Abstract

An infrequently recognized implication of ecological rationality is that heterogeneity of beliefs and decision processes is itself a beneficial social good responsible for numerous positive externalities. Thus, there are risks and unintended consequences from policies that reduce heterogeneity, especially paternalistic policies motivated by the goal of “correcting” alleged “bias” with respect to prescribed beliefs and behaviors. This chapter focuses on nudging policies advocated by some behavioral economists that draw on distinct (and sometimes contradictory) normative criteria with the aim of influencing a population’s beliefs and decisions—often (but not always), to induce more conformity with axiomatic definitions of rationality, which require, above all else, internal logical consistency. There is an alternative behavioral law and economics research program based instead on the insights of Herbert Simon. Well-performing individuals and organizations equip themselves to adapt to unstable and complex reward-generating environments by using decision processes that sometimes violate axiomatic logical consistency. When well-matched to the environments in which they are used, logically inconsistent decision processes—as well as beliefs and actions that deviate from economists’ prescriptions—can be purposeful, in addition to providing both individual and external social benefits. Analogous to biodiversity, when heterogeneity of beliefs and decisions generates positive externalities, it should be considered a public good. The risk of encroaching on this heterogeneity (inadvertently inducing behavioral and belief monocultures) is worthwhile considering in social-welfare analyses of nudging and other paternalistic policies.