(Re: a law requiring all people to carry umbrellas) “But a person who understands the chances of rain and the costs and benefits of carrying or not is in a good position to make the choice for themself.”

I totally agree. The problem is all the dumb people who can’t figure out to carry an umbrella or not. Now we can argue whether a paternalistic regulation would be good. I suspect most people would agree that it was a bad idea since having everyone lug around umbrellas on sunny days would be ridiculous.

All I want to say is that your one sentence: “To argue for paternalism regarding self-control, one has to assume we are biased to underestimate our self-control problems.” doesn’t seem to be strictly correct; you need to replace “we” with “some of us”. One can make a logically consistent argument in favor of paternalism based on the few dummies.

Systematic underestimation of self-control problems doesn’t seem necessary to have a market that fails to supply sufficient commitment mechanisms. Even if all consumers accurately estimated their self-control problems, the technology might just not be there for the consumer demand to be met in a profitable way.

Consider the ice cream stores — how can they meet consumer demand for commitment mechanisms? They could start a no customer list, but then they’re just throwing away profit. I suppose they could charge people to be on the no customer list, but the transaction costs (they’d have to implement a system to recognize customers on the list, train their employees to use it, etc.) would probably be very high, high enough that the prices would price a lot of people out of the market for self control.

They could try and take advantage through the price structure, as per the first paper you posted. But that’s a really ad hoc (and kind of dubious) model — as far as I can tell from a quick skim, the authors consider investment goods under perfect competiton, but not leisure goods. And if any market is perfectly competitive, the ice cream store market is. So here’s the scenario for the ice cream goods market with all sophisticated consumers. Store A charges a very high price per cone. The sophisticated consumers are very happy, because they have a self-control mechanism. Store B charges a lower price per cone. The consumers, because they have low self-control, shop at store B. They know they’ll shop at store B — they have perfect knowledge of their tendency to shop at store B, but they can’t help themselves. Store A goes broke. Poor consumers.

As far as I can tell, that first paper you posted above only works in markets where there’s a real chance of imposing low initial costs and high time-delayed/per-unit costs. Which sure ain’t the ice cream industry.

There’s also another problem with the sophisticated addict model. It’s possible to be a sophisticated addict and still not know what to do about it. Imagine a customer who is addicted to cell phone usage but still has an instinctive and irrational aversion to high per-unit prices. He knows he’ll over-use the cellphone, but won’t demand the commitment mechanisms outlined in that paper.

That being said, I don’t think it would be that odd for most everyone to believe most everyone else underestimates their self-control problems. Irrational, yes. Unusual? In a world where things like overconfidence bias appear in study after study? Not odd.

Don’t you all think it would be very odd if most everyone estimated that most everyone else underestimated their self-control problems?

Also, the two selves thing is really more of a metaphor than a model. And it’s a really damaging metaphor, as Cowen’s paper demonstrates. Sooner or later, economics is going to have to give way to psychology and then neuroscience on the topic of addictive behavior. Whatever it is that we may think our “preferences” or our “impulsive selves” are, there’s a mess of dopamine firing around the anterior cingulate cortex that says that we’re going to repeat activities with immediate perceived rewards, and that mess of dopamine doesn’t say that we’re going to repeat activities with long-term rewards that are disconnected from actions and stimulus. This isn’t an objection to the first two papers, but I think it is an objection to Cowen’s — you can’t inflict externalities on the impulsive self — the impulsive self is a compulsion, not a utility function! And it’s not responsible for “bursts of creativity and innovation!” It’s a reinforcement learning mechanism, not the seat of creativity! And — heaven help us — the nonexistent impulsive self engages in strategic behavior too?

The notion of “liberating” one’s compulsive behavior is totally absurd.

Incidentally, Robin, what incentive do casinos (or ice cream stores) have to create lists of people who aren’t allowed to give them money? (Or is the state paternalistically supplying this incentive through regulation?)