Tan on Matson's New Paternalism Meets Older Wisdom

 

Erik Matson, an intellectual historian specialising in 18th-century political and moral philosophy, provides a distinctive contribution to understanding 21st-century behavioural economics. His background offers a fresh, outsider’s perspective, blending historical insights with contemporary economic policymaking. This book includes an introduction, four chapters, a list of figures, and a list of references. Aside from the introduction and Chapter 1, Chapters 2 through 4 are adapted from articles previously published in peer-reviewed journals. Readers with a solid grounding in the works of Adam Smith and David Hume, as well as familiarity with behavioural economics, will find these chapters exceptionally rewarding. This book is well suited for those who appreciate an interdisciplinary approach that bridges the Scottish Enlightenment’s moral philosophy with today’s behavioural welfare economics.

 

In the introductory chapter, the author argues that insights from the classical liberal tradition remain relevant to contemporary behavioural economists and psychologists. He contends that many modern theories, such as the asymmetric valuation of gains and losses and the time inconsistency of preferences, were anticipated by these 18th-century philosophers. Smith and Hume’s explorations of human behaviour, which emphasised the complexity and context-dependency of decision-making, offer valuable frameworks for understanding the cognitive biases and behavioural patterns studied today. By reviving and applying these classical ideas, the author sets the stage for a critical response to modern behavioural theories, using light from “Older Wisdom” to illuminate the challenges and debates of the present.

 

Chapter 1 begins with a historical overview of behavioural economics, tracing its intellectual roots back to figures like Adam Smith and David Hume, who examined utility and human behaviour through the lens of moral philosophy. Classical economists highlighted the role of subjective utility in linking economic decisions to experiences of pleasure and pain. In the early 20th century, a shift occurred as economists distanced themselves from psychological underpinnings, focusing instead on observed choice as a measure of utility. The rise of axiomatic decision theory (e.g., von Neumann and Morgenstern) introduced formal models of rationality, emphasizing predictive power over psychological realism. The survey ends with the integration of cognitive psychology and neuroscience into the neoclassical framework during the 1990s and 2000s, reflecting the author’s observation that “integrating insights from behavioural sciences and admitting the descriptive shortcomings of aspects of classical decision theory has become increasingly prevalent in mainstream economic research” (18). 

 

Following this historical survey, the author shifts focus to the development of new paternalism, which seeks to improve individual decision-making by subtly altering the environment to guide choices, especially when people fail to act in their own best interests. The author is critical of this approach, viewing it as an imposition of policymakers’ standards of happiness upon individuals without their consent. In the remaining chapters, he intends to draw on insights from Adam Smith and David Hume to argue against such paternalistic interventions.

 

In Chapter 2, the author challenges the assumption held by some behavioural economists and new paternalists that inconsistency in decision-making inherently reduces individual welfare, thus justifying intervention. Instead, he argues that inconsistency can signify an individual's engagement with the Smithian Impartial Spectator, wherein self-assessment evolves as circumstances change, and lessons are learned from past errors. Drawing on Adam Smith's theory, the author identifies two types of errors individuals may commit: “(1) when we act in a way that brings on the disapproval of the ‘man within’ and (2) when the judgement of the ‘man within’ fails to correspond to the judgement of the Impartial Spectator” (56). He further contends that neither of these errors can be corrected by external intervention, as an individual’s welfare ultimately depends on whether they perceive the approval of the ‘man within.’ This argument undermines the practical application of new paternalistic theories and reinforces the importance of personal autonomy in the pursuit of individual welfare.

 

In Chapters 3 and 4, the author explores David Hume’s preference theory and how it stands apart from neoclassical conceptions of preferences. Whereas neoclassical economic theory often views inconsistent or intransitive preferences as a sign of irrationality, Hume offers a more nuanced perspective. He argues that such inconsistencies are a natural occurrence, originating from the ever-changing contexts and the shifting passions of individuals. Hume maintains that “pursuing short-term gain at the expense of one’s recognised long-term interest is not contrary to reason” (72). Preferences, from Hume’s perspective, are not fixed but instead reflect the complex and dynamic nature of human desires. Individuals do not simply seek pleasure; they also find fulfilment in the active pursuit of it, as humans crave “action and liveliness” (95).

 

The author further explores how Hume’s insights can inform modern behavioural economics. Hume provides guidance for behavioural economists on their role in society, warning against a condescending attitude that presumes to dictate to fellow citizens what constitutes happiness. Such a paternalistic approach neglects the subjectivism and inherent dynamism of happiness. Instead, the author suggests that Hume would advocate for humility and self-awareness among economists, encouraging them to engage as “fellow travellers and friendly advisers,” participating in “free debate and conversation for the sake of personal and public improvement” (127). Their ultimate role should be to use “argumentative persuasion” rather than endorse “paternalistic coercion” (128). This collaborative and respectful approach honours individual autonomy while contributing to societal norms and personal choices.

 

Throughout this book, the author maintains a well-balanced and scholarly tone. His presentation of ideas is friendly and invites academic discussion and debate. He makes complex arguments accessible to readers with a background in 18th-century moral philosophy and behavioural economics. The writing is meticulous yet approachable, engaging the reader without adopting an overly assertive or biased language. The author employs footnotes strategically, offering additional insights and resources for those seeking deeper exploration, while avoiding an overwhelming number of references in the main text. This careful balance demonstrates a respect for the reader’s experience and enhances the book’s readability. While readers unfamiliar with foundational concepts in Smith and Hume may occasionally find the arguments challenging to follow, the author’s well-structured approach and clear prose make this work a valuable and stimulating contribution to academic discourse.

