Asymmetric Paternalism

An article titled Regulation  for  Conservatives: Behavioral Economics and the Case for Asymmetric Paternalism provides a fairly good perspective on how paternalistic laws should be evaluated, but is a bit weak on the public choice considerations that should make us skeptical of laws. They provide good arguments showing that cognitive biases imply that a government run by angels ought to be sometimes paternalistic, because we can imagine a wide variety of laws which provide significant benefits to people who are acting irrationally while having much less effect on people who are acting irrationally. The examples in this paper show that’s it’s not hard to imagine laws like that appear to do this by mandating defaults that rational people can override, by requiring better disclosure, and by requiring delays for certain purchases. But the examples also show that it’s hard to tell whether a significant fraction of those laws are beneficial in practice.

Some of the examples are on a gray line between paternalism and what libertarians could promote as anti-fraud measures. For instance, lotteries are often marketed in ways that cause customers to misjudge the odds of winning, and requiring lotteries to tell customers how the odds compare to being hit by lightening would clarify the customers’ thinking a bit. The main problems with this idea are that it’s hard to implement due to the government’s bad incentives resulting from the money it gets from lotteries, and because it would be hard to write a law such that the lotteries couldn’t evade much of the effect by manipulating the number of prizes so that the chance of winning sounds better than whatever they’re required to compare to.

They have a clear argument that cocaine users have time-inconsistent preferences which indicate that they would be better off (according to the preferences that the users have in many contexts) if they could only buy cocaine with some delay (like the delay in getting prescription drugs) than if cocaine can be bought instantly. But it’s unclear what non-draconian enforcement methods would prevent them from buying quickly on the black market.

They have enough sense to ask whether there are sufficient private incentives to create paternalism that paternalistic laws are unnecessary. They reject this possibility for many cases because consumers aren’t aware of the biases that make paternalism a plausible option. But that leaves the puzzle of why voters would do a better job. Maybe they hope for undemocratic ways of accomplishing that, but I’m uncomfortable with arguments that advocate undemocratic government without being explicit that they are doing that, since ways of creating laws that aren’t overseen by voters tend to serve interests other than those of the voters.

They often have appropriate doubts about the wisdom of any particular instance of paternalism. For instance, they raise doubts about the benefits of food labeling laws by mentioning the Snackwell effect, where labels such as "reduced fat" cause consumers to overestimate how healthy a food is.

The degree of uncertainty over the wisdom of the kind of paternalism they talk about suggests to me that even if many people adopt the "asymmetric paternalism" approach to evaluating laws, a large fraction of proposed paternalistic laws will be unwise (due to a combination of uncertainty among experts and special interests misleading people). This leaves me suspecting that analyzing paternalistic laws on a case by case basis will still (at least until we get a political system the overcomes the biases that special interests exploit) result in an undesirable ratio of good to bad paternalistic laws, and that it is therefor better to use a general rule that such laws are bad (or assumed bad until proved good beyond some fairly demanding threshold). I think I see some bias by the authors toward underestimating the costs of disclosure laws. They say that it is a minimal burden on financial institutions to require them to provide customized disclosure to consumers that can be computerized. For the kind of large institution we often think of in this context, that seems reasonable. But what does that do to a small startup that is doing something novel? Even if the disclosure law is written well enough that it doesn’t restrict innovation (an unsafe assumption given that people at large institutions are often the only ones paying enough attention to influence how the disclosure laws are written, and would like to create barriers to entry), the programming work involved in a larger fraction of the total cost of running a small business than it is for a large institution. This has hard-to-measure effects on competition and innovation. I suspect the relative ease of measuring the benefits of these disclosure laws biases people toward ignoring these costs. For example, imagine a noncommercial open source software version of Prosper (a "Peer to Peer Lending Marketplace"). Is this possible with very minimal disclosure laws? I don’t know. Is it possible with complex disclosure laws? Probably not without big advances in AI.

They list three causes of status quo biases. I’m a bit surprised that they omit what my intuition tells me is one of the most important, namely that people care about their reputation for having made wise decisions, and sticking to whatever opinions they’ve formed in the past is more likely to promote such a reputation than a purely bayesian process would.

I have one minor complaint about their description of an experiment involving students who get lower grades if allowed to choose their own deadlines for handing in papers than do students who have evenly spaced deadlines imposed on them. The summary in this paper only says that students who choose deadlines unwisely have lower grades, and claims that demonstrates that deadlines cause benefits, even though that result might also have been caused by good students setting deadlines that look better (the paper which is the original source describing the experiment says that students given the choice do worse on average, so the experiment did a better job of demonstrating the value of deadlines than the summary indicates).

