The Subtlety of Optimal Paternalism in a Population with Bounded Rationality

We study the subtlety of optimal paternalism when a utilitarian planner has the power to design a discrete choice set for a heterogeneous population with bounded rationality. We first consider the planning problem in abstraction. We show that the policy that most effectively constrains or influences choices depends multiplicatively on the preferences of the population and the choice probabilities conditional on preferences that measure the suboptimality of behavior. We then study two settings in...