Better defaults

My my. Barry Schwartz never fail to raise the hackles of the libertarians. But amid the hysterical oversimplification of his position, Jane Galt hits upon an interesting train of thought:

Nevertheless, I am sympathetic to the idea that figuring out this stuff is complicated and I acknowledge the empirical reality that multiple choices turn people off and impose a real search cost on them.

Schwartz's response to this is to eliminate choices entirely, but Thaler/Sunstein's "LIbertarian Paternalism" is about better defaults and better editting. Instead of getting rid of an option, make the default options better. This is a critical distinction since "one-size-fits-all" is a poor approach to public policy but people also make bad decisions when left to their own devices. Since you cannot get away from having some default option, why not try to make it a good one instead of a random one? In areas like healthcare and retirement, bad individual decisions have negative externalities since soceity at large will be taxed to make up the difference. Since good defaults result in better decisions (which they do), this is a good way to improve 401(k) participation rates and the quality of that participation without reducing individual choice.

Choice is good. More choice is not necessarily better. Seniors get a virtual cornucopia of choice (40 plans!) for their medicare prescription drug coverage plan. But that choice is not meaningful. What Barry Schwartz seems to be saying (and I have to add the caveat here that I have not, nor plan to, read his book) is: Let's cut down the number of choices so that they are managable. What Jane Galt et al. is saying is -- let's make the 'best' choice the default one so that more people choose it. As much as Jane derides Barry, her position still involves making a paternalistic judgement of what 'best' decision should be the default. In fact, I would be very surprised indeed if Barry Schwartz does not approve of her 'paternalist libertarian' scheme as a minor variation (indeed, a minor improvement) on his solution. In both cases, the crushing load of processing large amounts of unfamiliar information is reduced, resulting in an increase of socially optimal outcomes. However, as a libertarian, Jane should not delude herself -- somebody has to be the architect in order to guide people's choices through defaults. If it is her opinion that the government is too incompetent to put a limit to the amount of choice it affords it citizens, surely it must follow that the government is too incompetent to positively influence the choice of its citizens through other means.