(I’ve updated the link to the one Hal found; the one I originally used seems to have stopped working.)

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  • You suspect a bias in case by case analysis of paternalistic laws, due to special interests, and so prefer a general rule against such laws. But unless you think voters are especially aware of this bias, relative to the other biases you doubted voter awareness about, it is not clear why voters would approve such a general rule. If you hope for undemocratic ways to get this rule, aren’t you in the same position as paternalism fans who hope for similar processes to produce paternalistic rules?

  • Robin, the US Constitution is a case of restraints imposed on biased voters by paternalistic means. But insofar as a small convention of unelected landowners has already put in place a constitution which restrains the populace from appointing a permanent king, one can treat this effect as fixed, known, and divorced from its original cause; rather than regarding it as a random-variable outcome of the procedure “appoint a small convention of unelected landowners to overcome the biases of the voters”. In other words, we would not necessarily be as lucky if it happened again. In this case it may be wiser to prefer the status quo. But it seems worth noting that, pragmatically, paternalistic constraints to restrain paternalistic laws seem to have a much higher success ratio than paternalistic laws themselves.

    Also, McCluskey did not necessarily argue for explicit paternalistic legislation passed to restrain paternalistic laws – his point is symmetrical around trying to pass such explicit legislation, or expending the same effort to oppose such laws on a case-by-case basis without such legislation.

  • Seems like much paternalistic legislation can be seen as having three causes. First is the correction of bias; but this cause is often not given explicitly because it makes people sound foolish, which is unacceptable in a democratic state. Second is prevention of victimization and exploitation; this is often given as the main reason for the legislation. Third is benefit to special interest groups; this is often the true reason and motivation for the law being passed.

    An example is minimum wage laws. The first cause is poor people foolishly accepting wages that are too low for a decent living; this is not usually stated explicitly but is perhaps an implicit justification for such laws that everyone is too polite to mention. The second cause is exploitation of labor by employers, which is the main reason given for the law in public. The third cause is benefit to labor unions, who can negotiate wages upward from a minimum wage floor; this is where much of the actual political pressure originates.

  • BTW your link to the article did not work for me – maybe you have to have an account there. Here is one which does work:

  • To Robin: Voters have a crude awareness of the relevant biases, and as a result do use a very weak version of a general rule against paternalism in their deliberations. That weak rule was achieved largely through democratic debate. My comments were partly directed at using democratic debate to keeping existing political habits from being replaced by increased case by case analysis.
    But you’re partly right – my longer-term hope is that futarchy would create a stronger version of the rule. I see futarchy as democratic in its early versions (operating by providing better knowledge to voters). In the more distant future when futarchy might become an automated rule, then what I want might amount to an undemocratic way of adopting the general rule. But it’s also possible that by then futarchy will have overcome enough biases that I’ll agree with the paternalists that case by case analysis is reasonable. Or maybe AI will produce a better alternative. So I’m a little guilty about not being explicit that I might want undemocratic means of adopting policies in the somewhat distant future (I’m not against undemocratic political approaches, I’m just trying to ensure that people be explicit when advocating them).

    To Hal: I doubt many minimum wage advocates think poor people make foolish choices about wages. If they did, they’d direct at least a little of their rhetoric toward educating the poor. I think your second cause refers to a complex mixture of causes which ought to be broken down into simpler categories. For the minimum wage, I think the main cause is that people want monopoly profits to be distributed in more egalitarian ways. Alas, voters have little incentive to hold accurate beliefs about the extent of monopoly profits, and are biased toward seeing zero-sum games.

  • A couple of quotes from the third page of the paper: “Historically, the core justification for paternalism arose from skepticism about the ability of certain categories of people to make decisions in their best interest… this general rational for paternalism persists.” This is what I was identifying as my first cause, but it is not often stated today because it looks like “blaming the victim” which is politically incorrect. The preferred rhetorical framework today casts the situation as predators taking advantage of victims, who must then be protected.

    And then: “A number of regulations reflect the fear that even people of sound mind might not act in their long-term self-interest in certain predictable situations. For example, usury laws and laws against selling oneself into indefinite servitude protect those in desperate economic straits from accepting contracts with potentially devastating long-term consequences.” I see minimum wage as a similar example although obviously the consequences are less severe. But the fear is the same, that those in poor circumstances are not acting in their own long-term self-interest and must be protected.

  • “The first cause is poor people foolishly accepting wages that are too low for a decent living”

    I doubt that people accepting such wages is usually foolish. Their choice is either to take such a low-wage job or to be unemployed. How is it irrational to choose the former?

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