For several years, Richard Thaler and I have been working on the topic of "libertarian paternalism." The basic idea is that private and public institutions might nudge people in directions that will make their lives go better, without eliminating freedom of choice. The paternalism consists in the nudge; the libertarianism consists in the insistence on freedom, and on imposing little or no cost on those who seek to go their own way. (Our principal paper, Libertarian Paternalism Is Not an Oxymoron, can be found in the University of Chicago Law Review, on the website of the AEI-Brookings Joint Center on Regulatory Policy, and on ssrn.com.) A core example of libertarian paternalism is Thaler's Save More Tomorrow plan, by which workers can sign up to devote some of their future wage increases to savings. Another example is the automatic enrollment plan, by which workers are automatically enrolled in a savings plan, but can opt out with no trouble and at no expense if they choose to do so. We could easily imagine a Give More Tomorrow plan, for charitable giving, or automatic enrollment for the same purpose (with costless opt-out).
One of our central arguments is that because default rules and starting points often matter, institutions can't avoid nudging people -- and hence can't avoid a kind of paternalism, or at least a nudge. If 0% of take-home pay goes to savings, it isn't because nature so ordained it. In addition, the legal system sets up a wide array of default rules that govern the law of contract, law, and tort. People didn't specifically choose those default rules, and they greatly matter. If the default rule says that employment is at-will, so that an employer may fire an employee for any reason or for no reason at all, it will much affect outcomes; freedom of contract could be preserved with a different default rule.
Libertarian paternalists insist on preserving freedom of contract. They also want to think about whether some default rules are better than others, by reference to the interests of contracting parties themselves. Libertarian paternalists emphasize that government officials are also subject to bounded rationality, and hence they are especially skeptical of approaches that ban freedom of choice or impose high costs on those who do what officials don't like.
Variations on or cousins of libertarian paternalism -- sometimes labelled "thin" or "soft" or "weak" or "asymmetrical" paternalism -- have been receiving a great deal of attention in recent years, perhaps as a way of going beyond the now-tired debates between liberals unduly enthusiastic about government mandates and conservatives unreflectively committed to "laissez faire." If there is a "third way," libertarian paternalism might provide a place to start.
Gary Becker and Richard Posner have posted an interesting exchange, at the Becker-Posner blog, on the topic of libertarian paternalism, but they seem to have another subject in mind. Becker in particular is concerned about approaches that favor a "stronger 'self'" over a "weaker 'self'" -- by, for example, imposing high cigarette taxes or banning choices. Posner wants to limit the idea of paternalism "to situations in which government wishes to override the informed preferences of competent adults." Both Becker and Posner complain that libertarian paternalists fail "to weigh adequately the significance of the cognitive and psychological quirks emphasized by libertarian paternalists on government officials."
Becker and Posner make some nice points against those who like government bans and mandates (though Posner, interestingly, defends the ban on trans fats in New York City restaurants; libertarian paternalists would disapprove of any such ban). But libertarian paternalists do not mean to allow government to forbid the triumph of the supposed "weaker" self over the supposedly stronger one. If people want to eat a lot of candy and ice cream, or refuse to save for their retirement, that is their right. Far from neglecting the bounded rationality of government officials, libertarian paternalists emphasize government error as a strong reason for respecting freedom of choice.
What libertarian paternalists add is that the opposition between "individual choice" and "government" is confusing and unhelpful when government is inevitably establishing default rules that govern outcomes if choices haven't been specifically made -- and that influence people's choices in any case. A key point, then, is that private and public institutions can't possibly avoid a form of paternalism, so long as they establish default rules and starting points. (For some reason, economists in particular seem not to understand this point.) The question is how to make those starting points as good as possible, while also preserving free choice.
Libertarian paternalism is hardly a panacea, and a lot of work remains to be done. But it might be worth thinking about how the basic approach can be applied to such diverse problems as savings, prescription drug plans, social security reform, obesity, school choice, preparation for natural disasters, and safety on the highways.