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The Storrs Lectures: Behavioral Economics and Paternalism


Cass R. Sunstein


Harvard Law School

November 29, 2012

Yale Law Journal, Forthcoming

Abstract:     
A growing body of evidence demonstrates that in some contexts and for identifiable reasons, people make choices that are not in their interest, even when the stakes are high. Policymakers in a number of nations, including the United States and the United Kingdom, have used the underlying evidence to inform regulatory initiatives and choice architecture in a number of domains. Both the resulting actions and the relevant findings have raised the question whether an understanding of human errors opens greater space for paternalism. Behavioral market failures, which occur as a result of such errors, are an important supplement to the standard account of market failures; if promoting welfare is the guide, then behavioral market failures should be taken into consideration, even if the resulting actions are paternalistic. A general principle of behaviorally informed regulation – its first law – is that the appropriate responses to behavioral market failures usually consist of nudges, generally in the form of disclosure, warnings, and default rules. While some people invoke autonomy as an objection to paternalism, the strongest objections are welfarist in character. Official action may fail to respect heterogeneity, may diminish learning and self-help, may be subject to pressures from self-interested private groups (the problem of “behavioral public choice”), and may reflect the same errors that ordinary people make. The welfarist arguments against paternalism have considerable force, but choice architecture, and sometimes a form of paternalism, are inevitable, and to that extent the welfarist objections cannot get off the ground. Where paternalism is optional, the objections, though reasonable, depend on empirical assumptions that may not hold in identifiable contexts. There are many opportunities for improving human welfare through improved choice architecture.

Number of Pages in PDF File: 60

Keywords: behavioral economics, paternalism, cost-benefit analysis, nudges, hedonic forcasting errors

JEL Classification: D02, D03, D73, D87, D91, K00, K20

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Date posted: December 2, 2012 ; Last revised: December 8, 2012

Suggested Citation

Sunstein, Cass R., The Storrs Lectures: Behavioral Economics and Paternalism (November 29, 2012). Yale Law Journal, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2182619 or http://dx.doi.org/10.2139/ssrn.2182619

Contact Information

Cass R. Sunstein (Contact Author)
Harvard Law School ( email )
1575 Massachusetts Ave
Areeda Hall 225
Cambridge, MA 02138
United States
617-496-2291 (Phone)
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