Richard Thaler has done a lot of creative and important work showing that the standard assumptions of rationality in economics may not always be a reliable guide to understanding the world around us. In a series of papers with Cass Sunstein, Thaler has argued for something they call "Libertarian Paternalism." The basic idea is that when government designs policy, it should take into account our behavioral tics. One metaphor they like is the cafeteria. Government cafeterias, they argue, should offer ice cream but shouldn’t put it before the fruit if people tend to find what they see first more attractive. So when government designs savings policy, for example, government should choose a wise default plan and force people to opt out of it rather than hoping people will opt-in to a good plan. Because people are likely to stick with the status quo, choose the status quo carefully to be in line with people’s best interest. Otherwise, they may foolishly fail to opt-in to the right plan.
In an earlier EconTalk podcast, Ed Glaeser discussed the dangers of this seemingly innocuous approach. So I gave Thaler a chance to defend himself. He does so here in the latest episode of EconTalk. (You’ll also find the papers with Sunstein available at that link.) We discuss savings, organ donations and what economists and the public should expect from government. I give him a pretty hard time and he gives it back. Let me know what you think.
