On choice inconsistency: the ‘error’ error in behavioural paternalism

A core normative assumption of welfare economics is that people ought to maximise utility and, as a corollary of that, they should be consistent in their choices. Behavioural economists have observed that people demonstrate systematic choice inconsistences, but rather than relaxing the normative assumption of utility maximisation they tend to attribute these behaviours to individual error. I argue in this article that this, in itself, is an error – an ‘error error’. In reality, a planner cannot hope to understand the multifarious desires that drive a person’s choices. Consequently, she is not able to discern which choice in an inconsistent set is erroneous. Moreover, those who are inconsistent may view neither of their choices as erroneous if the context reacts meaningfully with their valuation of outcomes. Others are similarly opposed to planners paternalistically intervening in the market mechanism to correct for behavioural inconsistencies, and advocate that the free market is the best means by which people can settle on mutually agreeable exchanges. However, I maintain that policymakers have a legitimate role in also enhancing people’s agentic capabilities. The most important way in which to achieve this is to invest in aspects of human capital and to create institutions that are broadly considered foundational to a person’s agency. However, there is also a role for so-called boosts to help to correct basic characterisation errors. I further contend that government regulations against self-interested acts of behavioural-informed manipulation by one party over another are legitimate, to protect the manipulated party from undesired inconsistency in their choices.