Abstract
Behavioral paternalism raises deep concerns that do not arise in traditional welfare economics. These concerns stem from behavioral paternalism’s acceptance of the defining axioms of neoclassical rationality for normative purposes, despite having rejected them as positive descriptions of reality. We argue (1) that behavioral paternalists have indeed accepted neoclassical rationality axioms as a welfare standard; (2) that economists historically adopted these axioms not for their normative plausibility, but for their usefulness in formal and theoretical modeling; (3) that broadly rational individuals might fail to satisfy the axioms for various reasons, making them unpersuasive as normative criteria; and (4) that even if their violation did constitute irrationality, that would not justify paternalists’ choosing among inconsistent preferences to define an individual’s “true” preferences.
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Notes
“The hypothesis of rationality is embodied in two basic assumptions about the preference relation…: completeness and transitivity.” Mas-Colell et al. (1995: 6).
See, for instance, Gintis (2009). Gintis’s definition of completeness has the preference relation defined with respect to specific choice sets, so that A might be preferred to B for one choice set and B to A for another. Then he introduces IIA as a third axiom, and notes: “Because of the third property [IIA], we need not specify the choice set and can simply write [that A is preferred to B]” (5, bracketed changes made for consistency of notation).
Or by reflexivity, which is sometimes regarded as a separate axiom. But usually, reflexivity is taken to be implied by the definitions of indifference and strict preference in terms of weak preference: If A is weakly preferred to B and vice versa, then A ~ B; if A is weakly preferred to B but not vice versa, then A is strictly preferred to B. By these definitions, it’s simply impossible to have A strictly preferred to A.
See, for instance, Sunstein and Thaler (2003: 1168): “Of course, rational people care about the taste of food, not simply about health, and we do not claim that everyone who is overweight is necessarily failing to act rationally.” Sunstein (2014: 75): “… I am interested in defending paternalists who respect choosers’ own views about their ends, and who seek to increase the likelihood that their decisions will promote those ends.” Sunstein (2014: 96): “With respect to diet, savings, exercise, romance, credit cards, mortgages, cell phones, health care, computers, and much more, different people have divergent tastes and situations, and they balance the relevant values in different ways.”
The view that behavioral models are positive while neoclassical models are normative was common in the early days of behavioral economics. Floris Heukelom observes, “Contrary to [Herbert] Simon, [Daniel] Kahneman and [Amos] Tversky argued that there was nothing wrong with economists’ theory of expected utility maximization. It was only that this was the normative theory, and not an accurate description of actually observed human behavior” (2014: 127).
There is an unfortunate ambiguity in the word “normative” when referring to rules. There are constitutive rules and regulative or prescriptive rules (Searle 1969). The rules of chess may be likened to constitutive rules. They define what it means to be playing chess. Violate them sufficiently and you are not playing chess. The rules of safe driving are prescriptive rules. Violate them and you are still driving but not safely. The axioms of rationality are constitutive rules. If you obey them you are a “rational” agent in the sense of standard economic theory. Whether you should be such an agent in particular circumstances is a separate matter that needs to be argued for explicitly.
Sugden (2004: 1028–9) offers a related but distinct response to the money-pump argument: that competition among potential money-pumpers keeps profits to a minimum, thereby making money pumps ineffective at extracting value from consumers in equilibrium – even if such consumers have incoherent preferences.
For further discussion see Anand (1993).
For a discussion of the general concept of rationality and the reasonableness test, see Rescher (1988).
See Schnellenbach (2012) for more on the knowledge problem as applied to time-discounting.
Rizzo and Whitman (2009: 925): “We could just as easily designate the more near-sighted preferences as the correct ones, and then aim to make far-term choices better correspond to them.”
See Rizzo and Whitman (2009: 929–931).
See Rizzo and Whitman (2009: 929).
See Rizzo and Whitman (2009. 904–905).
See Rizzo and Whitman (2009, 930).
This is explicitly stated by Bernheim and Rangel (2007: 16): “We assume that people attempt to optimize given their true preferences, but randomly encounter conditions that trigger systematic mistakes…”
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Whitman, D.G., Rizzo, M.J. The Problematic Welfare Standards of Behavioral Paternalism. Rev.Phil.Psych. 6, 409–425 (2015). https://doi.org/10.1007/s13164-015-0244-5
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DOI: https://doi.org/10.1007/s13164-015-0244-5