View source for Economic Decision Making and Libertarianism

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[[Category:Unlearning Economics]]
[[Category:Actual Human Rationality]]
[[Category:Homo economicus]]
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{{DES | des = "Behavioural economics makes the central libertarian mantra of being ‘free to choose’ completely incoherent." | show=}}
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I’ve touched briefly before on how behavioural economics makes the central libertarian mantra of being ‘free to choose’ completely incoherent. Libertarians tend to have a difficult time grasping this, responding with things like ‘so people aren’t rational; they’re still the best judges of their own decisions.’ My point here is not necessarily that people are not the best judges of their own decisions, but that the idea of freedom of choice – as interpreted by libertarians – is nonsensical once you start from a behavioural standpoint.

The problem is that neoclassical economics, by modelling people as rational utility maximisers, lends itself to a certain way of thinking about government intervention. For if you propose intervention on the grounds that they are not rational utility maximisers, you are told that you are treating people as if they are stupid. Of course, this isn’t the case – designing policy as if people are rational utility maximisers is no different ethically to designing it as if they rely on various heuristics and suffer cognitive biases.

This ‘treating people as if they are stupid’ mentality highlights problem with neoclassical choice modelling: behaviour is generally considered either ‘rational’ or ‘irrational’. But this isn’t a particularly helpful way to think about human action – as Daniel Kuehn says, heuristics are not really ‘irrational’; they simply save time, and as this video emphasises, they often produce better results than homo economicus-esque calculation. So the line between rationality and irrationality becomes blurred.

For an example of how this flawed thinking pervades libertarian arguments, consider the case of excessive choice. It is well documented that people can be overwhelmed by too much choice, and will choose to put off the decision or just abandon trying altogether. So is somebody who is so inundated with choice that they don’t know what to do ‘free to choose’? Well, not really – their liberty to make their own decisions is hamstrung.

Another example is the case of Nudge. The central point of this book is that people’s decisions are always pushed in a certain direction, either by advertising and packaging, by what the easiest or default choice is, by the way the choice is framed, or any number of other things. This completely destroys the idea of ‘free to choose’ – if people’s choices are rarely or never made neutrally, then one cannot be said to be ‘deciding for them’ any more than the choice was already ‘decided’ for them. The best conclusion is to push their choices in a ‘good’ direction (e.g. towards healthy food rather than junk). Nudging people isn’t a decision – they are almost always nudged. The question is the direction they are nudged in.

It must also be emphasised that choices do not come out of nowhere – they are generally presented with a flurry of bright colours and offers from profit seeking companies. These things do influence us, as much as we hate to admit it, so to work from the premise that the state is the only one that can exercise power and influence in this area is to miss the point.

The fact is that the way both neoclassical economists and libertarians think about choice is fundamentally flawed – in the case of neoclassicism, it cannot be remedied with ‘utility maximisation plus a couple of constraints’; in the case of libertarianism it cannot be remedied by saying ‘so what if people are irrational? They should be allowed to be irrational.’ Both are superficial remedies for a fundamentally flawed epistemological starting point for human action.
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