I recently finished listening to the audio version of Richard H. Thaler and Cass R. Sunstein's book Nudge (the audio version lacks references and endnotes, and sometimes I have to take my mind off of the audio for left turns across streets, etc., so take this comment for what it's worth). The book is a "must-read" for consumer law policy-makers and those arguing for adoption of particular policies in the consumer law arena.
The authors argue for what they call "the real third way:" libertarian paternalism. They demonstrate that consumers are often overwhelmed by having to choose among too many options but they don't believe in conventional paternalism, that is, having the state or some one else make choices for consumers. Instead, they want to preserve the power of consumers to make their own choices but use "choice architecture" to deliver nudges to consumers which they believe will aid consumers in making the best choices.
Thaler and Sunstein provide numerous examples of how choice architecture can assist consumers in choosing wisely. For example, if designers of school cafeterias notice that placing food in some locations increases the consumption of those foods, the designers could put fruits and vegetables in those places to increase consumption of healthful foods. Clever uses of defaults, and providing genuinely helpful advice are other examples of choice architecture.
Much here did not strike me as new, but a lot of it was indeed new to me (especially the material that didn't have to do with consumer protection) and the authors do an excellent job of pulling material together. One consequence of the book is that it makes it harder to advocate curtailment of consumer choices without first considering whether a libertarian paternalistic approach might achieve the same end at lower cost and less paternalistically.
In fact, consumer law policy-makers have applied libertarian paternalism to consumer protection problems for decades. The Truth in Lending Act, by requiring disclosure rather banning certain loan terms, is an example of libertarian paternalism to some extent. As Thaler and Sunstein note though, TILA has been a disappointment, most notably in recent years in failing to alert subprime borrowers of the obligations they were assuming, and so the authors propose amendments.
But the book has some flaws. Some are puzzling. Lauren Willis's important Maryland Law Review piece (which we blogged about here) is for some reason attributed to "Lauren Wilkins." The authors complain that the HOEPA warnings don't explicitly say "high risk" and the borrower simply needs to sign the form. They add that there are many forms for homebuyers to sign and many borrowers sign without reading. Fair enough. But the HOEPA warning does say that "you could lose your home"--which is probably more meaningful to many consumers than the words "high risk"-- and the warning comes at least three days before the closing, when the consumer is less likely to receive a mountain of paper and so might be receptive to the warning (but maybe it doesn't matter because so few loans are subject to HOEPA). The authors seem to like cooling-off periods and say they pass a cost-benefit test, except that, as far as I know, no one has ever demonstrated that cooling off periods confer any benefit.
A more serious problem is that sometimes libertarian paternalism might devolve into something else altogether. Thaler and Sunstein, like many, are unhappy with the current med-mal system. If I understand correctly (and I am not certain that I do; those left turns again), the authors suggest that it should be replaced with a system which would permit patients to waive in advance their ability to sue doctors for negligence; presumably doctors accepting such a waiver would be charged less for malpractice insurance and could pass those savings on to patients in the form of lower fees. But I wonder if the result of such a system would be that all doctors would refuse to see patients unless patients signed the waiver, and so we would no longer have a med-mal system. Some would see that as a good thing, but if that's the result, would we be better off debating moving to it instead of debating having everyone sign another piece of paper? I can't help but think about the HIPAA form that everyone signs that says you've seen the doctor's HIPAA policy--but no one ever sees the policy, much less reads it (though to be fair the authors call for real waivers, not waivers that aren't read)
Notwithstanding these flaws, the book offers an important approach to solving consumer protection problems, and is worth attention.
