Paternalism and Psychology
AbstractDoes bounded rationality make paternalism more attractive? This Essay argues that errors will be larger when suppliers have stronger incentives or lower costs of persuasion and when consumers have weaker incentives to learn the truth. These comparative statics suggest that bounded rationality will often increase the costs of government decisionmaking relative to private decisionmaking, because consumers have better incentives to overcome errors than government decisionmakers, consumers have stronger incentives to choose well when they are purchasing than when they are voting and it is more costly to change the beliefs of millions of consumers than a handful of bureaucrats. As such, recognizing the limits of human cognition may strengthen the case for limited government.
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Bibliographic InfoPaper provided by Harvard - Institute of Economic Research in its series Harvard Institute of Economic Research Working Papers with number 2097.
Date of creation: 2005
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- Pelikan, Pavel, 2006. "Markets vs. Government when Rationality Is Unequally Bounded: Some Consequences of Cognitive Inequalities for Theory and Policy," Ratio Working Papers 85, The Ratio Institute, revised 03 Sep 2006.
- Martin Binder & Leonhard K. Lades, 2013. "Autonomy-enhancing paternalism," Papers on Economics and Evolution 2013-04, Max Planck Institute of Economics, Evolutionary Economics Group.
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