behavioral economics as neoliberalism: producing and governing homo economicus - john mcmahon

Behavioral economics as neoliberalism:Producing and governing homo economicus

John McMahonPolitical Science and Womens Studies, The Graduate Center, City University of New York, New York,NY, 10016, [email protected]

Abstract The research program of behavioral economics is gaining increasing inu-ence in academic economics and in interest from policymakers. This article analyzesbehavioral economics from the dual perspective of Foucaults genealogical investigationof neoliberal governmentality and contemporary critical theorizations of neoliberalism. Iargue that behavioral economics should be understood as a political economic apparatus ofneoliberal governmentality with the objective of using the state to manage and subjectivizeindividuals by attempting to correct their deviations from rational, self-interested, utility-maximizing cognition and behavior such that they more effectively and efciently con-form to market logics and processes. In this analysis, I contend that behavioral economicsenacts three components of neoliberal governmentality: positioning the market as a site oftruth and veridiction for the individual and the state; regulating what constitutes the objectsof political economy and governmental intervention; and producing homo economicus(economic human) and diffusing this mode of economic subjectivity across the social ter-rain. In doing so, behavioral economics and its rationalities transform and introduce newtechnologies of power into neoliberal governmentality. I illustrate this argument with ananalysis of recent changes to retirement savings policy in the United States, heavily inu-enced by behavioral economics thinking, that entrench neoliberal formations.Contemporary Political Theory advance online publication, 27 May 2014;doi:10.1057/cpt.2014.14

Keywords: behavioral economics; neoliberalism; governmentality; Foucault; homoeconomicus; subjectivization

neo-liberal governmental intervention is no less dense, frequent, active, andcontinuous than in any other system [] [government] has to intervene onsociety as such, in its fabric and depth. Basically, it has to intervene on societyas such so that competitive mechanisms can play a regulatory role at everymoment and every point in society and by intervening in this way its objectivewill become possible, that is to say, a general regulation of society by themarket. (Foucault, 2008, p. 145)

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libertarian paternalism is not an oxymoron. Choice architects can preservefreedom of choice while also nudging people in directions that will improvetheir lives. (Thaler and Sunstein, 2008, p. 252)

Richard H. Thaler and Cass R. Sunsteins book Nudge which seeks to popularizethe research program of behavioral economics and apply it to questions ofgovernance puts forth an account of what they call libertarian paternalism. Theirlibertarian paternalism, informed by the eld of behavioral economics, forcefullyillustrates the practices of neoliberal governmentality that became a central focus ofFoucault in the years 19771979. This article analyzes behavioral economics asboth a theoretical discourse and implemented governmental practice although, ofcourse, these two projects are not truly so separate from the dual perspectiveof Foucaults genealogical investigation of neoliberalism and governmentality aswell as contemporary critical theorizations of neoliberalism. I argue that behavioraleconomics should be understood as a political economic apparatus of neoliberalgovernmentality that has the objective of using the state to manage and regulateindividuals, interests and populations by attempting to correct their deviations fromrational, self-interested, utility-maximizing cognition and behavior such that theymore effectively and efciently conform to market logics and processes. In doing so,it intensies processes of neoliberalization.This apparatus organizes a variety of components, techniques, relations of power

and discourses. What Foucault (2008) calls an apparatus of power-knowledge hasthree constitutive elements: the coupling of a set of practices and a regime of truth;the way it effectively marks out in reality that which does not exist and how itlegitimately submits [that which does not exist] to the division between true andfalse (p. 19). Behavioral economics, especially once articulated in specic policyand governmental domains, does precisely this. It couples particular policy techni-ques with a regime of positivist, socialscientic truths about the market to mark outin reality what does not in fact exist governable yet free economic subjects,interests and populations and subjects them to the division of truth or falsity on thebasis of their behavior in the market. As such, behavioral economics as practice andas theory is another apparatus in the genealogy of regimes of veridiction bringingtogether truth, law and policy (Foucault, 2008, p. 35). Behavioral economicsconsequently illustrates, I demonstrate in this article, the way that forms of neoliberalgovernmentality are intimately engaged in the functioning of the market and theproduction of the kinds of economic subjectivities populating that market.For Foucault, governmentality denotes a reective art of governing distinct from

