The Knowledge Problem of New Paternalism

79 Pages Posted: 3 Dec 2008

See all articles by Mario J. Rizzo

Mario J. Rizzo

New York University

Douglas Glen Whitman

California State University, Northridge - Department of Economics

Date Written: December 3, 2008

Abstract

The "new paternalism" is a set of policy prescriptions based on recent findings in behavioral economics whose purpose is to help individuals overcome a wide variety of behavior and cognitive biases. According to its proponents, it does not aim at replacing the preferences of individuals with those of the paternalist but rather to uncover the "true" preferences of individuals, that is, the preferences they would have if they had perfect knowledge, unlimited cognitive abilities and no lack of willpower.

The purpose of this Article is to show that new paternalist policies founder on the shoals of a profound knowledge problem revealed in Friedrich Hayek's famous critique of central planning. Feasible policies require not only accurate scientific knowledge but also accurate knowledge of "the particular circumstances of time and place" that constitute the local and personal knowledge of individuals. This knowledge is not accessible by paternalists.

This Article takes the findings of the behavioral economic and psychological literature seriously and shows that new paternalist policies can reliably increase welfare only if they take account of individual circumstances. These circumstances include the extent of biases, the existence and degree of self-debiasing, the interaction of different biases, and the unraveling of self-regulation due to paternalist policies. New paternalists must also deal with the indeterminacy of true preferences in the context of conflicting preferences within individuals.

We do not argue that individuals always make welfare-enhancing choices. Instead, we argue that despite individuals' mistakes, the paternalist does not know better in the concrete sense of what would be welfare-enhancing in particular circumstances and at particular times. Thus the new paternalist project fails to attain its self-imposed goals.

Suggested Citation

Rizzo, Mario J. and Whitman, Douglas Glen, The Knowledge Problem of New Paternalism (December 3, 2008). NYU Law and Economics Research Paper No. 08-60. Available at SSRN: https://ssrn.com/abstract=1310732 or http://dx.doi.org/10.2139/ssrn.1310732

Mario J. Rizzo (Contact Author)

New York University ( email )

Department of Economics
19 W, 4th Street
New York, NY 10012
United States
212-998-8932 (Phone)
212-995-4186 (Fax)

Douglas Glen Whitman

California State University, Northridge - Department of Economics ( email )

18111 Nordhoff Street
Northridge, CA 91330
United States
818-677-4542 (Phone)

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