Berg,N.
Gigerenzer,G.

Abstract \& nbsp; \& nbsp;Behavioral economists increasingly argue that violations of rationality axioms provide a new rationale for paternalism – to$\backslash$n “de-bias” individuals who exhibit errors, biases and other allegedly pathological psychological regularities associated with$\backslash$n Tversky and Kahneman’s (in Science 185:1124–1131, 1974) heuristics-and-biases program. The argument is flawed, however, in$\backslash$n neglecting to distinguish aggregate from individual rationality. The aggregate consequences of departures from normative decision-making$\backslash$n axioms may be Pareto-inferior or superior. Without a well-specified theory of aggregation, individual-level biases do not$\backslash$n necessarily imply losses in efficiency. This paper considers the problem of using a social-welfare function to decide whether$\backslash$n to regulate risk-taking behavior in a population whose individual-level behavior may or may not be consistent with expected$\backslash$n utility maximization. According to the social-welfare objective, unregulated aggregate risk distributions resulting from non-maximizing$\backslash$n behavior are often more acceptable (i.e., lead to a weaker rationale for paternalism) than population distributions generated$\backslash$n by behavior that conforms to the standard axioms. Thus, psychological theories that depart from axiomatic decision-making$\backslash$n norms do not necessarily strengthen the case for paternalism, and conformity with such norms is generally not an appropriate$\backslash$n policy-making objective in itself.

Berg, N., & Gigerenzer, G. (2007). Psychology implies paternalism? Bounded rationality may reduce the rationale to regulate risk-taking. Social Choice and Welfare, 28, 337-359. (Full text)

Publication year	2007
Document type:	Article
Publication status:	Published
External URL:	http://library.mpib-berlin.mpg.de/ft/nb/NB_Psychology_2007.pdf View
Categories:	Expected UtilityBounded Rationality
Keywords: