New Paternalism on the Slippery Slopes, Part 8: Hyperbolic Discounting in Public Policy

As discussed in a previous post in this series, the new paternalists often use the concept of hyperbolic discounting (roughly, excessive impatience) to show that people make systematic errors that could, in principle, be corrected by government intervention. But what if policymakers, too, are prone to hyperbolic discounting? That is the question raised in the next section of the paper (p. 724-725):

Policymakers can have short time horizons for various reasons. They might no longer hold office when future costs and benefits of their policies occur. Insofar as voters have imperfect memories, they might fail to fault policymakers for the ill effects (or credit them with the good effects) of policies they supported. Both of these effects give fully rational policymakers an incentive to discount future consequences.

If policymakers are hyperbolic discounters, there is yet another reason they will tend to discount the future: because they apply especially high rates of discount when some costs or benefits are in the present (or near future).

If so, then just as regular people may succumb to temptations like desserts and cigarettes that promise short-term pleasures, we should expect policymakers to succumb to “policy temptations” that generate short-term political gains. For instance, they might be tempted in election years to adopt policies, such as fiscal stimulus bills and trade restrictions, that will improve their electoral chances while pushing costs into the future.

How does this worsen slippery-slope risks? Slippery-slope events are necessarily sequences that play out over time: policy A’s adoption now leads to policy B’s adoption later, leading to policy C’s adoption yet further in the future. Hyperbolic discounting implies that when policymakers are faced with a policy proposal that is appealing in the present, but which creates a danger of bad policies being adopted further down the line, they will be inclined to focus on the former at the expense of the latter. In short, they will be less cognizant of slippery-slope risks.

For instance, policymakers might be tempted to create a small fat tax on grounds that it will induce marginally “better” eating decisions. Opponents might argue that adopting a small fat tax will create a danger of a larger fat tax in the future, as future policymakers—having already incurred the costs of creating a tax collection mechanism—see the opportunity to increase their tax revenues and fund special-interest constituencies. If they are hyperbolic discounters, the policymakers will not take this risk seriously enough, even if they recognize it as real.

Like hyperbolic discounters in the private sector, policymakers should be expected to exhibit time inconsistency: the tendency to make commitments and promises and then break them when the moment of choice arrives. They might, for instance, repeatedly express a willingness to take measures to fight budget deficits in the future, while nevertheless passing bloated budgets and incurring large debts in the present. Note that critics of slippery-slope arguments will sometimes claim to be able to resist the urge to adopt bad policies in the future. The idea is that we can do the right thing today and resist doing the wrong thing tomorrow. They might, for instance, promise to keep fat taxes relatively low (and linked to scientific evidence about the extent of present-bias). The existence of time inconsistency bears directly on the plausibility of promises to do the right thing in the future even in the face of temptation.

So how can the ill effects of hyperbolic discounting in government be resisted? (p. 725-726):

We have also argued that people afflicted by excessive impatience have various self-debiasing mechanisms at their disposal, such as imposing internal rewards and punishments, structuring their external environment, and enlisting the help of third parties (like families and support groups). Policymakers may have access to similar devices. We suggest that the analogous devices in the policy arena usually take the form of institutional constraints, such as judicial review and constitutional limitations on what areas can be regulated by government. The greater need for external restraints follows from the fact that bad self-governance by a single person primarily affects that person, whereas bad governance by policymakers affects all of those governed. Thus, the individual has a rational incentive to rein in his own irrational impulses, whereas a policymaker’s incentive to do so is attenuated. In other words, policymakers are more likely to exhibit “rational irrationality” about matters of personal choice than are the private citizens who make those choices.

In short, if the new paternalists take the problem of hyperbolic discounting seriously, we ought to hear them arguing for stronger limits on the power of government. Thus far, I haven’t heard them doing so.

(As usual, full citations are available in the full paper. Cross-posted at ThinkMarkets.)

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My Favorite Motions

Faculty meetings may have their charms, but efficiency does not rank among them. Many a time I have looked around a room full of my colleagues, long minutes into a winding discussion of what was supposed to take only a few moments to resolve, considered the full agenda still stretching before us, and bemoaned the deadweight social costs of law school governance. Allow me, then, to share a couple of partial cures—one an old favorite and the other a new find—from Robert's Rules of Order.

I've long been a fan of "calling the question," as we casually style the motion at my school. Full-on Robert's geeks know it as the "Previous Question" motion. Call it what you like, you have to love its effect: It takes precedence over every debatable question and, if the motion carries, forces a vote on the issue under debate.

Suppose, for instance, that a handful of faculty members have been arguing back and forth about some relatively inconsequential motion for 20 minutes or so, as everyone else's attention wanders and more important business goes untended. You get the Chair to recognize you and simply say, "I move to call the question." Once the motion carries—and often with sighs of relief—you and your colleagues can vote on the trifling motion and move on to other topics. (Section 20 of the Rules offers caveats and details, but most law school faculties seem to manage, surprisingly enough, with less than the full panoply of formalities.) Try calling a question the next time a faculty meeting starts spinning its wheels. You—and most your colleagues—will enjoy the ride.

Calling the question does not cure all the inefficiencies that afflict faculty meetings, however. Because we law profs so love to hear ourselves speak, for instance, we sometimes run on (and on and on) a bit. Polite coughs, finger drumming, and the like usually suffices to keep our monopolizing tendencies in control, happily. In fact, it was only very recently that I found myself wondering what a fellow could do when those informal measures failed. Here, too, Robert's Rules offers a remedy: a Question of Order pertaining to decorum.

Roberts Rule's provides, in § 34, that "no member shall speak more than twice to the same question . . . nor longer than ten minutes at one time, without leave of the assembly, and the question upon granting the leave shall be decided by a two-thirds vote [§ 39] without debate." Upon encountering an infraction of that rule, you have the right to interrupt the speaker. As section 14 says, one who so objects "shall rise from his seat, and say, 'Mr. Chairman, I rise to a point of order.'" The Chair must then decide the issue immediately, without debate. If the Chair finds the challenged speaker out of order, and if anyone objects to the speaker continuing, he or she must cede the floor unless the assembly votes to grant leave.