traditional practices of sovereignty. Whereas regimes of sovereignty sought as theend of public good the obeying of God and/or men and had as its objects stateand territory, governmentality has plural ends intrinsic to its multiple objects ofgovernance, such as the maximization of the life of the populations being governed.This entails managing the life of people in their relation with things, not commanding

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people as subjects of sovereign power. Governmentality develops as a mode ofgovernance that has populations (not subjects as such) as its main target andapparatuses as its essential mechanism (Foucault, 2007, pp. 107108). It is thebroad term denoting a historical shift in Europe toward a reasoned, reective,rationalized and self-conscious art of governing. Emerging from earlier incarnationsas Christian pastoral power and then raison dtat,1 a decisive shift unfolds in theeighteenth century when political economy makes possible the self-limitation ofgovernmental reason (Foucault, 2008, p. 13). In this liberal governmentality, themarket functions as the site of veridiction for the state, where the market formulatesits own truth and functions as norm, standard and criterion for governmental practice.With the Great Depression, the rise of Nazism and the Soviet Union, and World

War II, and more specically with the rise of Keynesian economic interventions acrisis of liberalism and liberal governmentality emerges, manifested in re-evalua-tions, re-appraisals, and new projects in the art of government (Foucault, 2008,p. 69). Neoliberalism emerges as a response to what is understood as a crisis ofKeynesian economics, and does so in what Foucault describes as German andAmerican variants.2 What is important and decisive for both modes is

whether a market economy can in fact serve as the principle, form, and modelfor a state which, because of its defects, is mistrusted by everyone on both theright and the left, for one reason or another will liberalism in fact be able tobring about its real objective, that is to say, a general formalization ofthe powers of the state and the organization of the society on the basis of themarket economy? Can the market really have the power of formalization forboth the state and society? This is the important, crucial problem of present-dayliberalism (Foucault, 2008, p. 117).

That is, the crucial problem neoliberalism poses is whether the market can be theground and the vehicle of legitimacy for the state, and whether it can be theorganizing and regulating principle for society. As such, it is a distinct programmingof governmentality. This poses a question with much greater stakes than that ofeighteenth- or nineteenth-century liberalism, which sought only to free the marketfrom the state. Neoliberalism broadly, and American neoliberalism specically,seeks to expand this project in terms of both surface and depth: its project is toabsolutely generalize the market form to the entirety of the social eld (Foucault,2008, pp. 219, 243).In this article, I rst sketch out the basic motivations, approaches and ndings of

behavioral economics as a mode of knowledge production as well as some specicpolicy and governance implications of this socialscientic discourse. I then turn toanalyze behavioral economics in terms of how it and its rationalities transform andintroduce new technologies of power into neoliberal governmentality. In doing so,I argue that behavioral economics enacts three components of neoliberal govern-mentality: positioning the market as a depoliticized site of truth and veridiction for

Behavioral economics as neoliberalism


the individual and the state; regulating what constitutes the objects of politicaleconomy and governmental intervention; and producing homo economicus (eco-nomic man) and diffusing this mode of economic subjectivity across the socialterrain. These modalities of behavioral economics, I will contend, intensify processesof neoliberalization. I end by illustrating my argument through an analysis of aspecic policy changes to retirement savings policy in the United States in whichthe rationalities of behavioral economics have been taken up by governmentalpractice in a way that further entrenches neoliberal formations.The objectives of this project are twofold. First, I seek to intervene in emerging

