One of the best policies in America might just have the worst name: libertarian paternalism. Fortunately it’s better known as ‘nudge theory’, and it has saved billions of dollars, huge numbers of lives, and subtly increased the nation’s standard of living. How does it do all that? Harvard Law School professor Cass Sunstein explains that libertarian paternalism uses tested behavioral science to present people with choices that could improve their lives. It’s why your credit card statement has clear information about how to avoid interest charges, it’s why savings plans are opt-out rather than opt-in, and it’s why 11 million U.S. kids below the poverty line get free school meals without even having to ask. These nudges and automatic enrollments give Americans all the help, with none of the treading on me (hence the ‘libertarian’ paternalism). They are, as Sunstein explains, liberty preserving and perhaps best of all, considering the current political climate, nudge theory is met with bipartisan enthusiasm. Cass Sunstein’s research is cited in The Influential Mind: What the Brain Reveals about Our Power to Change Others byTali Sharot.
Read more at BigThink.com: http://bigthink.com/videos/cass-sunstein-libertarian-paternalism-eat-well-retire-rich-and-feel-the-freedom
Transcript: A number of years ago Richard Thaler, a terrific economist, and I were talking about public policy and also about human behavior. And the idea developed that you can have a form of paternalism that preserves freedom of choice. So, insist first and foremost on people being able to go their own way if they want, but it acknowledges that some of us maybe don’t know how to get where we want to go, or that some of us may be focused on today and not next year, or that some of us might be unrealistically optimistic or some of us might not know a whole lot, for example, about health insurance or savings plans or about how to manage our credit card. So the idea developed, which wouldn’t have sold any books but we use it anyway, called libertarian paternalism, and we change that to a simpler form, “nudge”, and the idea behind libertarian paternalism or nudge is that you have things that are like a GPS device. So a GPS device is a form of libertarian paternalism. If you don’t like the instructions you’re getting from the little voice that’s coming in your car, you can say, “I want the scenic route,” or, “I prefer a direction which is more familiar to me and I know better than you do given what I care about.” But it’s steering you in a direction which it has information suggesting is the best way to get you where you want to go.
Now, we can all use a GPS device in a lot of places and this is the idea of a libertarian paternalism. So if you get a credit card bill and it has some information about what happens if you don’t pay the full amount, meaning you’re going to start getting charged interest, or if it has information that tells you something about the cost of late fees, that is like a GPS device in the sense that it doesn’t force you to do anything, but it tells you a little bit about how to get to what is probably your preferred destination, which is saving money.
You might have also a warning on a cigarette package or a warning on medicines and those things are liberty preserving because you can do whatever you want really, but it is steering you like a GPS device in one direction rather than another. Some of the most powerful forms of libertarian paternalism, which in a way are changing the world, are using automatic enrollment in something, so that if people don’t want the thing they have to opt out rather than saying opt in if you do want to thing.
And one that’s really taken off all over the world is automatic enrollment in savings plans. The idea is that once you are working in many places you’re just in a savings plan. If you don’t want to be you can opt out, but the result of automatic enrollment has been to increase—massively—participation rates in savings plans while preserving freedom of choice and that’s going to mean that people all over the world are going to have more comfortable retirements.
Now the idea of more comfortable retirements is important, it may not be the sort of thing that gets people’s juices flowing, but when I worked in the White House between 2009 and 2012 we thought a lot about this, about things that could help people while preserving their freedom of choice.