A reader reacts to the slippery slope problem

Reader Phil Armour, a 23-year-old economics major who says he has been “interested in Behavioral Economics and Asymmetric/Libertarian Paternalism” for a quarter of his life offers some intelligent commentary on the slippery slope problem. Bans and mandates should be absolutely prohibited, he says.

I agree that (libertarian paternalism) offers sound economics a firm footing to increase overall welfare while being politically feasible. However, I do worry, no matter how you’ve dispensed with it so far, about slippery slopes. The spirit of libertarian paternalism, I believe, is free of such slopes (reframe/redefault while preserving choice), but in the manifestos of both asymmetric and libertarian paternalism, there is a tendency to start sacrificing some choice for higher welfare, and the idea of a strict line, is indeed implausible. To me, there is a qualitative difference between libertarian paternalism and paternalism that employs behavioral economics while trying to preserve a measure of choice. That’s not to say I disagree with said paternalism, and I whole-heartedly embrace your RECAP ideas, re-default plans, and the wonder that is Save More Tomorrow.

Before the passage of the Pension Protection Act of 2006, many asymmetric/libertarian paternalists embraced a mandatory default, only to find that the bill did better by simply encouraging a default (and Nudge did well in praising its virtues). My interpretation of libertarian paternalism precludes anything mandatory or any bans, no matter how welfare-enhancing they are (not to say they shouldn’t happen, but if they do, they just aren’t libertarian paternalism; they’re paternalism).

He goes on to propose “default” cooling off periods instead of “mandatory” ones. A cooling off period, for those readers who are not familiar with it, is a defined period of time after an agreement is signed that a participant is able to cancel or withdraw from the agreement without incurring a legal or financial penalty. Cooling off periods are one idea for combating impulse purchases made from door-to-door sales people that customers frequently come to regret. Reactions to this idea are welcomed.

Mandatory “cooling off periods” are encouraged by many proponents of libertarian paternalism; however, in as much as they may preserve choice for individuals, they ban certain contracts (individuals may want to waive such a period if they are sure of the purchase in exchange for a better deal). Instead, why not eliminate the “mandatory” part and simply include these “cooling off periods” as the default in these contracts, which can be waived by a separate and lucid form signed at the time of purchase? This would preserve choice, and since it would be much more difficult for a salesperson to talk a buyer out of a cooling off period than a buyer to talk a salesperson into one, it stands to increase welfare. Maybe not as much as having it be mandatory, but it comes without the costs associated with preventing certain contract formations beneficial to the rational and well-informed buyer. And it seems even more in the spirit of my humble understanding of libertarian paternalism.

8 Responses to “A reader reacts to the slippery slope problem”

  1. LemmusLemmus Says:

    I think the problem with “default cooling-off periods” is that the whole idea behind “cooling-off periods” is that the seller is much better at talking the potential buyer into things than the other way around. Either you accept this idea and the paternalistic intervention based on it or you don’t.

  2. Phil Armour Says:

    Lemmus – to some extent you’re right. But it’s not as if salesmen hold unlimited “convincing” power in the transaction; there are certainly plenty of buyers on the margin who are just barely talked into buying something who would later like to take it back, and who would probably not waive the right to later take it back. Furthermore, the potential buyer would most likely have one more chance to reconsider their upcoming purchase when asked to sign something waiving their right to return the item (similar to signing honesty pledges on tests; just getting people to think about a topic affects their decision-making). In sum, potential buyers aren’t made up only of those who are completely duped and those who are completely in control – there are a lot somewhere in between and a default cooling off period puts one more tool in the buyer’s box without being coercively paternalistic. I don’t know what the size of the effect of a default cooling-off period would be, but I don’t imagine it would be completely ineffective, and it doesn’t come at the cost of anybody else’s choice. That is to say, I accept that the seller is better at talking the buyer into things, but I don’t think he’s hopelessly better at it, and I think it’s possible to swing things in the buyer’s favor without the overt paternalism (and accompanying libertarian backlash) of the mandatory cooling-off period.

  3. Phil Armour Says:

    Oh, and the larger point is that if you embrace the choice-eliminating paternalism of mandatory cooling-off periods, then that’s fine, but it’s not really libertarian paternalism in the pure, choice-preserving sense. Arguing that it isn’t that far away from libertarian paternalism, and thus should be included under the same banner, is exactly the argument that “slippery slope” critics embrace as an example of the vague (and potentially exploitable) boundaries of libertarian/asymmetric paternalism. Lemmus, you don’t seem to have disagreed with me (you called the “paternalistic intervention” spade a spade), but whereas the mandatory cooling off period doesn’t really put the “libertarian” in “libertarian paternalism,” the default cooling off period does.

  4. LemmusLemmus Says:

    Phil,

    agree on all counts. The question is how many potential buyers there are “on the margin”. Which, in turn, would depend on how exactly this would be put into practice. If you just would pass a law that says “cooling-off period is the default”, that would probably lead to the “I waive the right…” bit being put into the fine print of the contract.

    By the way, I think that the whole “slippery slope” argument is a crutch. If you don’t have a better argument against a policy than that one, you’re probably wrong. (I don’t mean you personally, I mean “you” as in “one”.)

