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.)