critical engagement with behavioral economics, much of it coming from politicalgeographers. Work in this area has focused on situating the libertarian paternalism ofbehavioral economics in a genealogy of the liberal production of economic subjects(Huxley, 2011), exploring the potential points of contact between behavioraleconomics and critical geographical research (Whitehead et al., 2012), examiningbehavioral economics in relation to neuroeconomics and picoeconomics (Pykett,2013), and generating more philosophical critiques of it from the standpoint ofdeliberative democracy (John et al., 2009) and liberal concerns with autonomy(Hausman and Welch, 2010). I take up a somewhat different project: directly engagingbehavioral economic theory as such, from a Foucaultian orientation, to explore whatbehavioral economics says about itself, about the state, about the market and about theeconomic subject. I seek to more thoroughly and comprehensively read behavioraleconomics into a critical theoretical and epistemological account of neoliberalism andgovernmentality. In doing this, I focus on a different and more wide-ranging set ofpower effects produced by behavioral economics than the work mentioned above,effects that attach together a regime of socialscientic discourse, concrete govern-mental interventions and policies, and the neoliberal productions of governable yet freeeconomic subjects submitted to the truth of the market.Second, I argue that analysis of behavioral economics is necessary for any critical

interpretation of neoliberalism. Behavioral economics in my account functions as anew technique of neoliberal governmentality, one that works to deepen neoliberalpractices and rationalities. When we shift to thinking of neoliberalism not assomething homogeneous that can be understood as coming from the top down butinstead as a constructed project with interacting processes and practices that seek tocontinually remake rule of, by and for the market (Peck, 2010, p. xi), we can see thenecessity of paying attention to behavioral economics as a constitutive technique ofneoliberal governmentality. As Read (2009) insists, any criticism of neoliberalism asgovernmentality must not focus on its errors, on its myopic conception of socialexistence, but on its particular production of truth (p. 34). Behavioral economicsfunctions as a particular mode by which neoliberalism works to produce certain formsof truths as well as certain kinds of economic actors and subjectivities to conform tothose truths. As such, behavioral economics introduces new technologies of power intoneoliberal governmentality in a way that buttresses neoliberal hegemony.

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Behavioral Economics: A Challenge to Homo Economicus

The standard neoclassical economic model makes a set of assumptions abouteconomic actors. The basic economic unit of these models, homo economicus, is anatomistic individual who has stable, coherent and well-dened preferences rooted inself-interest and utility maximization that are revealed through their choices.Furthermore, this actor is assumed to rationally maximize these preferences; that is,given a set of available options, he3 accurately reects on the costs and benets ofvarious strategies and choices, pursuing the correct path to maximize his preferencesand the expected value of utility. Finally, the model assumes that in situations ofuncertainty, this individual has well-formed beliefs about how the situation willresolve and updates their beliefs as new information becomes available. Overall,then, individuals are presupposed as rational actors in the sense of formingcorrect beliefs about their environment, their own behavior and others actions, andin the sense of choosing actions to best satisfy their preferences that have self-interested preferences (Rabin, 1998; Camerer et al., 2003; Camerer and Fehr,2006; DellaVigna, 2009). This model of homo economicus has thus served as thefoundation for the dominant mode of contemporary economic theory.Behavioral economics has challenged these fundamental assumptions of neoclas-

sical economics. Camerer et al. (2003) identify two waves of behavioral economicsresearch. The rst sought to empirically investigate, describe and explain the varietyof ways in which people deviate from the assumptions of a rational choice model ofeconomic behavior. This predominantly took the form of experimental studiesdemonstrating one or two kinds of divergences from one aspect of homo economicus.The second wave comprises efforts to socialscientically consolidate these variousempirical ndings into testable models and predictions (ibid., pp. 12141216).4 Assuch, behavioral economics can be seen to have a few objectives: identifyingdepartures from the standard model that recur in predictable ways through theincorporation of psychological research and theory; demonstrating how thesedeviations matter in a wide variety of economic contexts; developing alter-native formal models of economic behavior; and incorporating these deviations andthe models that attempt to systematize them into economic policy, law, regulationand so on.In attempting to briey summarize the major ndings of behavioral economics,

