Richard Thaler has a column in today's New York Times business section on "Mortgages Made Simpler."Thaler is co-author of a book, Nudge: Improving Decisions About Health, Wealth and Happiness. Thaler is a behavioral economist. In the article, he describes a traditional economist as someone who characterizes the economic agent as "Homo economicus" or "Econs". These are people who are self-interested, rational, forward looking and make decisions that are best for them given the constraints they face. Behavioral economists believe people are more like Homer Simpson--they fail to save for retirement, have troubel balancing their checkbook, and so on. So we have "Homer economicus" or "Humans." Thaler goes on to argue that regulations are needed to protect humans who do not engage in the careful rational calculations presumed by mainstream economics.
Both in the column and in his book, Thaler's examples tend to be mundane and not likely to cause a huge stir among people. However, I worry about the path it takes us down--a path towards increasing paternalism on the part of the government. While at LSU, I taught the economics of regulaton regularly. We would cover Consumer Product Safety Commission among other regulatory agencies. We also would examine some tort cases where sufficient warnings had not been provided about proper and improper use of a product. At one time, the law presumed a "reasonable man" approach--something had to be safe enough for a reasonable person to see the dangers of using the product wrongly. Later, according to one critic, things had to be made so the "village idiot" wouldn't get hurt. Is Thaler talking about a modification toward presuming most humans are actually village idiots? Are not regulators also human, subject to defects as any other human? Further, are not regulators often people who see themselves as superior to others, and knowing what is best for others?