That sounds like strong medicine, granted, and would doubtless ruffle some feathers. But faculty meetings pose a classic tragedy of the commons, one where just a few overly-talkative people risk consuming far more than their fair share of everyone else's time and attention. Raising a Question of Order can help you save you—and thus your school—from the perils of a grossly inefficient faculty meeting.

[Crossposted at Agoraphilia, MoneyLaw.]

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Linguo-Economic Blogging

Two recent posts at my brother Neal’s blog “Literal-Minded” caught my attention because of their connection to economics.

First, Neal links an article on whether “no problem” is an acceptable substitute for “you’re welcome.” Personally, I have no problem with “no problem.” In fact, I think it’s often preferable to the somewhat stuffy “you’re welcome.” But it’s notable that the no-problem opponents’ chief complaint relates to the use of “no problem” in commercial contexts:

Many especially dislike hearing “no problem” in commercial transactions and from folks in customer service jobs, since, as the customer is always right, nothing a customer could ask for could ever be “a problem.” “I assume my business is not a problem,” huffed one complainer on the message boards at the Visual Thesaurus. Others on the Internet have taken the same tack: “Why would it be a problem? It’s her job, isn’t it?” and “It better damn well NOT be a problem, because I just gave you my money.”

When a commercial transaction has just concluded, I have to agree that “no problem” is inappropriate -- but not for the reasons stated. “You’re welcome” would sound just as bad to me as “no problem” because, as I’ve observed before, the appropriate response to “thank you” in this context is “thank you.” Trade is a mutually beneficial transaction, in which both parties do something that benefits the other. In the context of a straight-up favor, on the other hand, the benefits travel in one direction only.

Second, Neal has a column at Visual Thesaurus on a subtle shift in the usage of “choice” by educators. Apparently it has become common practice to use the language of choice when describing behavior -- usually bad behavior -- by students. “Doug chose not to do his homework today,” for instance. Neal describes a movement from “free-choice choose” to “take-responsibility-for-your-own-behavior choose”:

Schoolchildren are told not to behave, but to make good choices, take responsibility for the choices they make, and accept the consequences that come with them. It's not that I didn't hear similar messages when I was in school: My senior English teacher had a poster that read, "There are neither rewards nor punishments; only consequences." But the way I hear that message in schools now, it's usually phrased with choose or choice. On a high school teacher's desk recently, I saw a sign reading, "Let the choices you make today be the choices you can live with tomorrow."

Like Neal, I find this use of "choice" irksome, but I've been struggling to put a finger on why. After all, they're right: kids do make choices, and choices have consequences. Some choices lead to better consequences than others. What's wrong with saying that?

And I don't think it matters that some choices are clearly better than others. When people say, "I had no choice," that's often hyperbole. What they really mean is that some of their options sucked, so they went with the obviously best option. Nothing in the concept of choice requires all options to have similar value.

I think what bothers me about the new usage of "choice" is this: They're using the idea of choice to obscure the difference between natural consequences and deliberately imposed consequences. When you choose not to exercise, a natural consequence is that you'll get fat and have less energy. A deliberately imposed consequence is that your parent will dock your allowance, or your teacher will make you sit in the corner. Neal gets at this distinction when he says, “Only a few students are so cynical as to suggest that a choice between one alternative with a punishment attached and another without one is not really a choice.” I don’t agree that it’s not really a choice -- you really do have the option of taking the unpleasant alternative -- but I agree that an important distinction is being glossed over.

The failure to recognize the natural-vs-imposed distinction is potentially dangerous. It allows, for instance, a drug warrior to claim that the drug war respects freedom of choice. "You choose to take drugs, and you pay the price: going to jail." But just because you still have a choice doesn't mean your freedom of choice has been respected.

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New Paternalism on the Slippery Slopes, Part 7: The Inevitable Misinterpretation of New Paternalist Arguments

Happy new year! After a holiday-induced hiatus, I’m now resuming the series of excerpts from Mario Rizzo’s and my recently published article, “Little Brother Is Watching You: New Paternalism on the Slippery Slopes.”

A number of our claims in the paper rely on the new paternalists’ arguments (which are largely based in behavioral economics) being misconstrued or misrepresented by other parties such as politicians, bureaucrats, and rent-seekers. We claim such people will often employ simplified, unsophisticated versions of the new paternalists’ arguments when crafting policy. Is this a fair line of criticism? We believe it is (p. 723):

Experts, and more broadly intellectuals like the readers of scientific and law journals, naturally respond to sophisticated argumentation. The complex interaction of multiple justifications is their favored milieu, the drawing of distinctions their stock in trade. Some of the claims of this Part might, therefore, seem anti-intellectual or unfair, because we are discussing the misinterpretation of the new paternalists’ arguments, rather than the new paternalists’ actual arguments. Why can’t the experts simply reject the simplification, distortion, and expansion of their justifications for policy?

The answer is twofold. First, intellectuals cannot always control the development of their own ideas. Many regular people, whose job is not the careful parsing of sophisticated arguments, nevertheless affect the policy process. These regular people include voters, of course, but in varying degrees other public decisionmakers, such as politicians, bureaucrats, and some judges. The point is not that such people are stupid, but that they are rationally ignorant. They act based on simplified versions of arguments because they do not have the time, energy, or motivation to explore the sophisticated versions. In short, simple is easy; complex is hard.

Second, decision-making takes place in a social context. The fact that some people will recognize certain distinctions as relevant does not mean that others will. The decisionmakers who create a policy are not necessarily the people who enforce it, or who interpret it, or who consider extensions of it. We therefore need to keep in mind Bernard Williams’s distinction between “reasonable distinctions” and “effective distinctions.” The former are distinctions for which a reasoned argument can be made, whereas the latter are distinctions that can be defended “as a matter of social or psychological fact.” The social and psychological facts, in a world of rational ignorance, often point toward simplification and even distortion of both theory and fact.

The core of the new paternalists’ position is, put simply, that people make mistakes. If they are right (and surely they are), then they cannot deny or ignore the mistakes that will inevitably be made in the process of translating their policy prescriptions into political reality.

(As usual, full citations are available in the full paper. Cross-posted at ThinkMarkets.)