I follow DellaVignas (2009) classication scheme. He identies three ways in whichbehavior deviates from the assumptions of rational, self-interested utility maximiza-tion: non-standard preferences, non-standard beliefs and non-standard decisionmaking. In terms of preferences, the standard model assumes that the individual hasthe same preferences about future plans at different points in time, but researchindicates that people consistently demonstrate a preference for immediate gratica-tion they are impatient over the short term and patient over the long term.For example, behavioral economists argue that people regularly undersave at any



given moment in time while stating a commitment to long-term savings plans.Furthermore, preferences are reference- and context-dependent; that is, instead ofcalculating preferences on the basis of all available information and possibilities,individuals preferences are more situational. Thus, to cite one argument ofbehavioral economists, people overvalue (from the perspective of the market andperfect rationality) what they already have and are irrationally averse to losses whenthe opportunity for gains are present. Furthermore, individual preferences are oftensocially inuenced and thus not purely self-interested. Behavioral economistscontend that people engage in positive reciprocity giving up individual gain inthe interests of some notion of fairness to a worthy other and negative reciprocity incurring personal costs to economically punish others all based on ascribedmotivations, not economic actions (Rabin, 1998; DellaVigna, 2009).In terms of non-standard beliefs, behavioral economic research indicates that

people are systematically overcondent: they overestimate their own ability andcommitment while underrating the probability of negative events and the timenecessary to complete projects. Hence, for example, individuals are considered to benave about their own future self-control with regard to gym attendance, CEOsoverrate their ability to manage a company, rank-and-le employees overestimate thefuture performance of their employer and people overrate the precision of their owninformation. Moreover, behavioral economists claim individuals overweigh informa-tion that is available and representative, such as overinferring or overextrapolatingpatterns from small numbers (that is, if a coin comes up tails four times in a row, ithas to come up heads next, even though each individual coin ip is independent,with an even chance of heads and tails; a similar extrapolated principle applies topredictions of individual investors in the stock market). Finally, actors exhibit aprojection bias, where they expect their future preferences to be close to their presentones without adapting to future circumstances (DellaVigna, 2009).Finally, behavioral economists seek to describe non-standard decision making.

They claim that people respond heavily to the way a decision is framed a decisionwith the same underlying economic trade-offs and logic can be made differentlydepending on the way it is framed in experiments. Individuals further exhibit limitedattention by not using all the available information to make economic decisions, forinstance, not factoring in shipping costs in online shopping choices. When faced witha wide set of choices, people use limiting and simplifying heuristics to makedecisions, such as choosing to overdiversify their choices, only choose familiaroptions, choose based solely on salience or avoid choosing all of these areirrational and work against utility maximization. Moreover, decisions are subject topersuasion and social pressures such as an overreliance on stock market analysts(DellaVigna, 2009).5

This brief recounting of behavioral economics has focused on the rst of Camereret al.s (2003) two waves of behavioral economics research: the way that individualbehavior deviates from the standard neoclassical model and the implications of these

