122 Yale L.J. 1826 (2013).
A growing body of evidence demonstrates that in some contexts and for identifiable reasons, people make choices that are not in their interest, even when the stakes are high. Policymakers in a number of nations, including the United States
and the United Kingdom
, have used this evidence to inform regulatory initiatives and choice architecture. Both the resulting actions and the relevant findings have raised the possibility that an understanding of human errors opens greater space for paternalism (and thus raises doubts about John Stuart Mill’s famous “harm principle”). Such errors can be thought of as behavioral market failures, and they are an important supplement to the standard account of market failures. Actions taken to correct behavioral market failures can sometimes be justified, even if the resulting actions are paternalistic.
While hard forms of paternalism cannot be ruled out of bounds, a general principle of behaviorally informed regulation—its first and only law—is that the appropriate responses to behavioral market failures usually consist of nudges, generally in the form of disclosure, warnings, and default rules. Some people invoke autonomy as an objection to paternalism, but the strongest objections are welfarist in character. Official action may fail to respect heterogeneity, may diminish learning and self-help, may be subject to pressures from self-interested private groups (the problem of “behavioral public choice”), and may reflect the same errors that ordinary people make. Where paternalism is optional, the objections, though plausible, are unhelpfully abstract; they depend on empirical assumptions that may not hold in identifiable contexts. There are many opportunities for improving human welfare through improved choice architecture.