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New Paternalism on the Slippery Slopes, Part 6: Rent Seekers

As discussed in the previous post, the “experts” in charge of implementing new paternalist policies will have a tendency to simplify their own theories to make them useful for crafting policy. That alone creates slippery-slope potential. But that potential is magnified by the existence of rent-seekers – that is, interest groups whose agenda is to change policy for their own interests. Such interests can be ideological, monetary, or simply personal. In the paper, we illustrate the power of rent-seekers to distort the facts and confuse the debate with two issues: environmental tobacco-smoke (ETS) and obesity. With respect to ETS, however, we have to run off a potential objection: that ETS is not really a paternalist cause at all, because smoke harms non-smokers (p. 714):

We should note that although policies addressing exposure to secondhand smoke (“environmental tobacco smoke” or ETS) are not strictly paternalistic, inasmuch as secondhand smoke can potentially harm bystanders, paternalist arguments have played an important supporting role. Most importantly, many actual and proposed anti-smoking regulations limit the ability of individuals who may not be bothered by smoke to expose themselves voluntarily to secondhand smoke as customers or employees of restaurants and bars. Furthermore, by creating a hostile environment for smokers, the ETS argument easily slides into the paternalistic. Thus, even some ETS arguments must be regarded as partially paternalistic either in intention or merely in effect.

After considering the ways in which ETS claims have been exaggerated, we draw some more general conclusions (p. 715):

The rent-seekers’ motivation for simplifying and distorting is not hard to see. The exaggeration of risks has the direct effect of creating greater public support for the policies they regard as best. It also has the indirect effect of making the cultural environment less hospitable to opposing groups, such as those who wish to smoke. This puts further pressure on individuals to stop smoking because they will find themselves uncomfortable in more and more public spaces. Thus the paternalist net can widen by increasing the number of those who, for self-interested or moralistic reasons, will support more inclusive bans.

And after presenting the similar case of obesity, where the distortion of facts by special interests is also apparent, we observe that rent-seekers can have a variety of motivations (p. 716-717):

As the secondhand smoke and obesity examples [just presented] suggest, rent-seekers with an interest in distorting and simplifying information come in at least two varieties. The first variety is old-style paternalists who believe they know best and do not necessarily care about the underlying preferences of the targets. Traditional temperance and health advocates fall within this category. They sacrifice the preferences of the targets to their own moralistic goals. The second variety is people who stand to benefit economically from the promotion or cessation of some activity. Examples include mutual fund companies that provide savings instruments, weight-loss clinics and programs, and manufacturers of smoking-cessation drugs. Public officials and agencies with an interest in preserving and expanding their domains also fall within this category, as do some individuals in their role as consumers and workers (e.g., non-smoking bar customers who would prefer to have more establishments cater to their tastes).

The larger point is that new paternalists cannot constrain the use of their own arguments in the public-policy debate. Once new paternalists premises are admitted, there is every reason to believe they’ll be used and abused by rent-seekers for purposes the new paternalists themselves would not approve of.

(As usual, full citations are available in the full paper. Cross-posted at ThinkMarkets.)

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New Paternalism on the Slippery Slopes, Part 5: Deference to Authority

Another problem with the new paternalism is that it necessarily involves greater deference to the authority of experts. Here is the basic logic (p. 710):

Substantial deference to authority is inherent in the application of new paternalist ideas to public policy. This is because the complexities, vagueness, and indeterminism of their analysis (previously discussed) raise the costs of decision-making on the part of voters, politicians, and bureaucrats. The locus of effective decision-making will then quite reasonably shift to experts (“authorities”) or to simplifiers of technical ideas who may have agendas of their own. As Eugene Volokh puts it, “The more complicated a question seems, the more likely it is that voters will assume that they can’t figure it out themselves and should therefore defer to the expert judgment of authoritative institutions . . . .” There will thus be a tendency for policy to slide away from the values of the targeted agents themselves toward those of outsiders regarded as authorities. This happens in at least two ways. First, experts simplify their own theories to make them applicable in a policy context. Second, people seeking to advance their own interests will further simplify the theory and distort the facts to suit their purposes.

Of course, some people think deference to experts is only right and proper. But there are specific reasons to resist that conclusion when it comes to paternalist policymaking (p. 711):

Although it may seem as if the shift of effective decision-making to experts is the right thing to do in difficult cases, this is not always true. It is especially unlikely to be true in the case of new paternalist policies. This is because, as we have argued earlier, the underlying standards and information needed to apply those standards and implement policy are fundamentally vague and indeterminate. The experts themselves have, at best, only a tenuous grip on the values of the targeted agents, which limits the direct applicability of their paternalistic theories to policy. Thus, there will be a tendency for the experts to reify their own values, and to simplify their own theories, in order to make more definite policy recommendations.

How have the new paternalists simplified their own theories? Here is one example (p. 712):

The new paternalists claim to have found policy interventions that will make targeted agents better off according to the target agents’ own preferences. What they have in fact found is evidence of internal conflict in the target agents’ preferences, and then they have resolved the conflict in favor of the experts’ preferences. The error in reasoning is subtle enough that the experts themselves have simplified the argument substantially—either because they do not fully understand the argument themselves, or because they do understand the argument but have simplified it for mass consumption.

For examples of how they have done this, see the posts on hyperbolic discounting and context dependence. Continuing:

What creates the slippery-slope potential here is the veneer of scientific objectivity. It is the simplified argument, not the original and more sophisticated one, that becomes reified in policy. Yet, the simplified form of the argument can justify far more than the initial intervention, especially if the experts are appointed to agencies and commissions tasked with implementing it. If simple observations—that people weigh more than they used to, that they don’t save as much as we think they should—are taken as ipso facto evidence of suboptimal choices, then further intervention will surely follow.

The paper offers evidence, from the obesity debate, to show that the new paternalists do in fact take simple facts as evidence of suboptimal choices – even though their own theory indicates that more evidence is required.

(As usual, full citations are available in the full paper. Cross-posted at ThinkMarkets.)

