The Dangerous Allure of Libertarian Paternalism

Abstract

This paper offers a sustained critique of behavioral law and economics (BLE) on both a theoretical and practical level. The theoretical discussion fastens on the unwillingness of BLE take into account how the standard biological account of inclusive fitness helps explain key elements of human behavior in family and other nonmarket settings—an omission that it shares with much of traditional rational choice theory. The practical level disputes the central claims of libertarian paternalism. First, the theory is not libertarian—for at no point does it indicate areas where deregulation is appropriate, including the antidiscrimination laws in competitive labor markets. Second, its broad definition of paternalism is useless in all real world analysis. These omissions cause BLE to underestimate the extent to which market institutions can correct for various cognitive biases, leading it to systematically overstate the individual and social benefits deriving from either mandatory disclosures or mandatory contributions to both private and public pension plans and social security. The programs perform far worse than private pension plans regulated under classical principles of freedom of contract.