Regulation for conservatives: behavioral economics and the case for "asymmetric paternalism".(Preferences and Rational Choice: New Perspectives and Legal Implications)

INTRODUCTION

Regulation by the state can take a variety of forms. Some regulations are aimed entirely at redistribution, such as when we tax the rich and give to the poor. Other regulations seek to counteract externalities by restricting behavior in a way that imposes harm on an individual basis but yields net societal benefits. A good example is taxation to fund public goods such as roads. In such situations, an individual would be better off if she alone were exempt from the tax; she benefits when everyone (including herself) must pay the tax.

In this paper, we are concerned with a third form of regulation: paternalistic regulations that are designed to help on an individual basis. Paternalism treads on consumer sovereignty by forcing, or preventing, choices for the individual's own good, much as when parents limit their child's freedom to skip school or eat candy for dinner. Recent research in behavioral economics has identified a variety of decision-making errors that may expand the scope of paternalistic regulation. (1) To the extent that the errors identified by behavioral research lead people not to behave in their own best interests, paternalism may prove useful. But, to the extent that paternalism prevents people from behaving in their own best interests, paternalism may prove costly. (2)

Our purpose in this Article is to argue that in many cases it is possible to have one's cake and eat it too. We propose an approach to evaluating paternalistic regulations and doctrines that we call "asymmetric paternalism." A regulation is asymmetrically paternalistic if it creates large benefits for those who make errors, while imposing little or no harm on those who are fully rational. (3) Such regulations are relatively harmless to those who reliably make decisions in their best interest, while at the same time advantageous to those making suboptimal choices.

We then document existing and potential regulatory responses to decision-making errors that satisfy this criterion. Our paper seeks to engage two different audiences with two different sets of concerns: For those (particularly economists) prone to rigid antipaternalism, the paper describes a possibly attractive rationale for paternalism as well as a careful, cautious, and disciplined approach. For those prone to give unabashed support for paternalistic policies based on behavioral economics, this paper argues that more discipline is needed and proposes a possible criterion.

Historically, the core justification for paternalism arose from skepticism about the ability of certain categories of people to make decisions in their best interest. (4) Beginning in the nineteenth century, this category was comprised of those deemed incapable of contracting for themselves, including, in the words of one leading case, "idiots, minors or married women." (5) Paternalism was the appropriate social response for those who were to be treated ultimately as wards of the state. (6) While our conception of the competence of women has changed markedly, and the "idiot" designation arouses discomfort, this general rationale for paternalism persists.

Our approach accords even better with a second justification for paternalism which focuses on situations rather than persons. A number of regulations reflect the fear that even people of sound mind might not act in their long-term self-interest in certain predictable situations. For example, usury laws and laws against selling oneself into indefinite servitude protect those in desperate economic straits from accepting contracts with potentially devastating long-term consequences. (7) Health and safety regulation of dangerous occupations was based on fears that pressure to provide for one's family might lead people to incur risks deemed unacceptable to the larger society. (8) Regulation of narcotics may stem from concerns that narcotics have the capacity to turn ordinarily functioning people into the equivalent of "minors" or "idiots." (9)