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New Paternalism on the Slippery Slopes, Part 4: Context Dependence

New paternalists have also relied on the notion of context dependence to justify their policies. But as with hyperbolic discounting, they unjustifiably assume the existence of an inconsistency of preferences gives the policymaker license to choose among the inconsistent preferences. That assumption is the paper’s next target (pp. 703-704):

For a variety of decisions, people are subject to what behavioral economists call context-dependence. This means that how they choose among two or more options depends on seemingly irrelevant aspects of how the situation is described. For example, medical patients are more likely to assent to a treatment with a 90% survival rate than one with a 10% death rate, even though these are the same. In this case, people seem to favor “positive” over “negative” framing. People also seem to prefer options framed as the existing or a baseline position; this may be called status-quo bias. Another example of the power of framing is the persistent difference between willingness-to-pay (WTP) and willingness-to-accept (WTA), meaning that people will demand more money to part with an item than they will pay to acquire it, even when the item’s value is a trivial portion of their wealth or income.

The phenomenon of context-dependence underlies various new paternalist proposals. All of Sunstein and Thaler’s proposals for new contractual defaults, for example, rely on the difference between WTP and WTA. Although such defaults leave all contractual options open (at least for the most modest proposals), employees may be less willing to part with a given term (such as guaranteed paid vacation) than to bargain for its inclusion. If there were no difference between WTP and WTA, and if transaction costs were zero, then the realized terms of contract would be the same regardless of the default.

The problem with context-dependence is similar to that of hyperbolic discounting: the new paternalist argument relies on an internal inconsistency to justify intervention. There is no theoretical basis for choosing which behavior represents the individual’s “true” best interest as he sees it. Which better represents a person’s real preferences: what he is willing to pay for something or what he is willing to accept to part with it? There is no theoretically correct answer to this question, as Sunstein and Thaler admit: “If the arrangement of the alternatives has a significant effect on the selections the customers make, then their true ‘preferences’ do not formally exist.”

In the absence of a true underlying preference as the correct standard, what standard should be used? Sunstein and Thaler decline to answer that question: “We are not attempting to say anything controversial about welfare, or to take sides in reasonable disputes about how to understand that term.”

In short, there is no standard provided by behavioral economic theory. The answer to the “what standard” question will depend on policymakers’ own particular notions of welfare and well-being, as well as the weight they attach to autonomy. Notably, behavioral economics does not necessarily place any weight on autonomy, despite Sunstein and Thaler’s obeisance to the value of individual choice. Policymakers who adopt the new paternalists’ approach need not share their belief in choice. The new paternalist paradigm places them on a gradient from policies that only mildly restrict choice to policies that restrict or abolish it.

Additionally, we should realize that the supposedly beneficial default rules that S&T favor, such as a presumption of paid vacation, are not necessarily costless. Wages will adjust to account for the value of additional benefits. Thus, a new default rule does not simply give workers something they lacked before; it gives them something in exchange for losing something else.

(As usual, full citations are available in the full paper. Cross-posted at ThinkMarkets.)

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New Paternalism on the Slippery Slopes, Part 3: Hyperbolic Discounting

New paternalists often rely on the phenomenon of “hyperbolic discounting” to justify their policies. Hyperbolic discounting is difficult to define in a non-mathematical way. It is sometimes summarized as excessive impatience, but that’s an over-simplification. A person with a high-but-consistent rate of time discounting would not be a hyperbolic discounter. What hyperbolic discounting really means is having inconsistent rates of time-discounting. One consequence is that a hyperbolic discounter may exhibit “time inconsistency,” a tendency to make choices and then reverse them. After explaining hyperbolic discounting (in more technical terms that I have here), Mario and I explain how paternalists have made unjustified leaps in their use of the concept (pp. 699-700):

In short, hyperbolic discounting means that people at first make long-term plans for saving or dieting but then, when the time comes to implement these plans, they succumb to the desire for short-term gratification. For the new paternalists, this type of behavior suggests an opening for paternalist intervention or correction. Examples include the previously mentioned proposal to automatically enroll people in savings plans, and to impose a sin tax (on unhealthy foods, cigarettes, and so forth) to provide additional incentive for impatient people to resist their temptations.

New paternalists claim that they are evaluating the observed behavior of the individual in terms of his own normative standard. This appears attractive until we realize that the individual has no unambiguous standard for the appropriate level of time discounting. The analytical “opening” for paternalist policy is created by the existence of an internal inconsistency of choice. But although an inconsistency does create a quandary for traditional rational-choice theory—which assumes that people have internally consistent preferences—it does not provide any grounds for choosing between the inconsistent preferences. The inconsistency of a hyperbolic discounter could be “fixed” by making him uniformly more patient ..., but it could also be “fixed” by making him uniformly less patient...

To craft new paternalist policies, it is necessary to decide the appropriate normative rate of time discounting. This matters because policies must specify the amount of money an individual is automatically signed up to save, the magnitude of a fat tax, etc. Which rate of discount is the correct one? Theory provides no answer, but the new paternalists have not hesitated to side with the more patient one. O’Donoghue and Rabin define “optimal behavior” as “that [which] maximizes long-run well-being,” where long-run well-being is associated with the more patient rate of discount. Gruber and Köszegi “take the agent’s long-run preferences as those relevant for social welfare maximization.”

To put the point slightly differently: the existence of an inconsistency does not give the new paternalists license to resolve that inconsistency however they please.

Hyperbolic discounting is difficult to work with mathematically. For that reason, behavioral economists have often used quasi-hyperbolic discounting instead. While hyperbolic discounting means a person has many (perhaps infinitely many) different rates of time discounting, quasi-hyperbolic discounting means a person has only two: one that applies when comparing any two periods in the future, and one that applies when comparing a present and future period. Once we recognize that real people tend to have a range of time discount rates, the slippery-slope potential becomes clear (p. 702):

Quasi-hyperbolic discounting makes it deceptively simple to choose the “correct” rate of discount, since there appear to be only two options. If real people actually engage in hyperbolic discounting, this implies a gradient or continuum of discount rates over time. If we assume, notwithstanding our earlier objections, that the immediate discount rate is impulsive or ill-considered, which of the longer-term rates is normatively preferable? There is nothing in the logic of new paternalism or behavioral economics that can provide an answer. We are faced with a continuum of normative possibilities. These arguments impel us to the conclusion that among the discount rates revealed in choice or planning behavior, none has a clear claim to normative superiority. Thus, the new paternalist is in a conceptual fog because his underlying standard of evaluation is unspecified. The notion of “excessive impatience” is both theoretically and empirically vague, and that means we have a gradient of possibilities. There is no clear line to resist the gradual creep of higher savings requirements, higher fat taxes, and the like.