  5. Peter Kaplan Says:

    But there’s another question, which is how many buyers misidentify themselves as not needing a cooling-off period. Since the whole point of a cooling-off period is to allow rational reconsideration of decisions made possibly in the heat of irrationality, it seems unreasonable to imagine that buyers are going to make an irrational decision (about the contract) and then turn around and immediately make a rational decision (about the cooling-off period) in the next moment. Yet this is exactly what we are positing when we suggest the cooling-off period be by choice.

    If by providing a choice we are hoping to increase the welfare of rational buyers, I argue that this class should include buyers who are *potentially* rational. The aim of mandatory cooling-off periods is to force all momentarily irrational buyers to return to their default rational state; I would say this is not an opportunity we (the choice architects) want to take away from them. Especially when the buyer is offered a cost incentive for declining the cooling-off period, providing a choice here will substantially diminish welfare, even if only among momentarily irrational (but more generally rational) buyers. So I would argue that if we permit choice in these situations, we should not allow the choice to be incentivized. Of course, if it’s not incentivized, then who would bother declining it? And so we are back to where we started, namely that libertarian paternalism cannot in every case provide for enhanced welfare as compared to mandatory systems.

  6. Phil Armour Says:

    Lemmus,
    I know this may be my naivete acting, but I did propose the “separate and lucid” form for waiving the cooling off period, which, although I’m not a huge fan of paperwork, enhances the salience of the waiving the right. And I agree with you that a slippery slope argument is a way to avoid arguing the merit of the proposal itself, but I still think there are tendencies in the writing on libertarian/asymmetric paternalism toward the nebulous, and while I think that most proposals of these forms of paternalism are great, I worry that they won’t happen if detractors can use the crutch of the slippery slope as a lever to energize libertarians (or even conservatives) to oppose them on the grounds of opening the floodgates to old-fashioned (and what to them must seem like horrifyingly bipartisan!) paternalism.

    To Peter,
    It’s a plausible story you’re telling right now, and there’s no way to disprove it in theory, but to argue that a default cooling off period would never be chosen is a bold (although not impossible) claim. I can tell a different story that I find more plausible (but you apparently do not), which is that it’s a tougher sell to try to get people to not be able to take a decision back, and although incentives help that sell, the relative size of these incentives can’t be huge (how often are cooling off periods taken advantage of?). Even the fact that the seller would have to bring up a right for you to waive means that you’d be thinking about that right you have now (which you generally value more than if you wanted to buy the right, given the endowment effect).

    You seem to be claiming that people act either rationally or irrationally, and although those are useful terms, it’s not really practical to assert a binary world of rationality as much as a continuous one (more rational or less rational), and I’m saying the fact that they may be facing a decision about cooling off periods may make them more rational about the overall decision (and are you saying that the default cooling off period is welfare diminishing compared to having no cooling off period? If so, why? (I’m not advocating changing cooling off period statutes that are already on the books, by the way; those generally weren’t made under the auspices of “libertarian paternalism”) Even if I agree entirely with your argument, aren’t they still getting cost-saving when they wouldn’t have otherwise? Or are you saying that the presentation of a choice of a cooling off period would actually make people less rational with their overall decision?).

    At the end of the day though, we’ll be talking at each other…there’s obviously a need to test the efficacy of cooling off periods, either mandatory or default. Any of these stories could be true, but a mandatory cooling off period seems to piss off libertarians, and I think bringing it under the auspices of libertarian paternalism erodes exactly what you mean by libertarian paternalism (perhaps sandbagging actual libertarian paternalism policies). Then again, if people don’t actually return their purchases even within cooling off periods, then the whole point is kinda moot.

  7. Phil Armour Says:

    Wow, somehow my punctuation accidentally became a smiley face. Sorry about that.

  8. Peter Kaplan Says:

    I thought the smiley face was the best part. }:^)

    I do agree it comes down to real-world data, and I do agree that a world without cooling-off periods is worse for consumers than either mandatory or by-choice cooling-off periods. (Sorry if I seemed to imply otherwise earlier.) Although I did dichotomize the world into momentarily rational and momentarily irrational beings, I believe my argument holds even when this dichotomy is relaxed into a continuum. And I would submit that my argument about total welfare does hold even if *some* buyers make the right rational decision about declining while others do not; I do not require every buyer to make the wrong decision.

    Where we seem to disagree is in our beliefs about how rationality is or is not elicited by the opportunity to choose to decline the cooling-off period. My sense, based solely on their discussion of “post-completion tasks” as a class of decisions where humans are especially bad at making the right rational decision, is that Thaler and Sunstein would say rationality is not elicited. If this is the case, then providing a choice around the cooling-off period does indeed have the effect of making (some) people decide less rationally than they would (the following day) under a mandatory cooling-off period.

    In any case, we seem to agree that cooling-off periods are not a particularly good example of where libertarian paternalism would make an obvious positive difference. Best to stick initially to other, more striking examples, both in talking up the concept and in applying it in society.

    And just to address one hanging question regarding my position:
    – Yes, buyers are at least potentially getting a cost savings by declining, versus zero cost savings if they had the opportunity to decline the cooling-off period but didn’t do so. But this mitigation still doesn’t make declining the right rational choice for individuals who, in the heat of the moment, misidentified themselves as not needing a cooling-off period.

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