Libertarian paternalism

Why do people do what they do? One broad explanation says: they respond as they perceive their options and their costs and benefits. The rational choice economics model of behaviour falls within this broad explanation; it takes people to maximize the net benefits of their choices. However, one need not see people as rational maximizers to think that they respond primarily to the costs and benefits of options. On some models, weak-willed people have a peculiar discount rate of costs and benefits according to how soon they would be incurred; but the behaviour still responds to costs and benefits. Thus, if policymakers want to change people’s behaviour, they would have to change the costs, or benefits, or options, or give people information about their options. Libertarian paternalism, the topic of this review, has a different approach. Libertarian paternalists believe that many factors influence decisions besides options, costs, benefits and information. These other factors include inaccurate probability judgements, whether options are framed as losses or forgone gains, and a tendency to take the default option without assessing its merits. Moreover, people make mistakes because of these factors and they end up worse off than they need be: they absorb too many calories without noticing what they are doing; they do not save enough money for retirement; and they do not buy fuel-efficient vehicles that will save them money in the long run. However, these decision factors create opportunities as well as problems. They can be taken advantage of by policymakers. In the term made famous by Richard Thaler and Cass Sunstein, people are open to nudges. Put healthy food first in cafeterias and supermarkets. Have workers