Social Choice and Welfare

, Volume 28, Issue 2, pp 337–359 | Cite as

Psychology Implies Paternalism? Bounded Rationality may Reduce the Rationale to Regulate Risk-Taking

  • Nathan Berg
  • Gerd Gigerenzer
Original Paper


Behavioral economists increasingly argue that violations of rationality axioms provide a new rationale for paternalism – to “de-bias” individuals who exhibit errors, biases and other allegedly pathological psychological regularities associated with Tversky and Kahneman’s (in Science 185:1124–1131, 1974) heuristics-and-biases program. The argument is flawed, however, in neglecting to distinguish aggregate from individual rationality. The aggregate consequences of departures from normative decision-making axioms may be Pareto-inferior or superior. Without a well-specified theory of aggregation, individual-level biases do not necessarily imply losses in efficiency. This paper considers the problem of using a social-welfare function to decide whether to regulate risk-taking behavior in a population whose individual-level behavior may or may not be consistent with expected utility maximization. According to the social-welfare objective, unregulated aggregate risk distributions resulting from non-maximizing behavior are often more acceptable (i.e., lead to a weaker rationale for paternalism) than population distributions generated by behavior that conforms to the standard axioms. Thus, psychological theories that depart from axiomatic decision-making norms do not necessarily strengthen the case for paternalism, and conformity with such norms is generally not an appropriate policy-making objective in itself.


Behavioral Economic Libertarian Paternalism Paternalistic Intervention Behavioral Hypothesis Paternalistic Policy 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


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Copyright information

© Springer-Verlag 2006

Authors and Affiliations

  1. 1.School of Social SciencesUniversity of Texas at DallasRichardsonUSA
  2. 2.Center for Adaptive Behavior and CognitionMax Planck Institute for Human DevelopmentBerlinGermany

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