Presentation on theme: "1 George Mason School of Law Contracts II Paternalism F.H. Buckley"— Presentation transcript:
1 George Mason School of Law Contracts II Paternalism F.H. Buckley firstname.lastname@example.org
Free bargaining makes people better off… Provided that we assume that their choices satisfy the assumptions of rational choice 2
3 Rational Choice: Six Assumptions Full Information (later) No mistakes No misrepresentations No informational assymetries
4 Rational Choice: Six Assumptions Full Information Choices Are Freely Made (later) No duress
5 Rational Choice: Six Assumptions Full Information Choices Are Freely Made Non-satiation More is always better
6 A B Good 1 More is always better 0 Good 2 Non-satiation: B > A
Non-Satiation Is this the same thing as saying “Greed is good”? 7 Michael Douglas as Gordon Gekko in Wall Street
8 Rational Choice: Six Assumptions Full Information Choices Are Freely Made Non-satiation Completeness or comparability
9 No black holes Comparability: No incommensurabilities
10 Sophie’s Choice You are a member of a hospital’s ethics committee. You have to choose between allocating a kidney to an alcoholic former sports idol or a mother of two. Can you think of other examples? Incommensurability Tragic Choices
11 Rational Choice: Six Assumptions Full Information Choices are Freely Made Non-satiation Completeness or comparability No third party effects (externalities)
12 Mary Bess Ann Representing Ann’s utility on a third dimension Third party effects: Bargaining with a third person
13 Paretian norms don’t work—if it’s an external cost Externalities and Tort Law Social Perfectionism What happens if third parties can’t be joined?
14 Do we then abandon the concept of efficiency? A more relaxed standard: Kaldor-Hicks efficiency A transformation is Kaldor-Hicks efficient when the winners could compensate the losers (“Potential Pareto-Efficiency”) But nearly everything has third party effects…
15 It is proposed to abandon steel tariffs that impose costs of $10B on the economy but provide steel manufacturers with a gain of $1B. The bankruptcy of a failing business imposes a cost to shareholders of $1M, but provides a benefit of $5M to creditors. Examples of Kaldor-Hicks Efficiency
16 Mary Bess A B C C is Kaldor-Hicks Efficient to A At C Bess is better off than she is at A; She could also give up CB roses to move to B and still be better off than she was at A, while Mary would be no worse off
17 Rational Choice: Six Assumptions Full Information Choices are Freely Made Non-satiation Completeness or comparability No third party effects (externalities) Now—Perfect rationality
18 Relaxing the Rationality Assumption: Transitivity: A Technical Definition If A is preferred to B and B is preferred to C, then A is preferred to C A>B, B>C A>C AB, BC AC
19 Transitivity: A>B, B>C A>C Time 1 0 Time 2 C B A
20 Transitivity: Indifference curves can’t touch Time 1 a b c 0 Time 2 A violation of transitivity If a ~ c and c~ b, then a ~ b. But b > a
21 Relaxing the rationality assumption: Paternalism Suppose we knew we would harm ourselves in our choices in certain cases Might we not then wish to delegate to the paternalist to choose for us?
22 Relaxing the rationality assumption: Byron, The Prisoner of Chillon At last Men came to set me free – I asked not why, and recked not where-- It was at length the same to me, Fettered or fetterless to be-- I learned to love despair… My very chains and I made friends, So much a long Communion tends To make us what we are, even I Regained my freedom with a sigh
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31 Paternalism’s questionable history So you want to help victims? How about… Restrictions on women Slavery “The benevolent have a tendency to colonize, whether geographically or legally.” Arthur Leff
32 The New Paternalism Unlike the old Paternalism, the new Paternalism does not discriminate It is also based on better science
33 The New Paternalism: When might our desires misfire? When might we agree to let the Paternalist second-guess our decisions? Judgment Biases: Because we miscalculate what is good for us Akrasia: Because we lack the strength of will to pursue what we know is good for us
34 Cognitive Paternalism: Judgment Biases Rationality as a scarce resource: the need to rely on heuristics and hunches Even if these are satisfactory in average cases, they seem to mislead in anomalous cases. The rise of cognitive paternalism
35 We need our hunches to navigate through life… Gerald Ford, trying to walk and chew gum
36 Judgment Biases: Some readings Vern Smith, Nobel Address 2002 Kahneman, Slovic and Tversky, Judgment Under Uncertainty (1982) Gigerenzer, Adaptive Thinking (2000) Sunstein, Behavioral Law and Economics (2000)
Judgment Biases A bat and a ball together cost $1.10. The bat costs $1.00 more than the ball How much does the ball cost?
38 Paternalism: Some Judgment Biases The Availability Bias Pauline Kael on the 1972 election How likely is a divorce?
39 Some Judgment Biases The Anchoring Bias I spin a roulette wheel and it comes up 25. Now I ask you how many African members there are in the UN I spin and it comes up 65. I ask again.
40 Some Judgment Biases The Gambler’s Fallacy You are at a casino. At the roulette table, the numbers are either red or black. Black has come up six times in a row. What is the probability that it will come up black on the next turn? (Assume a fair table.)
