Decentralization Mislaid: On New Paternalism and Skepticism toward Experts

The goal of making people better off “by their own standard” in the New Paternalism research program of Thaler-and-Sunstein-inspired “nudging” raises a number of theoretical and practical risks. Some of these risks are straightforward. Others are subtle. I enumerate rarely acknowledged risks that nudging programs face based on informational loss, forgone individual payoffs, and social welfare losses. This essay draws on neoclassical information economics, social welfare theory, and the methodological literature on normative behavioral economics to focus on experts who propose policies based on New Paternalism and the apparently unforeseen social costs that their policies may impose. What is the socially optimal intensity of skepticism toward choice architects? Zero skepticism cannot be social-welfare maximizing insofar as voters’ skepticism serves an important role in the political economy of disciplining political power. At the other extreme, maximal skepticism is unlikely to be social-welfare maximizing because it wastes good information that uninformed voters and politically appointed experts would both like to be transmitted and acted upon. Therefore, the socially optimal intensity of skepticism is a strictly interior value somewhere between zero and maximal. Because there is risk of other non-transparent objectives (e.g., lobbying) influencing paternalistic choice architecture, one of its first-order effect is to increase skepticism. As policy makers impose increasingly aggressive policy experiments in choice architecture under the cover of social science (behavioral economics, in this case), the political economy shifts down a slippery slope along which individual response functions (e.g., updating of subjective beliefs) rationally select increasingly skeptical views of expert advice and government speech. Social costs from information loss and reduced coordination services (that would otherwise have been achieved by decentralization without choice architecture) suggest a more cautionary approach to policy and regulation. New Paternalism risks rationalizing increased skepticism which, in its limit, can rationalize conspiracy theories about shrouded objectives influencing choice architects.