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departures for economic relations. More recent developments in the eld haveattempted to translate this set of research into more specic analyses of economicphenomena and contexts, and into concrete policy program. In this vein, I also wantto highlight some of the main areas into which behavioral economics has beenextended. Behavioral economics has gained some of the greatest attention in the eldof nance, where the efcient market hypothesis has been challenged by behavioraleconomists who argue that stock prices do not reect the true value of a security onthe stock market, that consumers overweigh new data and thus stock prices are tosome extent predictable and so on (Mullainathan and Thaler, 2000; Shleifer, 2000).Behavioral economics has posed a broad set of constructive challenges to gametheory (Sent, 2004, pp. 750752; Camerer, 2005, pp. 21, 30; Camerer and Fehr,2006). Behavioral economic analyses of poverty respond to standard economictheorizations of poverty as adaptive to circumstances or stemming from a psycho-cultural decits by positing that poverty tends to exacerbate the effects of the samenon-standard biases all have (Bertrand et al., 2004). Similar work has been done inapplying behavioral economics to development economics (Mullainaithan, 2007).Behavioral public economics seeks to develop new basic commitments and assump-tions of normative policy and welfare economics, and apply this to questions such assaving, addiction and public goods (Bernheim and Rangel, 2007). Parts of the eld ofeconomics and the law have incorporated behavioral research to examine issues suchas distributive legal rules, the rules of evidence discovery in litigation, businessjudgments, consumer protection law and so on, as well as investigating the potentialof the law to de-bias individuals (Jolls, 2007). Overall, behavioral economics, whilenot fully accepted by a majority of economists, is increasingly entering themainstream (Sent, 2004, pp. 749750; Fudenberg, 2006).6 It exhibits a uniqueimpact in public policy and governance today, as behavioral economists have putforth models for governing and regulating based on behavioral economics, and haveplayed an inuential role in the Obama administration (Camerer et al., 2003; Thalerand Sunstein, 2008; Grunwald, 2009; Dorning, 2010; Subramanian, 2013).7 Thisraises the crucial questions, then, of what it means when behavioral economics isincorporated into the state apparatus.

Behavioral Economics as Neoliberalism

I now turn to analyze three techniques of behavioral economics, focusing in thissection on how behavioral economics transforms and introduces new technologies ofpower into neoliberal governmentality. Here I am interested in articulating ways inwhich behavioral economics connects to and in many ways extends neoliberalformations. I more specically discuss three techniques of the behavioral economicapparatus: positioning the market as a depoliticized site of truth and veridiction forthe individual and the state; regulating what constitutes the objects of political



economy and governmental intervention choices, preferences and interests; andproducing and subjectivizing homo economicus. By engaging both Foucaultsaccount of neoliberalism and governmentality as well as contemporary debates aboutthe formations, rationalities and techniques of neoliberalization, this section seeks toinvestigate how behavioral economics entrenches modes of neoliberal governance.

Depoliticizing the market as truth

The rationality of homo economicus in market logics and actions remains thebenchmark dening the economic terrain for behavioral economics. I argue that inthe way it continues to privilege the market and seeks to organize government andpolicy to participate under a market logic, behavioral economics enacts two of thedening characteristics of neoliberal governmentality: the depoliticization of govern-mental organization of the economy, as well as situating the market as the site ofsociopolitical truths. Here, the market becomes the site of fact and justice, and thusthe mode of examining governmental practice whereby being a good governmententails acting according to the truth as found in and determined by the market(Foucault, 2008, pp. 3132). As such, this marks a shift from the delineatedrelationship of economy and state of classical liberalism. There the two constituteddifferent spheres, but under neoliberalism the two form an inextricable assemblage:

There will thus be a sort of complete superimposition of market mechanisms,indexed to competition, and governmental policy. Government must accom-pany the market economy from start to nish. The market economy does nottake something from government. Rather, it indicates it, it constitutes thegeneral index in which one must place the rule for dening all governmentalaction. One must govern for the market (Foucault, 2008, p. 121).

Hence, under neoliberalism, we witness the subsumption of government by themarket. The market its functioning, growth, and production of truth becomesthe objective of governmentality and the very truth matrix of the governmentalstate itself.Two of the clearest calls by behavioral economists to enact public policy

motivated by behavioral economic research offer similar political justications.Thaler and Sunstein proffer their libertarian paternalism as a Third Way or middleground in American politics organized around governing for the betterment of themarket; Camerer et al. argue that their asymmetrical paternalism shifts focus awayfrom polarized politics in order to focus on empirical terms of actors, behaviors andinterests (Camerer et al., 2003, p. 1254; Thaler and Sunstein, 2008, pp. 252253).8

Both sets of analysts thus seek to depoliticize the political question of how toorganize governmental economic intervention, and thus enact the very subsumptionof government-by-market that Foucault describes. The process of governmentalizing

