Rizzo and Whitman on the New Paternalism

15 December 2008 at 1:46 am Peter G. Klein 2 comments

| Peter Klein |

Mario Rizzo and Glenn Whitman offer a Hayekian critique of Richard Thaler and Cass Sunstein in their new paper, “The Knowledge Problem of New Paternalism.” From the abstract:

The “new paternalism” is a set of policy prescriptions based on recent findings in behavioral economics whose purpose is to help individuals overcome a wide variety of behavior and cognitive biases. According to its proponents, it does not aim at replacing the preferences of individuals with those of the paternalist but rather to uncover the “true” preferences of individuals, that is, the preferences they would have if they had perfect knowledge, unlimited cognitive abilities and no lack of willpower.

The purpose of this Article is to show that new paternalist policies founder on the shoals of a profound knowledge problem revealed in Friedrich Hayek’s famous critique of central planning. Feasible policies require not only accurate scientific knowledge but also accurate knowledge of “the particular circumstances of time and place” that constitute the local and personal knowledge of individuals. This knowledge is not accessible by paternalists.

See also this exchange between Rizzo and Thaler in last year’s WSJ.

Entry filed under: - Klein -, Methods/Methodology/Theory of Science, Public Policy / Political Economy.

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2 Comments Add your own

1. simone | 17 December 2008 at 9:22 pm

I find Thaler’s position a rhetorical one. The decision to mix metaphors even suggests that he is seeking to take advantage of the some weak minded.

I would like to start by suggesting that Behaviroal Economics is not an accurate characterization of the Thaler’s work. He is really a social psychologist. His work really does not address the primary study of economics – exchanges. He and other Behavioral Economist spend almost all of their time cataloging cases where a large percentage of subjects “violate” a tenant of “rationality”. The market or exchange is no where in study. The focus is a decision. A decision is not a market. From an organizational perspective the theory offers no place for institutional forces that give rise to markets and/or hierarchies. I am sure they can suggest why but it does not emerge from their theory.

Second the work does not really offer a cognitive understanding of the underlying processing subjects engage in the tasks. Recency, Anchor and Adjust, and Framing are merely descriptive. They are computationally meaningless. A third material problems with BE is that is does not adequately explain why some subjects “correctly” respond to the task (comply with “rational” decision making).
2. Mario Rizzo | 19 December 2008 at 10:06 am

Simone, these are excellent points. I’d only stress that the differential responses (some “rational” and some not) among decisionmakers reveals that something more is going on — whether it be institutions, experience, intelligence, etc. I would agree with John List and others that we need a more general theory of what determines the degree of “rationality” of response.