Note the connection here to our earlier point, that gradients increase the slippery-slope risk. (As usual, full citations are available in the paper.)

Cross-posted at ThinkMarkets.

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New Paternalism on the Slippery Slopes, Part 2: How New Paternalism Creates Gradients

A key conclusion of the literature on slippery slopes is that they are especially likely in the presence of gradients -- meaning situations in which there is a relatively smooth continuum from one policy to another, and in which it is difficult to draw sharp distinctions. Gradients don’t guarantee slippery slope events, but they increase their probability in the presence of other slope processes.

In “Little Brother,” Mario and I review the literature on gradients and slippery slopes, and then we consider how the new paternalists deliberately frame policy choice in terms of gradients (pp. 693-694):

The new paternalist paradigm, as presented by its leading advocates, relies on discarding sharp distinctions in favor of gradients. Specifically, they reject standard distinctions between choice and coercion and between public and private action. Cass Sunstein and Richard Thaler minimize the importance of the distinction between paternalism in the private and in the public sectors. In explaining their concept of “libertarian paternalism,” they say that the distinction between libertarian and non-libertarian paternalism “is not simple and rigid.” Moreover, they explicitly state that libertarian and non-libertarian paternalism lie on a continuum: “The libertarian paternalist insists on preserving choice, whereas the non-libertarian paternalist is willing to foreclose choice. But in all cases, a real question is the cost of exercising choice, and here there is a continuum rather than a sharp dichotomy . . . .”

Sunstein and Thaler thus present us with a gradient on which choice is characterized by low costs of escaping the prescribed course of action, while coercion corresponds to higher costs of escape. Who imposes the costs of escape and how these costs are imposed are regarded as unimportant questions.

In the pages that follow, we summarize the many and sundry policies that S & T regard as falling on the libertarian paternalist spectrum. Many of these are policies they never mention in their public defenses of libertarian paternalism. But they do appear in their academic work, and reading the list makes it apparent just how un-libertarian libertarian paternalism can be. We conclude (pp. 697-698):

At the far end of the continuum lies an outright ban on certain activities. Sunstein and Thaler embrace this conclusion: “Almost all of the time, even the non-libertarian paternalist will allow choosers, at some cost, to reject the proposed course of action. Those who are required to wear motorcycle helmets can decide to risk the relevant penalty, and to pay it if need be.”

Notice that the same argument would place outright prohibition of alcohol, drugs, or anything else on the same spectrum. You are free to use any drug you want, says the argument, if you are willing to incur the cost of potential imprisonment. At this end of the continuum, we find, lies genuine hard paternalism. In Sunstein and Thaler’s words:

A libertarian paternalist who is especially enthusiastic about free choice would be inclined to make it relatively costless for people to obtain their preferred outcomes. (Call this a libertarian paternalist.) By contrast, a libertarian paternalist who is especially confident of his welfare judgments would be willing to impose real costs on workers and consumers who seek to do what, in the paternalist’s view, would not be in their best interests. (Call this a libertarian paternalist.)

Movement along a paternalist continuum should come as no surprise when the two ends of the continuum depend on which word is italicized, as well as on the subjective confidence of the policymaker in his welfare judgments.

It bears emphasis that the sequence of steps we have outlined—from nudging (changing the order of cafeteria items) to pushing (imposing costs on those who deviate from the state’s preferred terms of contract) to shoving (ruling out some terms entirely) to controlling (banning some activities altogether)—is not our creation. Sunstein and Thaler present the same proposals in approximately the same order, to demonstrate the existence of a continuum.

A bit later (pp. 698-699) we respond to a natural objection: that the new paternalism is not to blame for the existence of a gradient that already exists.

Some may object that the existence of a gradient from soft to hard paternalism is just a fact, and that the new paternalists cannot be faulted for pointing it out. But the gradient in fact results from the conceptual framework that the new paternalists have adopted and urge the rest of us to adopt. The main problem with the framework, in our view, is that it defines freedom of choice (and libertarianism) in terms of costs of exit, without any attention to who imposes the costs and how. An alternative framework, one that is more consistent with the typical usage of words like coercion and choice, would focus on whether rights of person and property are abridged by a given policy. On this approach, a restaurateur’s decision about dessert placement and a government’s decision about whether to allow helmetless motorcycle riding simply would not be on the same continuum. The former is private and non-coercive, the latter public and coercive. This is the sort of framework that the new paternalists encourage us to reject in favor of theirs.

To put it another way, the new paternalists often say that people are subject to “framing effects” that alter their choices. Indeed, they say that such framing effects are evidence of irrationality. Yet they are exploiting a framing effect in their advocacy of new paternalism. They encourage us to adopt a conceptual frame that relies on gradients, rather than a conceptual frame that highlights important distinctions. We will revisit this point later. (As usual, footnotes have been omitted, but are available in the full paper.)

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New Paternalism on the Slippery Slopes, Part 1

Mario Rizzo and I have just published a new article, "Little Brother Is Watching You: New Paternalism on the Slippery Slopes," in Arizona Law Review. You can find the full text here.

Regular readers (if I still have any) will know I've written a great deal about the new paternalism. Just click on the subject tag "paternalism" on this post for a sampling. Mario and I also published a prior article about how new paternalist policies are vulnerable to slippery slopes; the present article is a more comprehensive treatment of the issue.

The article is quite long. As a result, I expect few people will read the whole thing. I've therefore decided to excerpt the article in a series of blog posts. I won't be covering all of our arguments in the paper, but I'll be pulling out some passages I particularly like -- and that might otherwise be missed.


Since Mario has already posted the abstract on his blog, I'll start by posting parts of the longer summary in the introduction. Here are the opening paragraphs, which explain the idea of the "new paternalism" (pp. 687-688).

