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Lecture - Behavioral Economics & the Libertarian Paternalism Approach to Policy

The emerging discipline of behavioral economics, which lies at the intersection of psychology and economics, examines ways that cognitive limitations and biases influence decision making. In an attempt to encourage people to make better choices, Richard Thaler and Cass Sunstein advanced an approach to policy-making called "libertarian paternalism." They contend that this is not an oxymoron, that "nudges" can steer people toward more rational choices (the paternalistic aspect) while preserving freedom of choice (the libertarian aspect). For example, changing the default option for organ donation (e.g., moving from an opt-in to an opt-out or a forced-choice system) can bring people’s choices into better alignment with their own preferences. The same options are available, but it becomes easier to become a donor than under the traditional system in which extra steps must be taken (e.g., obtaining, completing, and returning a form). This approach to policy has generated considerable enthusiasm and in many contexts it holds great promise for improving decisions. However, it raises a number of concerns that have received little attention. For example, policy-makers are subject to the same limitations and biases as anyone else, so what assurance does one have that nudges will in fact lead to more rational decisions? What will prevent a gentle nudge from becoming a more coercive shove? Might nudges reduce the incentives and opportunities to think carefully and learn from one’s mistakes? Drawing from theory and research in behavioral economics, the promises and the pitfalls of adopting a libertarian paternalism approach to policy-making will be discussed.

John Ruscio is a psychology professor at The College of New Jersey (TCNJ). His enduring scholarly interests involve the development, evaluation, and application of quantitative methods in social science research as well as basic and applied topics in the study of human judgment and decision making. His published work includes dozens of papers in peer-reviewed journals, books on critical thinking and myths of popular psychology, and four articles for the Skeptical Inquirer. At TCNJ, he offers a freshman seminar entitled "The Price of Everything" that introduces basic economics principles and examines their application to environmental, health care, and other policy issues. He also teaches a course on statistics and a senior seminar on behavioral economics for psychology majors.

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