Paternalism and Psychology

23 Pages Posted: 24 Feb 2006 Last revised: 19 Sep 2010

See all articles by Edward L. Glaeser

Edward L. Glaeser

Harvard University - Department of Economics; Brookings Institution; National Bureau of Economic Research (NBER)

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Date Written: November 2005

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

Glaeser, Edward L., Paternalism and Psychology (November 2005). NBER Working Paper No. w11789. Available at SSRN: https://ssrn.com/abstract=851698

Edward L. Glaeser (Contact Author)

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