Paternalist arguments advocate forcing or manipulating individuals to change their behavior for their own good, as distinct from the good of others. Paternalism has been with us for millennia. Recently, however, a seemingly new form has arisen that we call “the new paternalism.” Unlike the old paternalism, which sought to make individuals behave consistently with the (often moralistic or religious) preferences of policymakers, the new paternalism seeks to help individuals maximize their own welfare as they see it themselves. ...

The new paternalism is supported by a growing body of research in behavioral economics showing that individuals are not fully “rational,” as economists understand that term, but instead are subject to a variety of cognitive errors and biases. The list of such deviations from strict rationality includes—but is not limited to—status quo bias, optimism bias, susceptibility to framing effects, and lack of willpower or self-control. Thus individuals are viewed as “pawns in a game whose forces [they] largely fail to comprehend.” To the extent that these cognitive problems cause individuals to make systematic and predictable choices that are inconsistent with their own well-considered preferences, there is potential for paternalistic interventions that will help them do better. In fact, these interventions have been described as “free lunches . . . that would help people achieve more of what they truly want.”

And then our central claim in the article (pp. 687-688):

New paternalists distinguish their views from hard paternalism by emphasizing the moderate character of their proposals. Christine Jolls and Cass Sunstein frequently refer to their proposals for debiasing behavior through law as a “middle ground” between laissez-faire and more heavy-handed paternalism, one that is a “less intrusive, more direct, and more democratic response to the problem of bounded rationality.” Colin Camerer, et al., present their model of “asymmetric paternalism” as “a careful, cautious, and disciplined approach” to evaluating paternalistic policies. Cass Sunstein and Richard Thaler characterize their “libertarian paternalist” approach as a “relatively weak and nonintrusive type of paternalism” that in its “most cautious forms . . . imposes trivial costs on those who seek to depart from the planner’s preferred option.” In short, the new paternalists claim we can attain significant improvements in individual welfare with relatively small interventions that do not substantially restrict liberty or autonomy.

Our thesis is that the new paternalism’s claim to moderation is not sustainable. A recent body of literature, to which we have contributed, has rehabilitated slippery-slope reasoning by examining the specific processes by which slippery slopes occur, as well as the circumstances under which slippage is most likely. The insights of the slippery-slope literature suggest that new paternalist policies are particularly subject to expansion. We argue that this is true even if policymakers are rational. But perhaps more importantly, we argue that the slippery-slope threat is especially great if policymakers are not fully rational, but instead share the behavioral and cognitive biases attributed to the people their policies are supposed to help. Consequently, accepting new paternalist policies creates a risk of accepting, in the long run, greater restrictions on individual autonomy than have heretofore been acknowledged. Inasmuch as new paternalists claim to be interested in preserving autonomy, this surely must be taken into account as an unrecognized or unacknowledged cost to be balanced against any possible gains from their policies.

I've omitted citations, but they can be found in the full article. Next up: how the new paternalism blurs important distinctions.

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Halloween Doppelgangers

If you've walked into a Halloween store recently, you've probably been treated to a soundtrack of what seem to be classic haunting favorites, like "Thriller" and "Ghostbusters" and "Weird Science." But if you listen closely, you will realize the original songs have been spirited away, their places taken by substandard doppelgangers -- lousy covers performed by unknown studio musicians.

But why not just play the originals? After all, Michael Jackson's "Thriller" is probably playing on scores of radio stations nationwide this very minute, as I compose this blog post. So why not play it in the stores, too?

You'll know the answer if you've read my post from two years ago on the strange phenomenon of crappy karaoke covers. Rather than using modern technology to strip out the vocals from originals, karaoke track producers recreate the whole songs from scratch. Halloween stores are doing the same thing for the same reason. To use the original recording for any commercial purpose, you must get the permission of the copyright holder and negotiate a price; but to use the melody and lyrics, you don't need permission and you pay only a low price fixed by statute.

The result, of course, is economic waste. Were it not for this legal structure, both Halloween shoppers and karaoke singers could use the originals, and economic resources wouldn't get spent on the creation of lousy knock-offs. The goal of the law, of course, is to assure that the artists get compensated for their effort. But the reality is that the artists get only nominal compensation (from the music/lyrics payment), while music listeners get treated to second-rate performances.

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How Top-Ranked Law Schools Got That Way, Pt. 3

Part one and part two of this series focused on the top law schools in U.S. News and World Report's 2010 rankings, offering graphs and analysis to explain why those schools did so well. This part rounds out the series by way of contrast. Here, we focus on the law schools that ranked 41-51 in the most recent USN&WR rankings, those that ranked 94-100, and the eight schools that filled out the bottom of the rankings.



The above chart shows the weighted and itemized z-scores of law schools about 1/3rd of the way from the top of the 2010 USN&WR rankings. Note the sharp downward jog at Over$/Stu—a residual effect, perhaps, of the stupendously large Over$/Stu numbers we earlier saw among the very top schools. Note, too, that three schools here—GMU, BYU, and American U.—buck the prevailing trend by earning lower scores under PeerRep than under BarRep (GMU's line hides behind BYU's). As you work down from the top of the rankings, GMU offers the first instance of that sort of inversion; all of the more highly ranked schools have larger itemized z-scores for PeerRep than for BarRep. It raises an interesting question; Why did lawyers and judges rank those schools so much more highly than fellow academics did?




The above chart shows the weighted, itemized z-scores of the law schools ranked 94-100 in the 2010 USN&WR rankings—about the middle of all of the 182 schools in the rankings. As we might have expected, the lines bounce around more wildly on the left, where they trace the impact of the more heavily weighted z-scores, than on the right, where z-scores matter relatively little, pro or con. Beyond that, however, no one pattern characterizes schools in this range.




The above chart shows the weighted and itemized z-scores of law schools that probably did the worst in the 2010 USN&WR rankings. I say, "probably," because USN&WR does not reveal the scores of schools in the bottom two tiers of its rankings; these eight schools did the worst in my model of the rankings. Given that uncertainty, as well as for reasons explained elsewhere, I decline to name these schools.

