Wednesday, July 1, 2009

Freedom and Preferences

Should you measure a people's preferences by what they say they want, or what they actually do?  This is a very important question, with huge implications for law and public policy.

For example, imagine a smoker who has repeatedly tried to quit, who claims to want to quit, yet who can never break the habit and always goes back to smoking.  Does this person prefer to be a smoker?  Most people would say no.  An economist would say yes.

The economics profession has a very strong bias toward measuring people's true preferences by what they do and how they spend their money.  The general consensus is that 'talk is cheap'.  There is a lot of truth in this.  People constantly lie on surveys and interviews, especially when their actual behavior violates a social norm.  If you want to know how someone acts, it is much better to look at his checkbook than to ask him questions.

But it does not necessarily follow that the things people actually do are the things that they prefer to do.  There are many cases where people will rationally come to a decision about what they want their life to be like, yet fail to muster the self-control or resources to make that vision come true.

We often observe that people will spend resources to constrain their own behavior.  They will sign up for 'Christmas Club' accounts that offer lower returns and more restrictions than a basic bank account.  They will leave money in a retirement account even though they are desperately poor.  They will sign up to be put on a list that bars them from entering casinos.  This kind of thing is a big puzzle for economists, but not for psychologists or neuroscientists.

Economists see people as a single decision-making unit.  Researchers who study the human mind in more detail realize that a human brain is actually a mass of conflicting instincts, desires, and thoughts.  Rational thought processes are in conflict with irrational desires.  The result is that many people do things that are objectively bad for them and that they later regret.

Some people see this as evidence that the state should take a paternalistic attitude towards all of its citizens.  I disagree.  Such 'nanny state' actions are a big threat to individual liberty, both in theory and in practice.  But it is true that people often benefit from restrictions that are placed in them.  How can we achieve these benefits while still respecting individual liberty and self-determination?

I believe that the answer lies in an understanding that the liberty of the conscious, rational mind to live a good life is threatened by the primitive instincts and desires of that very same mind.  Public policy should focus on maximizing the 'utility' or well-being of the rational mind, not the subconscious.  Any restrictions placed on people should be restrictions that their own conscious mind places on their subconscious, not a restriction placed on that person by some third party.

How would this be done in practice?  We should greatly expand the programs that allow people to constrain their own behavior, and make it normal and acceptable to use those programs.  This can be done by private companies as well as governments.  We already have the technology in place to do this easily and unobtrusively.  For example, suppose that someone has made a New Year's resolution to stop eating potato chips.  That person should be able to go to a website and enter the restriction.  This restriction would then be forwarded to all of the credit card companies and grocery stores that the person uses.  If the person ever tried to purchase potato chips at a later date, the transaction would be rejected.  Obviously this does not prevent one from paying cash or getting them from a friend, but it could easily help prevent people from abandoning their resolution in a moment of weakness.

The example of potato chips may be trite, but the general system can be applied to any kind of impulse purchase, from fast food to alcohol to magazines, that people struggle with.  Such a system of 'artificial self-control' could dramatically improve the quality of life of millions, and it can be argued that this is actually an increase in liberty, because the rational mind, the thing that makes us human, would be freed from the tyranny of the instincts, emotions, and subjective factors that domainate our lives.

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