Preferences All the Way Down: Questioning the Neoclassical Foundations of Behavioral Economics and Libertarian Paternalism

Abstract

Behavioral economics has enriched our understanding of the limitations and imperfections of human decision-making that were neglected by the overly simplistic neoclassical model of choice. However insightful its results and clever its modifications to the traditional model of choice, much of behavioral economics is built upon the core of that model, constrained preference-satisfaction, which cannot accommodate many other aspects of human choice such as principles, ideals, judgment, and will. The resulting view of choice provided by the preference-satisfaction paradigm limits both the explanatory and predictive power of models and contributes to the compromised understanding of individual interests that underlies new forms of paternalism such as nudge policy. To realize fully their shared vision of explaining real human decision-making, behavioral economics and neoclassical economics alike need to abandon the constrained preference-satisfaction at the heart of their models and embrace a broader and more inclusive conception of interests and choice.

Keywords

• behavioral economics
• preferences
• interests
• choice
• paternalism
• nudge