(Mis)Applications of Behavioral Economics to Regulation

The Importance of Public Choice Architecture
August 2, 2011

Adam C. Smith

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In this paper, Smith evaluates the recent promotion of libertarian paternalism as a viable means of coordinating market activities. In doing so, Smith challenges the notion that “anti-antipaternalism” logically follows from the findings in behavioral economics. For behavioral economic policy to be effective, advocates must show how policy will be rendered effectively through public institutions. Smith argues that the central dilemma of the field of behavioral law and economics is that it lacks analysis of the public choice architecture within which the improvement of private choice architecture would take place. Without an accompanying theory of the public institutions by which behavioral economic policy will be implemented, the promotion of these types of policy prescriptions is premature.