The Economist as Therapist: Methodological Ramifications of “Light” Paternalism

Abstract

As people consider quality and price in deciding what to buy and where to buy stuff, and make other such decisions in consumption, economic behavior is perceived to entail rationality and self-interest. However, there is a side of human behavior that seems to neglect rationality and tends to evoke self-destruction. Such behavior is displayed through making unstable investments, gambling, and activities that involve health risks such as smoking, excessive drinking, and even overeating that leads to obesity. An increasing number of economists are encouraged to look into the ability of people to perform reliable methods that show self-interest because of the developments and new findings in behavioral-economics research. This chapter examines paternalism and how certain acts can be attributed to externalities and internalities.

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