The “new paternalism” spawned by behavioral economics faces a severe knowledge problem akin to the knowledge problem that Friedrich Hayek argued afflicts centrally-planned economies. If well-meaning policymakers possess all the relevant information about individuals’ true preferences, their cognitive biases, and the choice contexts in which they manifest themselves, then policymakers could potentially implement paternalist policies that improve the welfare of individuals by their own standards. But lacking such information, we cannot conclude that actual paternalism will make their decisions better; under a wide range of circumstances, it will even make them worse. New paternalists have not taken the knowledge problems that are evident from the underlying behavioral and economic research seriously enough.This article should be taken as a companion to our previous article, "Little Brother Is Watching You: New Paternalism on the Slippery Slopes" -- which I've promoted with a series of excerpts on this website. The two papers draw on many of the same aspects (and flaws) of the new paternalist literature, but with different critiques. "Little Brother" emphasizes the vulnerability of new paternalist laws to expansion, while "Knowledge Problem" emphasizes the high level of knowledge required for such laws to achieve their ostensible goals.
There is another important link between the two articles: the knowledge problem can exacerbate the slippery slope problem. Recall that the goal of new paternalism is to make targeted people better off by their own standards or according to their own preferences. But when government planners go about crafting policy, they will lack the necessary knowledge of targeted people's preferences. As a result, they will tend to rely instead on their own preferences, or those of other interested parties, instead. That is the beginning of a slippery slope toward implementing their own preferences in other ways as well.
Cross-posted at ThinkMarkets.