New Paternalism Meets Older Wisdom

How are the early moral scientists—such as Adam Smith and David Hume—relevant to contemporary behavioral economics? Specifically, in what ways can Smith and Hume speak to the new paternalist turn—the use of behavioral findings to create and enact policies that “make agents better off as judged by their own subjective standards” (p. 2)? These are the general overarching questions that motivate Erik W. Matson in his book New Paternalism Meets Older Wisdom: Looking to Smith and Hume on Rationality, Welfare and Behavioural Economics.

The book is less a unified manuscript and more a collection of essays. Chapter 1 sketches out an overview of how behavioral economics came to prominence, the rise of new paternalism, and objections against it. The function of chapter 1 is to set the stage for the next three chapters, which are versions of papers previously published by Matson. The “older wisdom” of Adam Smith comes in chapter 2, while Hume’s comes in chapters 3 and 4.

In chapter 2, Matson draws on Adam Smith to problematize the new paternalistic position. New paternalism is committed to policy that helps agents end up better off by their own lights, but to be operational, an account of how to discern what agents view as making them better off is needed. One answer, which is the object of Matson’s criticism, involves distinguishing “welfare-relevant or normative preferences from revealed preference by virtue of their conformity to axioms of rational choice theory” (p. 33). Revealed preferences that are not consistent with the axioms of rational choice theory are irrational and, as such, are welfare-diminishing. So new paternalists should promote policies that move agents away from such choices.

Matson’s move is to argue “that inconsistency is not inherently unreasonable” (p. 59). And Matson attributes the roots of this argument to Smith, who helps us “see that we may often be able to discover reasonable explanations for apparently inconsistent behaviour by attention to circumstantial detail” (p. 48). Focusing on “circumstantial detail” may reveal that an individual does not actually endorse some expressed preference to the degree that they say they do. Matson is undoubtedly right that individuals may go against previously expressed preferences, and attending to “circumstantial detail” may prove enlightening, but I admit that I’m unclear on what Smith really adds in this case. That is, I fail to see why invoking Smith is necessary or illuminating.

Relatedly, in maintaining that preferences are opaque and evolving, Matson is not wrong. But it would be helpful for Matson to develop the view of his opposition more fully. While I sympathize with Matson’s position, I can easily imagine those who wouldn’t. So, it would improve the dialectic if Matson articulated that position more completely and, perhaps, “steel-manned” it. Put differently, if the new paternalists provide a hard-line objectivist (as well as static) answer to the question about the nature of preferences (as many likely will), then I fail to see how Matson’s argument would move them. If a Humean argument of this type could be provided by Matson, then it would be of great interest.

In chapter 3, Matson develops a Humean challenge to both the philosophical view that welfare is to be understood solely in terms of preference satisfaction and the public policy view in behavioral welfare economics that good policy aims at preference satisfaction. Matson’s Hume is not singularly focused on satisfaction, but on the dynamic process by which human beings develop, refine, and ultimately satisfy their desires. On Matson’s reading, Hume is an intellectual precursor to Frank Knight, who understands well-being “to lie largely in the process of satisfying one’s preferences rather than in the state of having one’s preferences satisfied” (p. 65, emphasis added). While I admit that I am not enough of a Hume scholar to assess the exegetical correctness of Matson’s interpretation, I found it to be sophisticated and compelling. One interpretative virtue worth noting is how Hume’s view of the commercial society fits with his moral psychology in that the commercial society plays a role in expanding the set of possible preferences and making possible the pursuit and realization of them. Finally, a further question for Matson: Given the dynamic and process-oriented interpretation of Hume, what would constitute the success conditions for well-being (or welfare) being achieved? Part of the motivation for such a question is that articulating those conditions in dynamic, as opposed to static, terms would seemingly be more difficult.

Asking such a question makes for a natural transition to chapter 4 of Matson’s book, “The Behavioural Economist in Society,” in which he brings Hume into discussion with Mario Rizzo and Glen Whitman’s recent book Escaping Paternalism (2020, Cambridge University Press). The objects of criticism are those, such as behavioral paternalists, who believe that “welfare consists in the satisfaction of one’s true preferences, which are conceived as context-independent and representable as a complete and transitive ranking of choice options” (p. 102). Rizzo and Whitman resist the notion of context-independent preferences. Matson’s contribution is expounding upon and furthering the Rizzo and Whitman position by way of Hume. Specifically, Matson focuses on four “points of contact” between them (p. 105). First, determining what is in one’s best interest is a process; that is, there is no “silver bullet” account of welfare. Second, since welfare is context-dependent, political institutions must be such that individuals are able to undergo the process of defining welfare. Third, though there is pluralism about welfare, reflecting on human nature provides insights about what causes welfare (namely, the journey, not so much the destination). Fourth, economists are peers, not pros. They are part of the conversation; they are not the conversation stopper.

The lessons Matson wants us to take away from chapter 4 are three: (1) There is no single conception of welfare, and public policy should reflect that; (2) behavioral economists should view themselves as giving advice, not instruction; and (3) the target of the advice is one’s “coequal fellow citizens, not . . . a benevolent autocrat” (p. 128). There are relevant questions to pose to Matson about these three takeaways. Regarding the first, is Matson claiming that (a) welfare is subjective, or (b) welfare is objective, but pluralistic? For the metaethicist, this a big difference. It also is for the Hume scholar. I think Matson’s view is the latter, but additional clarity here would be beneficial both for assessing the soundness of the argument and for assessing Matson’s interpretation of Hume. Regarding the second, is there ever room for behavioral economists to give instruction rather than advice? That is, are there ever instances in which the behavioral economist does, in fact, know better and, as a result, should instruct rather than advise? Regarding the third, can the behavioral economist ever resort to political channels to promote positive change? No doubt persuasion should precede politics, but what about when it fails? Can political paternalism be resorted to then? Answering these questions would help make Matson’s view more determinate.

Having discussed the substance of Matson’s book as well as posed questions and challenges, who should read it? Matson’s book is interesting in part because it doesn’t have a clear audience. That is not meant as a criticism. Rather, his book ably dances between fields in a way that should interest those who appreciate interdisciplinary inquiry, whether they be intellectual historians, early modern philosophers, or political economists.