Preliminary draft 4303 Forthcoming University of Chicago Law.pdfVIP

Preliminary draft 4/3/03 Forthcoming University of Chicago Law Review All rights reserved Libertarian Paternalism Is Not An Oxymoron * ** Cass R. Sunstein and Richard H. Thaler Abstract The idea of libertarian paternalism might seem to be an oxymoron, but it is both possible and legitimate for private and public institutions to affect behavior while also respecting freedom of choice. Often people’s preferences are ill-formed, and their choices will inevitably be influenced by default rules, framing effects, and starting points. In these circumstances, a form of paternalism cannot be avoided. Equipped with an understanding of behavioral findings of bounded rationality and bounded self- control, libertarian paternalists should attempt to steer people’s choices in welfare- promoting directions without eliminating freedom of choice. It is also possible to show how a libertarian paternalist might select among the possible options and to assess how much choice to offer. Examples are given from many areas, including savings behavior, labor law, and consumer protection. I. Introduction Consider two studies of savings behavior: 1. Hoping to increase savings by workers, several employers have adopted a simple strategy. Instead of asking workers to elect to participate in a 401(k) plan, workers will be assumed to want to participate in such a plan, and hence they will be automatically enrolled unless they specifically choose otherwise. This simple change in the default rule – from nonenrollment to enrollment -- has produced dramatic increases in enrollment.1 * Karl N. Llewellyn Distinguished Service Professor,