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behavioral economics involves techniques of power that posit the market as truth,end and organizing principle. Instead of neoliberal governmentality being subject topolitical debate, it is posited as an object of consensus to be sought after, as politicalquestions become empirical problems of the market and economic actors.The governmentalization of behavioral economics is not, however, limited to

hypothetical programs in academic literature. The Obama administration, forexample, has pursued a range of policies inuenced by behavioral economists.Behavioral economists in the administration have been inuential in the design of theMaking Work Pay tax cut in the 2009 economic stimulus bill, the individual mandateof 2010s health-care reform bill, various aspects of the DoddFrank nancial reformbill, retirement savings programs (about which more is detailed in the next section),and other policies and regulations (Dorning, 2010; Priluck, 2013). Moreover, therehas been an explicit attempt to keep behavioral reforms quiet: the behavioraladherents lowered their prole, with White House advisers [making] sure of it byrarely allowing them to speak on the record (Dorning, 2010). This downplaying ofthe behavioral economics approach of the administration, I argue, illustrates thedepoliticization of economic decision making and governmental intervention in theworking of markets that behavioral economics and neoliberalism more broadly entails. The Obama administration renewed its commitment to behavioral economicsin the summer of 2013, organizing a new working group modeled on the UnitedKingdoms Behavioural Insights Team (Subramanian, 2013). David CameronsConservative government in the United Kingdom is itself strongly inuenced bybehavioral economics (Wells, 2010; Whitehead et al., 2011; Pykett, 2013;Whitehead et al., 2012), and the governmentalization of behavioral techniques havebeen noted in Australia, New Zealand, France and Brazil (Pykett et al., 2011, p. 302).The object of these behavioral economic interventions, of course, is the smootherfunctioning of the market, and in its self-presentation as technical and non-ideological, seeks to depoliticize its deployment.Behavioral economics thus can be understood as a technology of power to

further entrench a depoliticization of economic, social and political intervention,often understood to be characteristic of neoliberalism (for example, Duggan,2003, Chapter 1; Brown, 2005; Madra and Adaman, 2013). Madra and Adaman(2013) describe as central component of neoliberalism in its various forms aproject of the economisation of the social that is materialised either through thenaturalisation of economic processes or technocratisation of their governanceor both and thus functionally depoliticizes the social eld (p. 2). That is,neoliberalism seeks to ensconce itself as apolitical and pragmatic, limiting termsof political debate to the neoliberal terrain. Behavioral economics self-con-sciously adopts this non-ideological posture, as the above quotes from Camereret al. and Thaler and Sunstein demonstrate. It understands itself as simply solvingtechnical, empirical questions in a non-controversial and ultimately non-politicalway. This ignores, however, that the very setting up of the market as the truth of



individual actions and governmental interventions to enforce that truth is adecidedly political decision. Indeed, behavioral economics-inected regulationsbeg the question of exactly who is constructing these supposed rational and non-ideological standards and policies; by trusting democratically unaccountablebureaucratic actors to design the rational environments of behavioraleconomics, there is little opportunity to question the political and economicvalues that may lie behind these interventions (Whitehead et al., 2011, pp. 2834).Behavioral economics should thus be understood as a technology of neoliberalgovernance that deepens a broader neoliberal project of depoliticizing economicdecision making.On a more theoretical level, even as behavioral economics challenges many of the

