The cognitive biases documented by Kahneman have been interpreted by a number of thinkers, including Kahneman himself, as providing a justification for government intervention. After all, if people are far from the well-informed, rational calculators assumed in economic models, then presumably the classical economic analysis underlying laissez-faireeconomic policy is wrong. Instead, it must be better to “nudge” people for their own good.7
However, I draw different implications from the hypothesis of cognitive hubris combined with radical ignorance. If social phenomena are too complex for any of us to understand, and if individuals consistently overestimate their knowledge of these phenomena, then prudence would dictate trying to find institutional arrangements that minimize the potential risks and costs that any individual can impose on society through his own ignorance. To me, this is an argument for limited government.
Instead of using government to consciously impose an institutional structure based on the maps of cognitively impaired individuals, I would prefer to see institutions evolve through a trial-and-error process. People can be “nudged” by all manner of social and religious customs. I would hope that the better norms and customs would tend to survive in a competitive environment. This was Hayek’s view of the evolution of language, morals, common law, and other forms of what he called spontaneous order. In contrast, counting on government officials to provide the right nudges strikes me as a recipe for institutional fragility.
If Kahneman is correct that we have “an almost unlimited ability to ignore our own ignorance,” then all of us are prone to mistakes. We need institutions that attempt to protect us from ourselves, but we also need institutions that protect us from one another. Limited government is one such institution.
Arnold Kling hits on the head my sense of why Sunstein/Thaler’s Nudge is off. Humans who are fallible and make bad choices don’t shed that inadequacy when they enter government–except now the decision of bureaucrats implicate many others.