41 Some Judgment Biases The Gambler’s Fallacy You are at a casino. At the roulette table, the numbers are either red or black. Black has come up six times in a row. What is the probability that it will come up black on the next turn? (Assume a fair table.) 50%. (You thought the table had a memory?)
42 Some Judgment Biases Regret You attend a boring lecture in law-and- economics. On returning to your flat you discover that you missed a visit from a long-lost friend. You feel great regret even though, ex ante, attending the lecture seemed the best thing to do.
43 Some Judgment Biases The Hindsight Bias You watch a baseball game. The pitcher (ERA of 2.11) has given up two walks in the eighth inning. The manager leaves him in. The next batter up hits a home run. “Idiot!,” you say. “I would have taken the pitcher out.”
44 Do judgment biases justify Paternalism? Do we underestimate small probability events? Mandatory seat belt laws Mandatory no-fault divorce Incentives to put savings into a pension plan Nudge: Sunstein and Thaler
45 Do judgment biases justify Paternalism? Are our hunches dumb? Gigerenzer’s fast and frugal heuristics Ecological rationality: how well do our heuristics fit in the world we inhabit. Is there an inner logic to availability, regret and other heuristics?
46 Do judgment biases justify Paternalism? Is there an inner logic to availability, regret and other heuristics? Anchoring and availability ordinarily are efficient Regret pierces through egotism The Hindsight Bias underlines the lesson we are taught.
47 Do judgment biases justify Paternalism? Are some biases corrected through learning? How to hit a curve ball. Can market processes help? Would inefficient heuristics tend to get excluded in markets?
48 Judgment Biases: Emotional and Moral Heuristics Our emotions are coded with knowledge Deep preferences as a solution to PD games Of disgust and hatred… Moral Heuristics Gigerenzer Romola
49 Do judgment biases justify Paternalism? What about the Paternalist’s judgment biases? Lord Denning and the hindsight bias. The business judgment rule. The availability bias and inefficient pollution regulations.
50 Paternalism: Akrasia The akratic are “not-ruled” Pictures of akrasia Dostoyevsky’s gambler The disciples in the garden: “The spirit is willing but the flesh is weak.” St. Peter
51 Varieties of Akrasia Overwhelming passion: Phèdre The Divided Self: To which self are we allied? Reversal of preferences: Mary Beth Whitehead Self-deception: Denial is not a river in Egypt… Discounting the future: criminals
52 Does Akrasia argue for paternalism? The akratic might wish for laws that address their weakness of will. Can you think of examples?
53 The Counter-arguments Is addiction per se bad? Might it ever make sense ex ante to become an addict?
54 Gary Becker: Rational and irrational addiction Utility 0 Time Gary Becker, Accounting for Tastes (1996) Preferences for commodities over time
55 Gary Becker: Rational and irrational addiction Utility 0 A B Time Gary Becker, Accounting for Tastes (1996) classical music Over time the preference for classical music increases —but this is a benign addiction Subject suffers from “withdrawal” if music taken away from him
56 Gary Becker: Rational and irrational addiction Utility 0 A B C Time classical music coffee Unlike classical music, there comes a time when the subject would like to stop drinking coffee. Though he finds he cannot do so, his ex ante decision to start drinking coffee is still rational
57 Gary Becker: Rational and irrational addiction Utility 0 A D B C Time classical music coffee hard drugs Ex ante, the decision to start taking hard drugs is irrational
58 The Counter-arguments Can the state distinguish between rational and irrational addiction? Just how would you categorize the taste for the following: Tobacco Ice cream Lotteries
59 The Counter-arguments If we might be weak-willed, can we address the problem without the help of legal barriers? Social sanctions Self-binding
60 The Counter-arguments Self-binding as a response to akrasia Jon Elster, Ulysses and the Sirens (1984)
61 Examples of self-binding Marriage Home purchases Leverage
62 The Counter-arguments Is there such a thing as excessive self-control? Prohibition The addict and the teetotaler
63 Aristotle’s anaisthēsia No booze for you, INSECT! Carrie Nation
64 Is there such a thing as excessive will-power? Ainslie in Elster, Getting Hooked (1999) Bergson: “Life demands not only that we live but that we live well.” Chardin, The House of Cards ca. 1735
65 Impugning Individual Choice: Paternalism and Perfectionism Paternalism: Interfere with personal choices to make subject better off Perfectionism: Interfere with personal choices to promote a moral goal
66 Perfectionism Paternalism Impugning Individual Choice The two strategies overlap
67 Impugning Individual Choice Two kinds of paternalism Soft Paternalism overrules personal choices in order to satisfy subject’s deepest preferences Judgment biases and akrasia Hard Paternalism overrules personal choices when the subject’s deepest preferences are immoral and “he doesn’t know what’s good for him”
68 PerfectionismSoft Paternalism (good preferences) Impugning Individual Choice: Varieties of Paternalism Hard Paternalism (immoral preferences)
69 Social Perfectionism Soft Paternalism Varieties of Perfectionism Private Perfectionism (Hard Paternalism)