From Gadfly to Nudge: The Genesis of Libertarian Paternalism

By Lambert, Thomas A. | Missouri Law Review, Summer 2017 | Go to article overview

From Gadfly to Nudge: The Genesis of Libertarian Paternalism


Lambert, Thomas A., Missouri Law Review


Nearly a decade has passed since Richard H. Thaler and Cass R. Sunstein published Nudge: Improving Decisions About Health, Wealth, and Happiness (hereinafter, "Nudge"). (1) The bestselling book drew popular attention to "libertarian paternalism," a policy approach Thaler and Sunstein had previously proposed in their academic writing. (2)

Though somewhat controversial from the start, (3) the notion of libertarian paternalism quickly gained traction among policymakers all over the world. In the United States, President Barack Obama tapped Sunstein to serve as the administrator of the White House Office of Information and Regulatory Affairs, a position often referred to as the nation's "regulatory czar." (4) The U.S. Congress created a new agency, the Consumer Financial Protection Bureau, that was proposed by academics who were strongly influenced by the behavioral economics underlying Nudge (more about behavioral economics below). (5) The British government went so far as to create a Behavioural Insights Team, commonly referred to as the "Nudge Unit." (6) And in Denmark, the Applied Behavioural Science Group--a.k.a. the Danish Nudge Unit--began operating a popular website, "Error! Hyperlink reference not valid.

Given Nudge's success over the last decade in capturing the attention of policymakers and generating concrete policy proposals, it is worth pausing to assess how the libertarian paternalist project is faring. What is working? What is not? How, if at all, should the libertarian paternalist project be adjusted going forward?

On October 21, 2016, a group of prominent law professors and economists --some Nudge enthusiasts (including Sunstein himself), some skeptics--convened at the University of Missouri School of Law for a symposium addressing those questions. The bulk of this issue of the Missouri Law Review consists of articles based on the ideas presented at that symposium, Evaluating Nudge: A Decade of Libertarian Paternalism.

To provide context for the articles that follow, the remainder of this Foreword explains where libertarian paternalism came from--that is, what are its intellectual underpinnings, and how did they arise?

I. FROM GADFLY TO BEHAVIORAL ECONOMICS

Before there was libertarian paternalism, there was Gadfly. A thorn in the side of his economics professor, Gadfly often sticks in the memory of those who have taken a college-level economics course. He majored in something liberal artsy (philosophy, English?) or maybe another of the social sciences (psychology, sociology?). He was not a back-row student; he sat toward the front of the lecture hall, and he was an active participant in class discussion. But he was assuredly not buying what his economics professor was selling. Whenever the professor would suggest that the government should do X to induce people to do Y, or that well-meaning policy A is bad because it will just lead people to take undesirable action B, Gadfly's hand would shoot up. "Real people don't behave that way," he would say. "You're assuming people always act rationally. They often don't."

The economics professor generally gave Gadfly's remarks short shrift. "Yes, people sometimes act irrationally," she replied. "But most people act rationally most of the time. And we can't build a predictive theory of human behavior if we assume people just dart around making irrational, unpredictable decisions."

It turns out both Gadfly and his professor were right. Gadfly was correct in observing that people often act irrationally. The professor was right that people usually act rationally and that economists might as well close up shop if people act in unpredictable ways. But what if people are, to borrow the title of economist Dan Ariely's bestselling book, predictably irrational. (8) That is, what if they generally act rationally but, in certain identifiable contexts, make the same sorts of mistakes over and over again. …

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