The road to freedom? Ethical implications of economic theory for public policy: insights from behavioural economics

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Chapter 9 in Why Ethical Behaviour is Good for the Economy, 2020, pp 176-198 from Edward Elgar Publishing

Abstract: Contemporary behavioural economics maintains that individuals engage in persistent biases and errors in decision-making and are easily manipulated by frames. It is further maintained that free individual choice is often not in the best interest of the agent. Therefore, individual behaviour should be corrected by government policy designed to nudge or re-manipulate choice behaviour in the ‘correct’ and unbiased direction. Government policy makers and intellectuals or choice architects should determine optimal choice and are assumed to be immune from preference biases and errors which infect the general population. An alternative, bounded rationality perspective in behavioural economics presumes that individual’s decision-making departs from traditional norms for rational reasons and that such behaviour typically is in the interest of the decision-maker. I argue that the latter perspective is the most valid one, incorporating the physiological, sociological and environmental constraints facing individual decision-makers. Maximizing or satisficing decisions take place given these constraints. I further argue that individuals may still be choosing in a sub-optimal fashion given that the, often institutional and informational, constraints that they face are biased. Ethical government intervention should serve to construct a choice environment such that individual choice will yield higher levels of satisfaction, but individual freedom to choose is not obviated.

Keywords: Economics and Finance (search for similar items in EconPapers)
Date: 2020
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