Wednesday, August 06, 2008

What is Libertarian Paternalism?

Richard H. Thaler and Cass R. Sunstein "are the authors of a new book, Nudge: Improving Decisions About Health, Wealth, and Happiness (Yale University Press), in which they articulate an approach to designing social and economic policies that incorporates an understanding of people's cognitive limitations.

"They call this governing philosophy "libertarian paternalism." That is not an oxymoron, they insist in their book. Rather it is a corrective to the longstanding assumption of policy makers that the average person is capable of thinking like Albert Einstein, storing as much memory as IBM's Big Blue, and exercising the willpower of Mahatma Gandhi. That is simply not how people are, they say. In reality human beings are lazy, busy, impulsive, inert, and irrational creatures highly susceptible to predictable biases and errors. That's why they can be nudged in socially desirable directions.

"A nudge is thus any noncoercive alteration in the context in which people make decisions. The libertarian paternalism behind it is rooted in Thaler's lifelong fascination with the power of small, seemingly innocuous details — the arrangement of food in a cafeteria, the drawing of a small fly in the bowl of a urinal, a pattern of lines on the road — to influence people's behavior. David Laibson, a professor of economics at Harvard University, says that Thaler's ideas, once a cry in the wilderness, are so influential that "about half of the profession now believes that psychology has a useful role to play in economic modeling, and that number is growing."

"...Take two examples in their book. Studies show that placing fruit at eye level in school cafeterias enhances its popularity by as much as 25 percent. Or consider this stroke of creativity by an economist in Amsterdam charged with cleaning up the restrooms at the Schiphol Airport: He had a fly etched into the wells of urinals, giving male patrons something to aim at. Spillage was reduced by 80 percent. The problems of childhood obesity and foul restrooms are remedied with very little inconvenience to people — or cost. Children remain free to grab that piece of chocolate cake, and there is nothing preventing visitors to Schiphol's restrooms from ignoring the fly and aiming elsewhere. It is merely less likely that either group will do so."

Read the Chronicle of Higher Education's review of their book.

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