Fat, Stupid and in Debt

In the New York Review of Books, Cass Sunstein reviews Sarah Conly’s Against Autonomy: Justifying Coercive Paternalism, just out from Cambridge University Press. I haven’t read the book, and I do not intend to do so. I already own two other books, and this one is $95—the equivalent of two cartons Camel Filters.(Not even close, in terms of marginal utility.) In contrast, Professor Sunstein’s laudatory review arrived for free, via internet, and I have read it with great profit.

The target of Conly’s book and Sunstein’s review is John Stuart Mill’s case against paternalism. Mill, Sunstein explains, argued that

individuals are in the best position to know what is good for them. In Mill’s view, the problem with outsiders, including government officials, is that they lack the necessary information. Mill insists that the individual “is the person most interested in his own well-being,” and the “ordinary man or woman has means of knowledge immeasurably surpassing those that can be possessed by any one else.”

When society seeks to overrule the individual’s judgment, Mill wrote, it does so on the basis of “general presumptions,” and these “may be altogether wrong, and even if right, are as likely as not to be misapplied to individual cases.” If the goal is to ensure that people’s lives go well, Mill contends that the best solution is for public officials to allow people to find their own path.

All that, Conly and Sunstein argue, is wrong or least, open to very serious doubt. Modern-day psychology and behavioral economics show what Mill could not possibly have known: people are stupid. Fortunately, behavioral research

is having a significant influence on public officials throughout the world. Many believe that behavioral findings are cutting away at some of the foundations of Mill’s harm principle, because they show that people make a lot of mistakes, and that those mistakes can prove extremely damaging.

This is evidenced by the fact that people often behave in ways public officials don’t like or expect. Accordingly, Sunstein’s reviewee argues that

in light of the recent findings, we should be able to agree that Mill was quite wrong about the competence of human beings as choosers. “We are too fat, we are too much in debt, and we save too little for the future.”

If you choose to disbelieve this, you are either incompetent (or else, have never been inside a Walmart). The lamentable state of affairs arises because people have deep-seated irrational biases and “heuristics.” For example,

A great deal of research finds that most people are unrealistically optimistic, in the sense that their own predictions about their behavior and their prospects are skewed in the optimistic direction. In one study, over 80 percent of drivers were found to believe that they were safer and more skillful than the median driver.  (Footnote omitted.)

In another study, 99 percent of Harvard professor were found to believe that they were smarter than the rest of us and indeed than the median Harvard professor. Yet another study found that 100 percent of grade schoolers suffer from absurdly inflated self-esteem. This can’t have anything to do with what the Ed blob tells them; it’s a nasty heuristic bias.

Another group of irrationally optimistic folks is compromised of entrepreneurs. The notion of founding the next Microsoft in your garage is demonstrably insane and bound to fail in all instances except one in a million. Misery results when hordes of excessive optimists insist on playing Bill Gates in their basements. Government could and should counteract such biases—by compulsion (says Conly) or by changing the “choice architecture” (says Sunstein). E.g., we could “nudge” would-be entrepreneurs into lines of work that induce despair, such as tax law.

Government may succeed in that endeavor because we are not only excessively optimistic but also risk-averse. Even the best of us are: Tiger Woods fears a loss to par more than he values a stroke gained, so he misses birdie putts more often than par putts. (For cites, discussion, and a plausible change in the golf choice architecture, see here.) Of course, it’s sometimes hard to tell whether individuals have just the right mix of optimism and risk aversion. Individuals themselves are in the worst position to tell, because their pre-existing, unseen-through bias will influence the mix. Therefore, the job of designing an appropriate choice architecture and mindset should go to the institution that is already managing private expectations without fear, favor, or fault—the Federal Reserve.

“Mill’s claim,” Sunstein writes, ”has a great deal of intuitive appeal. But is it right? That is largely an empirical question, and it cannot be adequately answered by introspection and intuition.” Falser words have rarely been written. We assume individual rationality (in a fairly minimal sense) in economics—real economics, not the made-up behavioral stuff—not because we observe it consistently in the real world but because if we don’t assume it, anything follows. Similarly with politics. With Mill, we let individuals make their own judgments not because we believe them, empirically, to be rational but because we fear that government will do a whole lot worse.

There is, I grant, the cheerful prospect of better living through OIRA. However (to paraphrase James Madison), “Cass Sunstein will not always be at the helm”: Sarah Conly might be. That’s risk aversion, and you can call it irrational. For better or worse, though, it’s the intuition on which democracy and constitutional government rest.

“We are too fat, we are too much in debt, and we save too little for the future.” The outfit that’s supposed to fix this on Planet Sunstein is the United States government. My response to it is, “You’re too fat. Me, I’m off to McDonald’s.”