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Podcast on Cognitive Error as a Justification for Paternalism:

In recent years, many prominent scholars have argued that widespread cognitive errors by consumers justify the imposition of various paternalistic policies by the government.

I criticize such claims in this recent Cato Institute podcast, "Nudging Paternalists." I previously criticized "libertarian paternalism," one of the ideas discussed in the podcast, in this series of posts last year.

Anonymous #000:
More information leads to better decisions, for various reasonable definitions of "better".
9.8.2008 8:08pm
American Psikhushka (mail) (www):
More information leads to better decisions, for various reasonable definitions of "better".

As long as it is accurate, truthful information and not fraudulent, defamatory, racist, ethnosupremicist, nonsensical, etc.
9.8.2008 9:45pm
Splunge.:
The fact that futures markets routinely outperform expert prognostication should put the spike in this notion for any reasonable empirical mind. The "Wisdom of the Crowds," et cetera.

I don't know that there is a fully plausible explanation for why a million ordinary people should be able to routinely outthink a handful of brilliant eggheads, but it's an empirical fact, and that's that
9.8.2008 10:15pm
Malvolio:
In recent years, many prominent scholars have argued that widespread cognitive errors by consumers justify the imposition of various paternalistic policies by the government.
Is the argument that people are too stupid to manage their own affairs but are smart enough to vote for politicians who are both wise enough and honest enough to manage other people's affairs for them?

Not absolutely impossible, but I can't think of when it's actually happened. Pericles, maybe.
9.8.2008 10:20pm
Curt Fischer:

The fact that futures markets routinely outperform expert prognostication should put the spike in this notion for any reasonable empirical mind....I don't know that there is a fully plausible explanation for why a million ordinary people should be able to routinely outthink a handful of brilliant eggheads..


Isn't one possible explanation that market prices are determined by the collective thoughts and action of a million "ordinary" people? For commodities futures markets they certainly are. It only makes sense that a million ordinary people can guess better than an pro prognosticator when what they are guessing is essentially what a million ordinary people in the future will guess on a later day.

Prediction markets, much lauded on this blog, do not always work the same way. Some of the markets, such as for election results, do, in that millions of ordinary people will be voting.

But what about e.g. whether OJ's case will go to trial and whether he will be convicted? What safeguards does Intrade (for example) have that their market in this prediction will not be subverted by a juror who goad sothers into buying contracts at low prices and then who votes to acquit?
9.8.2008 10:27pm
Anonymous #000:
As long as it is accurate, truthful information and not fraudulent, defamatory, racist, ethnosupremicist, nonsensical, etc.

Of course you're assuming there that people can't filter out irrelevant information, or discontinue paying attention to sources of unuseful information. But doesn't that assumption lead to regulation?

Guaranteeing the "quality" of speech is not a good idea for reasons that include a definition of "quality" we can not each of us individually control.


Is the argument that people are too stupid to manage their own affairs but are smart enough to vote for politicians who are both wise enough and honest enough to manage other people's affairs for them?

When you're trying to get elected on the platform of redistributing income, all the electorate needs to know is that they want money!


What safeguards does Intrade (for example) have that their market in this prediction will not be subverted by a juror who goad sothers into buying contracts at low prices and then who votes to acquit?

That's a good question. Do they break down the market so one can see how large investors affect the price? Assuming you can verify investors' identities, that would serve to sort of weight the resulting price by opinion plurality.
9.8.2008 10:53pm
Consenting:
Ilya: "Nudging Paternalists". Cute title...
9.8.2008 11:39pm
American Psikhushka (mail) (www):
Splunge-

I don't know that there is a fully plausible explanation for why a million ordinary people should be able to routinely outthink a handful of brilliant eggheads, but it's an empirical fact, and that's that

You're making a lot of generalizations here.

And there are areas where a handful of smart eggheads actually do outhink millions of ordinary people - value investors in the securities markets. One of them, Warren Buffet, is the second richest man in the country.(Vehemently disagree with some of his political and other opinions, but he is one of the best investors in history.) Of course you have to have the right eggheads, the growth, momentum, etc. eggheads often don't do as well.

So it isn't a "fact" in all situations.

And besides, we might not have accurate probability distributions, or even know the probability distributions, for the markets in question. Long Term Capital Management was sunk by an event that was only supposed to occur once every seven hundred years. Surprise - they were using the wrong assumptions. If your assumptions are incorrect, your analysis and conclusions will be incorrect. Your assumptions might even lead you to waste time collecting the wrong data.

Goldbugs, for example, can look like kooks - until there's a hyperinflation.

So what happens when we have "prominent scholars" (Long Term Capital Management was mainly "prominent scholars".) claiming that people are making "cognitive errors" when they're not?
9.8.2008 11:55pm
Spitzer:
I find it hard to believe that Sunstein and co. reject - sotto voce - Hayek's fundamental premise. To recap, if the market is an information exchange mechanism, created by all participants, then no group smaller than the whole can possibly know the information. Therefore, decisions by groups smaller than the whole are necessarily inefficient, and the so-called "libertarian paternalists" are no better than the Marxists in fact. As with the old communist left, the paternalist vanguard arrogantly assert their superior knowledge - approaching omniscience - and seek to impose their will on the whole of society.

Put simply, it is not a matter of sheer intellectual wattage, it is a simple matter of epistemology: if the collective knowledge of the whole is indecipherable by any sub-group, then the smartest 99% of the whole will still miss the full scope of the information.

Really, these paternalists are no better than the Marxists. The Marxists thought that they knew the truth, that they knew best, and that anyone who disagreed was imbued with false consciousness, blinded by the superstructure. Cass Sunstein has updated this old formulation, focusing on cognitive dissonance, but the message is the same: people are incapable of knowing their best interests because they are blinded to it, but the elite vanguard of law professors and social scientists have the capacity to peer through the fog and see the other side. It's all very silly.
9.8.2008 11:59pm
American Psikhushka (mail) (www):
Anonymous-

Of course you're assuming there that people can't filter out irrelevant information, or discontinue paying attention to sources of unuseful information. But doesn't that assumption lead to regulation?

Not necessarily. This can be fraud, defamation, etc. which are crimes and torts even under libertarian schemes. And if in the hypothetical we are talking about the inaccurate, racist, nonsensical, etc. information is produced by required tests then you are already condoning regulation - tortious, racist, and criminal regulation.
9.9.2008 12:13am
Anonymous #000:
It seems like that could all be handled with civil courts, but that again requires the jurists to be informed enough to make a reasonable (in terms of economics and ethics) decision.
9.9.2008 1:21am
American Psikhushka (mail) (www):
Anonymous-

It seems like that could all be handled with civil courts, but that again requires the jurists to be informed enough to make a reasonable (in terms of economics and ethics) decision.

The easier option and that most consistent with liberty and free markets is not to require inaccurate, nonsensical, racist, etc. testing in the first place.
9.9.2008 3:49pm