Libertarian paternalism

Libertarian paternalism is the idea that it is both possible and legitimate for private and public institutions to affect behavior while also respecting freedom of choice, as well as the implementation of that idea. The term was coined by behavioral economist Richard Thaler and legal scholar Cass Sunstein in a 2003 article in the American Economic Review. The authors developed their ideas in a longer article in the University of Chicago Law Review that same year. They propose that libertarian paternalism is paternalism in the sense that "it tries to influence choices in a way that will make choosers better off, as judged by themselves" (p. 5); note and consider, the concept paternalism specifically requires a restriction of choice. It is libertarian in the sense that it aims to ensure that "people should be free to opt out of specified arrangements if they choose to do so" (p. 1161). The possibility to opt-out is said to "preserve freedom of choice" (p. 1182). Thaler and Sunstein published a book-length defense of this political doctrine in 2008 (new edition 2009).

Libertarian paternalism is similar to asymmetric paternalism, which refers to policies designed to help people who behave irrationally and so are not advancing their own interests, while interfering only minimally with people who behave rationally. Such policies are also asymmetric in the sense that they should be acceptable both to those who believe that people behave rationally and to those who believe that people often behave irrationally.

Setting the default is a typical example of a soft paternalist policy. Countries that have an "opt-out" system for voluntary organ donation (anyone who did not explicitly refuse to donate their organs in the case of accident is considered a donor) experience dramatically higher levels of organ donation consent, than countries with an opt-in system. Austria, with an opt-out system, has a consent rate of 99.98%, while Germany, with a very similar culture and economic situation, but an opt-in system, has a consent rate of only 12%.

Cab drivers in New York City have seen an increase in tips from 10% to 22% after passengers had the ability to pay using credit cards on a device installed in the cab whose screen presented them with three default tip options, ranging from 15% to 30%.

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