Here, as with the schools at the very top of the rankings, we see a relatively uniform set of lines. All of the lines trend upward, of course. These schools did badly in the rankings exactly because they earned strongly negative z-scores in the most heavily weighted categories, displayed to the left. Several of these schools did very badly on the Emp9 measure, and one had a materially poor BarPass score. Another of them did surprisingly well on Over$/Stu, perhaps demonstrating that, while the very top schools boasted very high Over$/Stu scores, no amount of expenditures-per-student can salvage otherwise dismal z-scores.

[Crossposted at Agoraphilia, MoneyLaw.]

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How Top-Ranked Law Schools Got That Way, Pt. 2

In the first post in this series, I discussed the mysterious distribution of maximum z-scores in the top two tiers of law schools in U.S. News & World Report's 2010 rankings, and focused on the top-12 schools to solve that mystery. In brief, among the very top schools, employment nine months after graduation" ("Emp9") varies too little to make much of a difference in the schools' overall scores, whereas overhead expenditures/student ("Over$/Stu") varies so greatly as to almost swamp the impact of the other factors that USN&WR uses in its rankings. Here, in part two, I focus on the top 22 law schools in USN&WR's 2010 rankings. In addition to the Emp9 and Over$/Stu effects observed earlier, this wider study uncovers some other interesting patterns.



The above graph, "Weighted & Itemized Z-Scores, 2010 Model, Top-22 Schools," offers a snapshot comparison of how a wide swath of the top schools performed in the most recent USN&WR rankings. It reveals that the same effects we observed earlier, among just the top-12 schools, reach at least another ten schools down in the rankings. With the exception of Emory and Georgetown, Emp9 scores (indicated by the dark blue band) barely change from one top-22 school to another. Over$/Stu scores, in contrast (indicated by the middle green hue), vary widely; compare Yale's extraordinary performance on that measure with, for instance, Boston University's.

This graph also reveals some other interesting effects. Like the Emp9 measure, the Emp0 measure (for "Employment at Graduation," indicated in yellow-green) varies little from school to school. Indeed, it varies even less than the Emp9 measure does. Why so? Because all of these top schools reported such high employment rates. All but Minnesota reported Emp0 rates above 90%, and all but Georgetown, USC, and Washington U. reported rates above 95%.

These top 22 schools also reported very similar LSATs. Their weighted z-scores for that measure, indicated here in light blue, range from only.20 to .15. The weighed z-scores for GPA, in contrast, marked in dark green, range from .24 to .06.

As the graph indicates, the measures worth 3% or less of a school's overall score—student/faculty ratio, acceptance rate, Bar exam pass rate, financial aid expenditures/student, and library volumes and equivalents—in general make very little difference in the ranking of these schools. One exception to that rule pops up in the BarPass scores (in dark orange) of the California schools, which benefit from a quirk in the way that USN&WR measures Bar Pass rates. Another interesting exception appears in Harvard's Lib score (in white)—only thanks to its vastly larger law library does Harvard edge out Stanford in this ranking.

To best understand how a few law schools made it to the top of USN&WR's rankings, we should contrast their performances with those of the many schools that did not do as well. I'll thus sample the statistics of the law schools that ranked 41-51 in the most recent USN&WR rankings, those that ranked 94-100, and the eight schools that filled out the bottom of the rankings. Please look for that in the next post.

[Crossposted at Agoraphilia, MoneyLaw.]

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How Top-Ranked Law Schools Got That Way, Pt. 1

How do law schools make it to the top of the U.S. News & World Report rankings? USN&WR ranks law schools based on 12 factors, each of which counts for a certain percentage of a school's total score. Peer Reputation counts for 25% of each law school's overall score, for instance, whereas Bar Passage Rate counts for only 2%. More precisely, USN&WR calculates z-scores (dimensionless statistical measures of relative performance) for each of the 12 factors for each school, multiplies those z-scores by various percentages, and sums each school's weighted, itemized z-scores to generate an overall score the school. USN&WR then rescales the scores to run from 100 to zero and ranks law schools accordingly.

In earlier posts I described my model of the most recent U.S. News & World Report law school rankings (the "2010 Rankings"), quantified its accuracy, and published itemized z-scores for the top two tiers of schools. (Separately, I also suggested some reforms that might improve the rankings.) Studying those z-scores reveals a great deal about how the top-ranked law schools got that way. The lessons hardly jump out from the table of numbers, though, so allow me to here offer some illustrative graphs.



The above graph, "Weighted & Itemized Z-Scores of Top 100 Law Schools in Model of 2010 USN&WR Rankings," reveals an interesting phenomenon. The items on the left of the graph count for more of each school's overall score, whereas the items on right count for less. We would thus expect the line tracing the maximum weighted z-scores for each item to drop from a high, at PeerRep (a measure of a school's reputation, worth 25% of its overall score), to a low, at Lib (a measure of library volumes and equivalents, worth only .75%). Instead, however, the maximum line droops at Emp9 (employment nine months after graduation) and soars at Over$/Stu (overhead expenditures per student). The next graph helps to explain that mystery.



The above graph, "Weighted & Itemized Z-Scores, 2010 Model, Top-12 Schools," reveals two notable phenomena. First, the Emp9 z-scores, despite potentially counting for 14% of each school's overall score, lie so close together that they do little to distinguish one school from another. In practice, then, the Emp9 factor does not really affect 14% of these law schools' overall scores in the USN&WR rankings. (Much the same holds true of top schools outside of these 12, too.)

Second, the Over$/Stu z-scores range quite widely, with Yale having more than double the score of all but two schools, Harvard and Stanford, which themselves manage less than two-thirds Yale's Over$/Stu score. That wide spread gives the Over$/Stu score an especially powerful influence on Yale's overall score, making it almost as important as Yale's PeerRep score and much more important than any of the school's remaining 10 z-scores. In effect, Yale's extraordinary expenditures per student buy it a tenured slot at number one. (I observed a similar effect in last year's rankings.)

Other interesting patterns appear in "Weighted & Itemized Z-Scores, 2010 Model, Top-12 Schools." Note, for instance, that Virginia manages to remain in the top-12 despite an unusually low Over$/Stu score. The school's strong performance in other areas makes up the difference. Though it is not easy to discern from the graph, Virginia's reputation and GPA scores fall in the middle of these top-12 schools' scores. Northwestern offers something of a mirror image on that count, as it remains close to the bottom of the top-12 despite a disproportionately strong Over$/Stu score. The school's comparatively low PeerRep and BarRep scores (the lowest of those in the top-12) and GPA (nearly tied for the lowest) score pull it down; Northwestern's Over$/Stu score saves it.

