Regulation for Conservatives: Behavioral Economics and the Case for 'Asymmetric Paternalism'
California Institute of Technology - Division of the Humanities and Social Sciences
New York University School of Law
Carnegie Mellon University - Department of Social and Decision Sciences
Cornell University - Department of Economics
University of California, Berkeley - Department of Economics
April 1, 2003
University of Pennsylvania Law Review, Vol. 151, p. 1211, 2003
Columbia Law and Economics Working Paper No. 225
This paper examines the regulatory implications of behavioral economic insights. The central effect of behavioral economics in the legal literature to date has been to challenge the premise of formal economic theory that individuals understand their preferences and work to maximize these preferences. Behavioral economics has gathered increased attention in the economic analysis of law because of its demonstration that individual decisionmaking is prone to numerous biases and heuristics, and that as a result individuals may not act to realize their best interests. Part of the enthusiasm for behavioral economics in the legal literature has come from the apparent compatibility of the behavioral insights with proposals for paternalistic regulation. By pointing out some of the ways that human behavior falls short of perfect rationality, behavioral economics can potentially expand the scope of beneficial paternalistic policies that constrain individual choice. However, such policies should be implemented cautiously, given differences in opinion about what behaviors are irrational and concerns about costs imposed on people who are rational. In response to these concerns, we propose a principle for developing and evaluating regulatory policies that we term "asymmetric paternalism." Asymmetrically paternalistic regulations benefit those who would otherwise make poor decisions, but impose little or no costs on those who behave optimally. As such, they challenges both opponents and supporters of regulation by setting forth a disciplined set of criteria by which to judge the costs and benefits of regulatory proposals. The article explores the application of this principle to several specific sources of flawed decision making identified by behavioral economics in such diverse areas as retirement savings, consumer protection, and family law, and suggests examples of already existing regulations in these fields that seem to embody the principle of asymmetric paternalism.
Number of Pages in PDF File: 44
Keywords: behavioral economics, regulation, paternalism
JEL Classification: K00, K10, D11, D81, D90
Date posted: April 29, 2003 ; Last revised: November 10, 2010