Recent research in behavioral economics shows that behavior is very inertial. Ve
ID: 1179265 • Letter: R
Question
Recent research in behavioral economics shows that behavior is very inertial. Very small costs of switching can have enormous effects. For example, if employees are asked to enroll in a high interest rate savings plan through work, most employees will not sign up. However, if employees are automatically enrolled and then asked if they want to unenroll, then most employees will end up enrolled. The net savings rate in the U.S. before the crisis was approximately 0% (at times, it was negative!). Suppose the U.S. government could raise the savings rate by 10% by automatically enrolling workers in a private savings plan. Moreover, suppose the government allowed anyone to simply unenroll by filling a simple one-page form. In other words, suppose that the U.S. changed the default on private savings. This has often been called libertarian paternalism. (1.) Why is it called libertarian paternalism, (2.) In what ways is it different from social security and (3.) do you think it is a good idea?
Explanation / Answer
Answer (1.) Such government policy is called liberal paternalism because it is both liberal (in the
classical sense of liberal) and paternalistic. On the one hand, it is paternalistic in that the policy attempts
to stop people from behaving in ways that the government perceives as against their own interests. This is
di
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