[Since I find I'm running on a bit, I'll offer some other graphs and commentary in a later post or posts.]

[Crossposted at Agoraphilia, MoneyLaw.]

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Free Willie?

Thanks to comments on my earlier post, Copyright Duration and the Mickey Mouse Curve, I've been encouraged to reflect on what would happen if, in fact, Steamboat Willie had fallen into the public domain. Could we then reuse Mickey Mouse, the star of that show, without facing any liability to the Walt Disney Company? I drafted this answer for my book, Intellectual Privilege (here edited for blogging):

Scholars have made surprisingly strong arguments that Steamboat Willie, a cartoon that the Walt Disney Company cites as establishing its copyright rights in Mickey Mouse, has fallen into the public domain. As a thought experiment, let us assume the truth of that claim. What would happen if Walt Disney Company—if, indeed, nobody—held a copyright in Steamboat Willie? Certainly, each of use would by default enjoy complete freedom to copy, distribute, display, or perform the cartoon, because the expiration of the work's copyright would also end the exclusive rights of the Walt Disney Company and its assigns the exercise those statutory privileges. So, too, would we escape copyright's limitations on making derivative versions of Steamboat Willie—versions that might show Mickey standing at a lectern rather than at a pilot's wheel, for instance, or have him expounding on copyright law.

The Walt Disney Company would retain its copyrights in later, plumper versions of the Mickey Mouse, of course. Contemporary artists wanting to reinterpret the character free from the company's veto would thus have to draw inspiration primarily from the earlier, skinnier, version. Given that the characters would share a common ancestor, however, even mice derived solely from Steamboat Willie would often strongly resemble the modern-day Mickey Mouse.

Would Walt Disney Company object to those unauthorized reuses of Steamboat Willie? It might, indeed. Some such uses might substitute for sales of the company's wares, after all, or cast its most prominent spokes-mouse in an unsavory light. But copyright law would, per the assumption behind our thought experiment, offer the company no solace. The Walt Disney Company could not plausibly claim that patent or trade secret law gives it the power to limit free use of Steamboat Willie, either. Nor could it invoke the right of publicity, which though sometimes shockingly effective in limiting speech about celebrities, has thus far not stretched to cover cartoon characters.

Trademark and unfair competition law would probably offer the Walt Disney Company its most potent weapon against any movement to emancipate Steamboat Willie. Generally speaking, that area of law allows the holder of a name, symbol, or other mark to prevent latecomers from using in commerce marks likely to confuse consumers about the source or affiliation of a particular good or service. Thus, for instance, can Nike bar someone from putting its famous "swoop" on non-Nike clothes. The Walt Disney Company uses Mickey Mouse as a mark designating its goods and services. If a consumer did not know (ex hypothesis) that the image and voice of Mickey Mouse, qua the character Willie, had fallen into the public domain, and that consumer saw a cartoon of a substantially similar Mickey Mouse in a new context, the consumer might naturally, yet wrongly, assume that the newer Mickey Mouse had issued from the same source as so many other cartoons featuring the character: The Walt Disney Company. On that argument, consumer ignorance would give the company cause to censor derivative versions of the copyright-free Mickey Mouse.

Perhaps the addition of disclaimers, such as noting, "Not a Walt Disney Company production!" in a cartoon's margin, would suffice to dispel consumer confusion. That would ward off only a "passing off" claim—one where a mark's holder accuses another of selling bogus wares under that mark—however. The same disclaimer would set the defendant up for a "reverse passing off" claim—one where Disney would charge that cartoonist wrongly sold Disney's product (intellectual creations about Mickey Mouse) under another's name. Disney could thereby damn those who use Steamboat Willie both if they do use disclaimers and if they do not. Happily for anyone who wants to free Willie, however, the Supreme Court has cut through that Gordian knot of liability.

The Supreme Court held in Dastar Corp. v. Twentieth Century Fox Film Corporation that, once a work has fallen into the public domain, its former copyright holder cannot use federal unfair competition law to demand credit from those who reuse the work. Still more broadly, the Court flatly excluded copyrighted works from the scope of section § 43(a)(1)(A) of the Lanham Act, the federal law barring passing off, whether direct or reverse. The Court explained the policy reasons for thus limiting unfair competition law:

Assuming for the sake of argument that [defendant] Dastar's representation of itself as the "Producer" of its videos amounted to a representation that it originated the creative work conveyed by the videos, allowing a cause of action under § 43(a) for that representation would create a species of mutant copyright law that limits the public's "federal right to 'copy and to use,'" expired copyrights.

Dastar voiced broad concerns, and lower courts have read it accordingly. They have extended it to bar state law claims of unfair competition, a result the U.S. Constitution's Supremacy Clause would apparently mandate. Lower courts have also extended Dastar to bar unfair competition claims arising out of the use of uncopyrighted and uncopyrightable works. Plainly, the case has done a great deal to ensure that copyright's privileges go no farther than copyright itself.

The exact scope of Dastar's preemptive effect remains as yet uncertain, granted. Even if it suffered the uncopyrighting of Steamboat Willie we've hypothecated here, for instance, the Walt Disney Company would perhaps still have the right to bring suit under § 43(a)(1)(B) of the Lanham Act against those using liberated versions of Mickey Mouse to deceptively market their wares, such as by falsely advertising a new Spaceship Willie as a Disney original. The Dastar Court left that question open. Lower courts have, however, read the case to bar § 43(a)(1)(B) claims alleging no more than false marketing about whether permission was granted for an uncopyrighted work. Under that reasoning, the Walt Disney Company could not even stop the authors of Spaceship Willie from selling it as, "A wholly original take on Mickey Mouse," or, conversely, as "Mickey Mouse in the finest tradition of Walt Disney." Thus might Dastar and its progeny help Mickey Mouse, when and if he escapes copyright, from achieving the status of a great cultural icon, akin to Santa Claus or Uncle Sam.

[Crossposted at Agoraphilia, TechLiberation Front.]

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