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Paternalism and Psychology

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  • Edward L. Glaeser

Abstract

Does 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.

Suggested Citation

  • Edward L. Glaeser, 2005. "Paternalism and Psychology," Harvard Institute of Economic Research Working Papers 2097, Harvard - Institute of Economic Research.
  • Handle: RePEc:fth:harver:2097
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    File URL: http://www.economics.harvard.edu/pub/hier/2005/HIER2097.pdf
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    Cited by:

    1. Martin Binder & Leonhard K. Lades, 2015. "Autonomy-Enhancing Paternalism," Kyklos, Wiley Blackwell, vol. 68(1), pages 3-27, February.
    2. 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.
    3. Bruno S. Frey, 2011. "Subjective Well-Being, Politics and Political Economy," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 147(IV), pages 397-415, December.
    4. Martin Binder, 2014. "Should evolutionary economists embrace libertarian paternalism?," Journal of Evolutionary Economics, Springer, vol. 24(3), pages 515-539, July.
    5. Isztin, Péter, 2016. "Cass R. Sunstein: Choosing Not to Choose. Understanding the Value of Choice
      [Cass Sunstein: Choosing not to Choose. Understanding the Value of Choice]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 889-894.

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