Kahneman on the price of freedom

From Daniel Kahneman’s Thinking, Fast and Slow:

Much is therefore at stake in the debate between the Chicago school and the behavioral economists, who reject the extreme form of the rational-agent model. Freedom is not a contested value; all the participants in the debate are in favor of it. But life is more complex for behavioral economists than for true believers in human rationality. No behavioral economist favors a state that will force its citizens to eat a balanced diet and to watch only television programs that are good for the soul. For behavioral economists, however, freedom has a cost, which is borne by individuals who make bad choices, and by a society that feels obligated to help them. The decision of whether or not to protect individuals against their mistakes therefore presents a dilemma for behavioral economists. The economists of the Chicago school do not face that problem, because rational agents do not make mistakes. For adherents of this school, freedom is free of charge.

Kahneman’s comment could also be applied to the belief that markets will always deliver an optimal outcome. Obviously, there are further layers of debate beyond the basic question of whether people are rational or markets fail. Kahneman is only addressing the first stage of libertarian denial.

2 comments

  1. That’s one crappy, incoherent paragraph.  The sentence beginning “For behavioral economists” describes the Samaritan’s Dilemma which has dick-all to do with behavioral economics.  The next bit claiming that neoclassicals don’t believe in mistakes and that only behavioral economists believe in the risk-reduction vs moral hazard trade-off in insurance design is loopy.  Or take the sentence “No behavioral economist favors a state that will force its citizens to eat a balanced diet . . .”  Well, maybe, but there is nothing intrinsic to behavioral economics which rules this out, right?  It’s just that the guys who happen to be into it right now happen not to be into nanny state ism (allegedly).  Maybe it’s better in context, but the para illustrates the biggest problem with that field: the slovenly way its proponents argue.

  2. As a libertarian, I can assure you that you can believe that freedom is not perfect (and that humans are not perfectly rational), but it is better than the alternative. The biggest mistake that I see statists make is the assumption that because free markets are not perfect, we should intervene to improve them. Unfortunately, history is not on the side of intervention. As just one example, the most prosperous economies are the ones with the highest amount of economic freedom.

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