What cafeterias can teach us about economics

The market is a “marvel.” What does that mean? According to Marcus Tullius Cicero, the Roman orator and senator, a marvel is something contrary to or surpassing common understanding.

In that sense, the market is a true marvel – so much so that it even surpasses the understanding of many economists.

Richard Thaler (a University of Chicago Business School professor) and Cass Sunstein (a Harvard law professor and Obamian regulatory czar) have illustrated the benign qualities of paternalism with a curious example of cafeteria food placement. (An interesting and important exchange between Glen Whitman and Richard Thaler – among others – is now taking place at Cato Unbound.)

Here is a portion of an article, by Richard Thaler and Cass Sunstein, that appeared in the American Economic Association’s Papers and Proceeding, May 2003. They provocatively called it “Libertarian Paternalism.”

“The first misconception is that there are viable alternatives to paternalism. In many situations, some organization or agent must make a choice that will affect the choices of some other people…

Consider the problem facing the director of a company cafeteria who discovers that the order in which food is arranged influences the choices people make. To simplify, consider three alternative strategies: (1) she could make choices she thinks would make the customers better off; (2) she could make choices at random; or (3) she could maliciously choose those items that would make customers as obese as possible. Option 1 appears to be paternalistic, which it is, but why would anyone advocate options 2 or 3?

The second misconception is that paternalism always involves coercion. As the cafeteria example illustrates, the choice of which order to present food items does not coerce anyone to do anything, yet one might prefer some orders to others on paternalistic grounds.”

This is a very amusing story. The people who go to this cafeteria are apparently automatons who, time after time, are moved in the direction of the fruit or cake even though they know the other is coming up next. I’d like to meet these people and sell them bridges and such.

As a “poor” graduate student at the University of Chicago many years ago I used to eat at a couple of cafeterias. One, on 53rd Street, in Hyde Park called “Valois” (Valoise, please) did not have fruit at all. So there was no issue. The other, the cafeteria at the University of Chicago Hospital, had the cake before the fruit in those days. It may be the other way around now. Anyway, after a couple of visits I knew the order and could easily ignore the “nudge.” I wanted the fruit. But maybe that is why I was able to get a Ph.D. in rational-choice economics!

A few days ago I was at Union Station in Washington, D.C. Here I saw a marvel worth more than a dozen articles on paternalism. There is a cafeteria set-up at a national restaurant chain there. So in my guise of empirical economist I looked to see the order of the cake and the fruit. Mirabile visu! There were two placements.

At the one end of the cafeteria setup, the food display started with cake. At the other end, it stated with fruit. In other words depending on the direction from which you entered the line, you got fruit or cake first. Furthermore, there was no preferred side of entry – each was open to a large part of the station.

So if I enter from the fruit side, I can easily ignore the cake – nothing more comes after it. If I enter from the cake side I can ignore the fruit. Obviously some people will enter randomly unaware of the placement. The manager is obviously not nudging one way or the other.

It is as if the firm were providing two kinds of restaurants: one that enables people to ignore the cake; the other that enables people to ignore the fruit. This is a microcosm of the market-provision of choice architecture. Different restrictions of the choice set are available for different people. This is similar to the effect competition has in providing all sorts of options – vegetarian, red meat, seafood, Kosher, etc. restaurants.

I described all of this, quite naturally, without referring to it as paternalism. Why? First, in a market there is mutuality of gain – the firm manager is not providing a benefit to the customers without corresponding gain to himself as a paternalist usually does. Second, the restaurant is catering to expressed preferences, not hypothetical “true preferences.” A good entrepreneur tries to predict what people might like under specific conditions. Is market entrepreneurship paternalism because it tries to uncover latent demands? It is paternalism because it tries, in exchange for custom, to help people with their self-control problems?

One big problem with using the word paternalism in this kind of situation is that it deflects us from the role of profit and mutual gain in solving the problems some consumers may have. A paternalist, on the other hand, is a kind of charity worker or possibly a Good Samaritan.

The idea of paternalism adds nothing to our understanding of cafeteria economics. It is simply a facile rhetorical gimmick to slide us to real legal paternalism. We are not fooled.

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