Richard Rivalry

Richard Posner has his doubts about the use of behavioral economics to guide government agencies. He's talking about the rules Obama's regulatory agencies may use to guide and control financial consumrs.

He refers to the theories at Richard Thaler and Cass Sunstein in their book Nudge:

Mr. Thaler, whose views are taken seriously by the Obama administration, calls himself a “libertarian paternalist.” But that is an oxymoron. He is a paternalist with a velvet glove—as the agency will be. Through the use of carrot and stick, the agency will steer consumers to those financial products that it thinks best for them, whatever they naïvely think.

I wouldn't say "libertarian paternalist" is an oxymoron. I'd say, instead, pay close attention to which is the adjective and which is the noun. Thaler can modify it however he likes, he's still a paternalist.

Thaler responds people make mistakes and regularly use experts to help them. Why shouldn't the government, which is admittedly imperfect itself, guide regular folks?

The goal of the Nudge agenda [...] was to create decision-making environments in which it is easier for error-prone human decision makers to choose well. The Agency proposed by the administration is a good example of this kind of thinking. Even imperfect experts can help us achieve better outcomes, just as imperfect judges can help us enforce the law fairly.

I don't think the judge analogy works. The courts are needed after the fact when the system, which works smoothly most of the time, breaks down. That's when you need some referee which the government has the authority to supply. What Thaler wants to do is to stop problems before they occur, sometimes offering freedom (though less than you had before) or sometimes creating rules that will simply prevent greater choice.

Yes, private citizens make mistakes, and government officials make mistakes. But government mistakes can be systematic. They can also be heavily influenced by politics. Add up all the information those "ignorant" citizens have and it can be a lot more than the government experts possess. Some people need to make mistakes--that's how we learn--and it's not nearly as costly if the mistakes are bottom-up as top-down.

Bad choices freely made by private citizens can cause plenty of trouble, to be sure, but millions of people at ground level arriving at their own decisions is a feature of the system, not a flaw.