Endogenous Responses to Paternalism: Examining Psychological Reactance in the Lab and the Field1

By accounting for limited human computational ability, willpower, and rationality within economic models, work in behavioral economics has highlighted the ways in which individuals’ choices may systematically deviate from their own best interest. As a result, policymakers have considered any number of paternalistic policies (both overt taxes and restrictions, or more subtle “nudges”) to move individuals closer to optimal outcomes. Much work, however, remains to characterize optimal design within this new class of policy instruments and to understand their aggregate impact. We present a theoretical framework of individual response to paternalistic interventions which considers, in addition to the set of behavioral responses explicitly incentivized by the policy, an additional behavioral outcome – the agent’s impulse to re-establish whatever perceived choice set he had before the intervention occurred. We refer to this behavioral outcome as psychological reactance, a concept introduced by Brehm (1966). In support of this framework, we first provide evidence on the nature and magnitude of reactance responses from a laboratory experiment designed to measure response to paternalistic advertisements. We then present evidence of consumption responses to paternalistic advertisement in and around New York City during the policy debate surrounding then Mayor Bloomberg’s proposed restrictions on sugary drink consumption within city limits (popularly referred to as a “soda ban”). Our findings support the existence of real interaction effects of paternalistic public policies. JEL Classification: A13, H43, I18, M37, M38