 

The author’s expertise in Adam Smith and David Hume's philosophies is evident, particularly in his exploration of Smith's theory of self-assessment and the role of the impartial spectator. By emphasising this inner ‘spectator’ as a core mechanism for individuals to evaluate their own happiness, he brings to light Smith’s view of moral judgment as a self-reflective process grounded in sympathy and social norms. Equally insightful is his treatment of Hume’s concept of happiness as dynamic and adaptable, with an appreciation for commercial society as a framework within which individuals can pursue fulfilment. This dual focus allows the author to draw compelling connections between these classical ideas and contemporary critiques of behavioural economics.

 

Despite its strengths, the book has some notable limitations. The author suggests that new paternalism “might not actually be so different from classical paternalism” (23–24) but does not clearly articulate why he finds new paternalism unfeasible. Engaging more explicitly with Thaler and Sunstein’s (2003a, 2003b) argument that paternalism can be effective without coercion would strengthen his critique. Thaler and Sunstein’s concept of ‘libertarian paternalism’ promotes influencing decision-making through non-coercive nudges, preserving individual autonomy. This approach seems to align with the author’s advocacy for persuasive, rather than coercive, interventions. Addressing this potential overlap more directly would clarify the author’s position and resolve any inconsistency in his argument, particularly regarding how his vision of non-coercive guidance compares to the framework proposed by new paternalism.

 

Moreover, the author places significant emphasis on the power of individuals' internal mechanisms—such as self-assessment and conscience—in the pursuit of happiness. However, he does not clarify how these internal processes might be shaped or influenced by external factors. This leaves a gap in the argument, as critics might contend that a well-informed external force could, in fact, complement and coordinate with these internal mechanisms. Without addressing the potential for synergy between internal and external guidance, the author’s critique of new paternalism remains incomplete.

 

This oversight is illustrated by the author’s critique of the ‘cafeteria’ example used by Thaler and Sunstein. The author introduces a character named Monica, who is “with her conscience commit[ted] to abstain from eating processed sugar for the sake of healthier living” (46). The author presents a situation where Monica appears to violate her commitment yet still gains approval from her conscience, as when she eats chocolate cake given to her by her grandmother, “enjoy[ing] her grandmother’s enjoyment in seeing her enjoy it” (47). This example, however, places undue emphasis on an individual’s reconciliation with herself, overlooking an objective reality: consuming processed sugar can be detrimental to health. Such a truth is disregarded only if we define welfare solely by an individual’s immediate physical sensations, without accounting for long-term health impacts.

 

Furthermore, the author’s example raises questions about his stance on the existence of an objective standard of happiness—happiness that exists independently of one’s subjective perception. The author might clarify whether he denies such a concept or merely considers subjective contentment to be paramount in determining welfare. Without this clarification, the example risks suggesting that self-approval alone equates to well-being, even when actions may have objectively adverse effects. Additionally, the example assumes the grandmother’s enjoyment is genuine, without considering her awareness of Monica’s health goals. If the grandmother were informed of her granddaughter’s commitment to avoid processed sugar for health reasons, her pleasure in offering the cake might diminish. A caring grandmother, once aware of Monica’s health goals, might even regret her gift, thus questioning the sustainability of Monica’s ‘conscience-based’ choice in such situations. This neglects the new paternalist perspective that informed external guidance, especially when based on long-term welfare, may sometimes be more beneficial than individual self-reconciliation alone.

 

Overall, the strength of the book lies in the author’s compelling presentation of the internal mechanisms individuals use in their discovery and pursuit of happiness. By drawing on the insights of Adam Smith and David Hume, the author makes a persuasive case for the importance of self-assessment, conscience, and the evolving nature of preferences in achieving well-being. To build on this already impressive work, the author could offer a more detailed account of how external mechanisms, such as paternalistic interventions, might interact with or impact these internal processes. Additionally, providing strategies for how to align the interests of paternalist economists and policymakers with the less interventionist scope advocated in the book would make the author’s policy recommendations more practical and reduce the potential tension they might face when applied in real-world contexts.

 

While the book is staged to offer a critical response to new paternalism, it lacks a comprehensive overview of the major breakthroughs in this discipline, its influence on policymaking, and the specific problems that may have arisen from its application. Including a thorough examination of these elements would better contextualise the critique and demonstrate the author’s full understanding of the field’s impact. Given that the critique often extends to broader aspects of welfare economics, one could question whether the title, New Paternalism Meets Older Wisdom, fully captures the scope of the discussion. The author may wish to clarify the intended focus or consider whether a different title might better reflect the book’s comprehensive exploration of behavioural welfare economics.

 

Finally, given the book’s nature as a compilation of previously published articles, it might also benefit from a concluding chapter. Such a chapter could synthesise the main arguments and reinforce the overarching themes introduced at the beginning, creating a stronger narrative continuity. This would help address some of the intrinsic disadvantages of the format, such as occasional repetition and a less cohesive flow, and would leave the reader with a more integrated understanding of the work’s contributions and practical implications.

 

Thaler, R. H., & Sunstein, C. R. (2003a). Libertarian paternalism. The American Economic Review, 93(2), 175–179.

Sunstein, C. R., & Thaler, R. H. (2003b). Libertarian paternalism is not an oxymoron. The University of Chicago Law Review, 70(4), 1159. https://doi.org/10.2307/1600573

 

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You can read the full text of David Hume's A Treatise of Human Nature (and more!) at the Online Library of Liberty.