funnily enough, behavioral paternalists adopt as a normative standard the very rationality that they reject as a description of human behavior. We do not behave rationally. But we should. We should be well-behaved puppets, controlled exclusively by the unique standard of rationality that behavioral paternalists judge appropriate for us.

When we observe a behavior that differs from our model of good behavior, we can either condemn the behavior or question the model. If, to use a Smithian example, the model of morality is benevolence, like Frances Hutcheson suggested, we may argue that any behavior that is not benevolent is morally wrong. Or, we may question whether benevolence is really the only standard of morality. Similarly, if our model of behavior is rationality, like behavioral paternalists claim, but people do not behave like the model predicts, people must be irrational. Or, maybe that normative model of rationality should be questioned. Maybe a much broader and inclusive idea of rationality (or morality) should be considered. Rizzo and Whitman offer a rationality (or morality) which is not monolithically context-free, but multifaceted and context dependent.

“My principles of motion may differ from the ones attributed to me by the man of system/puppeteer. Does this make them wrong (irrational)?”

Indeed, Rizzo and Whitman suggest more humility and an inclusive rationality which takes into consideration as many local circumstances as possible. My principles of motion may differ from the ones attributed to me by the man of system/puppeteer. Does this make them wrong (irrational)? I may save less than you think is rational, but that may not be because my decision is irrational, but because of my specific context. What if I have three children to send to school? I may save more now, but then I would not be able to send my children to excellent schools. Should I be nudged into sending my children into worse schools so that I can enjoy a more comfortable retirement? Or, what if, given my lack of understanding of basic finance, my “low” savings are perfectly rational? If you really want to help me, you may offer me some (voluntary) seminars, not force my employer to have a specific set of default settings in my retirement plan sign-up sheet.

Rizzo and Whitman warn that the puppet show, like Smith’s game of chess, can go miserably wrong. If our principles of motion do differ from that of the puppeteer/man of system, the policy may fail. That failure may lead to a call for more interventions, which may also fail, as they do not take into consideration the interactions of multiple “biases”, or, better, the complexity of local knowledge of different contexts. What is there to prevent more and more interventions, sliding down a slippery slope from gentle nudge to an outright ban/mandate?
The approach that Rizzo and Whitman adopt has another (unintended?) similarity to the Scottish Enlightenment approach. Their approach resembles what David Hume describes as being an anatomist rather than a painter. An anatomist just describes the human body, without judging or imposing a standard of beauty on it. Similarly, Rizzo and Whitman, with their idea of inclusive rationality, do not try to impose a normative standard (the puppet rationality of behavioral paternalists). Instead, they just describe how people behave.
Where Rizzo and Whitman differ from their peers of the past is in the wealth of their citations. The book contains almost 40 pages of tightly printed references. This may easily be the most comprehensive work on behavioral paternalism yet produced. If not just for its comprehensive coverage of the existing literature, it will prove to be an extremely useful tool to any scholar interested in this topic.

Furthermore, Escaping Paternalism‘s comprehensiveness extends to its argument as well. Rizzo and Whitman do not leave any opening for behavioral paternalists’ objections. Their argument is tight on all fronts and covers all possible criticisms, preventively defending itself against any possible attack, by giving the best possible argument in favor of behavioral paternalism and then showing how it does not work. Behavioral paternalists claim to be motivated by data and science. But what if the data is inconclusive or incomplete? Even if the data is conclusive and complete, what if policy makers are just as biased as everybody else? Even if policy makers are perfectly rational, what if there are special interests that make it rational to have policies that are not “rational”? Even if all policies are rational, what if there are multiple “biases” interacting and there is a gradient that creates a slippery slope into more and more intrusive policies creating more and more restrictions to those individual choices which were the initial motivation of behavioral paternalism?

Escaping Paternalism is a must read for anyone interested in rationality, behavioral economics, and economics and psychology in general, and public policy. It should be the default choice in all reading lists, with the option, of course, to choose something else instead.