Mario J Rizzo - Escaping Paternalism: Rationality, Behavioral Economics, and Public Policy

This interdisciplinary series promotes original theoretical and empirical research as well as integrative syntheses involving links between individual choice, institutions, and social outcomes. Contributions are welcome from across the social sciences, particularly in the areas where economic analysis is joined with other disciplines such as comparative political economy, new institutional economics, and behavioral economics.

Escaping Paternalism

Rationality, Behavioral Economics, and Public Policy

Mario J. Rizzo

New York University

Glen Whitman

California State University, Northridge

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Mario J. Rizzo and Glen Whitman 2020

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This book is the product of many years of thinking about economic rationality, its critique by behavioral researchers, and the impact of both on public policy, especially paternalistic public policy. Much has been written about whether real people are rational and the kinds of errors they may be subject to. Unfortunately, economists, and perhaps other social scientists as well, have been boxed into an excessively narrow and technical concept of rationality. This has left its imprint on the influential heuristics-and-biases literature, which claims people are not fully rational relative to that standard.

It worries us that much of the core behavioral literature is often presented as essentially settled, and many alleged biases have now attained the status of truisms. One of our tasks in this book is to show that the evidence is far weaker than has been often assumed. Similarly, the behavioral policy goal of moving people in the direction of their true preferences that is, their well-considered preferences purged of all cognitive and behavioral contaminants is often a mirage. The behavioral policy discussion frequently suffers from significant empirical difficulties and conceptual confusions.

Furthermore, the political economy of behavioral policy is fraught not only with the usual public-choice problems, but with an amplification of them due to the peculiar moralistic character of paternalist legislation. To the extent that ordinary people are afflicted by cognitive biases, we must confront the likelihood that policymakers suffer from them as well. Finally, the supposedly gentle and moderate character of behavioral policy initiatives is not a sustainable state of affairs, as we hope a reasonable analysis of their dynamic consequences will show.