Nudges and Libertarian Paternalism

Written by Martyna Zajma

In essence, behavioural economics concerns the patterns with which decision making is conducted by agents such as workers or employers. Libertarians argue for the right to complete freedom of choice of each agent without much (if any) interferences from outside factors (such as the government or firms). Conversely, paternalism concerns the belief that agents are bound to act irrationally and lose out by making certain decisions, and so these choices should be made on their behalf. This essay will discuss the benefits of both social constructs separately as well as together, arguing the moral and practical applications in the setting of the current world and its affairs. 

Choice Architecture and Nudge Theory 

Nudge theory proposes positive reinforcement through leading agents to take actions which maximise their welfare without coercion. Choice architecture plays a great role in nudge theory as individuals tasked with designing an area (a possible example being a cafeteria), will likely arrange healthier food alternatives (salad) at the centre of the room to make it more accessible to those eating in. This way, the architect has successfully made use of the nudge theory by assuming agents with more access to a salad bar will be more likely to have a salad with their meal, thus obtaining more nutrients. The chosen example demonstrates how paternalism not only appears unavoidable, as the architect would have had to make a decision regardless of whether it reaped additional benefits or not, but also proves that a reduction in freedom of choice, or the manipulation of said choice, is not overtly negative. However, the concerns libertarians hold regarding paternalism is when it is taken to its extreme, and freedom of choice is completely removed. This could potentially be where access to products deemed “unhealthy” by the government is made impossible. 

Libertarianism and the Moral Lean Towards Freedom 

Influenced by Western ideals, the yearn for total freedom has led many economists to fear overregulation of firms as well as individuals’ behaviour, boosted further by the free-market aspect of capitalist societies. The worry that governments might fail in their judgements of products, values or services has created mistrust between the people and the state, thus rendering paternalism a possibly radical concept in theory. Libertarian economists envision a self-regulating free market where rational agents seek opportunities to maximise their welfare at the cost of potential risks to health. What must be considered, after all, is that “rationality” is often subjective – a person might deem the high price of a product they prefer to be satisfactory due to their loyalty to that specific brand, even when faced with a product at a lower price, similar utility but manufactured by a lesser-known rival. Similarly, an individual with perfect information on the effects of cigarettes on their health might still choose to smoke due to the satisfaction of the utility, sacrificing their health in the process. Freedom of choice is often viewed as the ultimate moral high ground in that we all, as people, strive to control and maintain control of our direct surroundings and ourselves, the problem arises when (due to information gaps, differences in objectives, and time playing as a factor, among many…) economic agents fail to foresee the damage their action creates. Most recently, the outbreak of COVID-19 has pressured governments to enforce laws in which face masks have been made obligatory in enclosed spaces. This has caused an anti-mask movement to spark in certain areas of the world, notably the U.S. Freedom of choice, in this instance, directly endangers these same protestors and the individuals who may be more susceptible to the virus, forcing the government to enforce mandates in order to overcome this problem – showcasing how strict libertarianism can create law to minimise it and its damage, albeit at the cost of the population’s freedom. 

Libertarian Paternalism 

Libertarian Paternalism acts as a middle ground between the two extremes. The theory of behavioural economics sees agents being able to exercise their freedom of choice whilst having this same choice partially manipulated using different tactics. Essentially, the subject can retain their ability to make choices albeit these choices are influenced by the decisions previously made outside of the subject’s control – whether it be subtle changes in a room’s plan or the intended inflation of a price of cigarettes. This has all been done to influence a sensible decision benefitting the subject’s welfare both in the short and long run, making use of the nudge theory to avoid directly compromising the decision of agents. Thus nudge theory, many may argue, is the ideal method of persuading and assisting agents in making decisions. When too many choices are provided, and the subject experiences choice overload, suggestions are ideal - however many may find confrontation patronising and the experience may prove counterproductive. Therefore, the ability for governments and firms to suggest mutually beneficial options protects us, the consumer, from making mistakes that may be felt later on. 

To conclude, though libertarianism can prove counterproductive when agents make a choice which directly reduces their welfare, paternalism can prove to be oppressive and questionable in terms of a government’s morality. The two extremes, separately, create individual problems of their own which tend to hinder progress. Conversely, nudge theory and the concept of Libertarian Paternalism acts as a way to bridge the two notions and delicately influence the actions of one without blatantly coercing an agent into a decision. Thus, along with a reduction in information gaps that the public is exposed to, a consumer is protected from the consequences of the decision they intended to take - whilst still being able to make decisions regarding their fate. This allows them to therefore exercise their right to freedom in a sensible manner. Through a combination of the two, the concepts’ flaws are minimised whilst their merits are amplified, creating a greater diversity of options that both the individual and government (or any sort of institution holding power over their agents) may have.

Photo by Dan Gold on Unsplash