central components and assumptions of neoclassical economics, it still does so for thesake and the truth of the market. If there is a rationality to the irrationality ofeconomic actors, then the market can respond to, change and/or create incentives toshift behavior. Indeed, as Camerer and Fehr (2006) argue, individuals who violatethe assumptions of economics may create powerful economic incentives forEconomic Man to change his behavior, but depending on the economic structure,the existence of Economic Man may also create strong incentives for those withbounded rationality or other-regarding preferences to behave like Economic Man(p. 48). If there are enough agents who do indeed act like homo economicus, then theexistence of these subjects may cause aggregate outcomes to be close to thepredictions of a model that assumes that everyone is rational and self-regarding(Camerer and Fehr, 2006, p. 47). The market remains the assumed standard by whichthe behavior of heterogeneous agents is evaluated and modeled. Behavioraleconomics problematizes not the market itself, only the assumptions made about theactors on the market, whose behavior is then measured against the truth of themarket. It seeks not to challenge or defy the market but to provide tweaks so as tobetter assimilate all to the market; it captures the irrationality of economic actors anddisciplines that irrationality to the functioning of the market. As such, behavioraleconomics functions as an apparatus in practice and in theory bringing togethertruth, law and policy; it is part of a genealogy of regimes of veridiction (Foucault,2008, p. 35).In doing this, behavioral economics functions as a new technology of power that

further instantiates neoliberal governance. Brown (2005) argues that we shouldunderstand neoliberalism as a normative claim about the pervasiveness of economicrationality that then takes as it task the development, dissemination, and institutio-nalization of such a rationality (p. 40), while Harvey (2005) contends that a centralfeature of neoliberalism is its attempts to maximize the reach of market transactions,including the building and enforcement of market conditions and logics by the statewhere necessary (pp. 23). Conceptualizing behavioral economics as an effortto compel actors to act more closely aligned with a rationality judged by themarket-as-truth enables us to see the role it plays in further entrenching neoliberalism.

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It seeks precisely to develop, disseminate, and institutionalize economic rationalityand to enforce market logics by disciplining subjects to behave more rationally on themarket. Neoliberalization, as continuous efforts to x markets, to build quasi-markets, and to repair market failures (Peck, 2010, p. xiii) needs some technology ofpower to carry out these efforts, and the rationality and practice of behavioraleconomics fullls this need. It proceeds from the premise that the market is indeedthe truth of rational behavior and then seeks to compel conformity to marketbehavior, but does so while presenting itself as non-political and non-ideological.As such, behavioral economics functions as a new mode of neoliberal governmen-tality by depoliticizing the market-as-truth.

The objects of neoliberal governmentality

Foucault argues that the shift to liberal governmentality, and especially to neoliber-alism, marks a change in the objects of governmentality. No longer does govern-mentality manage subjects, individuals, land and things (as it did under raisondtat), but instead works on interests, populations, enterprises, circulations produc-tion, practices and utilities. It concerns itself with growth and the maximization oflife, and thus is caught up with the rise of biopolitical management. This marks asubstantial shift. As the market takes the place of the juridical as functional limiton the state, interest comes to signify the primary object of governmentality.In the regime of liberal governmentality, government is basically no longer to beexercised over subjects and other things subjected by these subjects, but is to beexercised over what we would call the phenomenal republic of interests (Foucault,2008, p. 46).Contemporary neoliberal formations, I argue, only accelerate this change in the

objects of governmentality. More specically, behavioral economics does notgovern individuals, or rather, does so only indirectly. It addresses interests, utilities,cognition, decisions, choices, actions, consumption, preferences, behaviors and soon. The literature is quite explicit about this. In their justication of theirasymmetrical paternalism, Camerer et al. (2003) make a point of emphasizing thattheir approach focuses on situations rather than persons (p. 1213). Instead ofapplying paternalistic policies or what I would call techniques of governmentality to individuals or subjects as such, they do so to choices, preferences and situations.Similarly, while discussing the possible applications of behavioral economics inthe eld of public and welfare economics, Bernheim and Rangel (2007) make theargument for understanding preferences as real objects, and claim that thediscovery of true preferences is a central objective of welfare economics (p. 11).In both of these examples, preferences form the basis of governmental intervention.A corresponding focus exists in recent theoretical developments in behavioral

economics as well. Many have observed an impetus for behavioral economics



to create general, unied and formal mathematical models of their ndings(Camerer, 2005; Fudenberg, 2006; Pesendorfer, 2006; DellaVigna, 2009). Thesemathematical formulae seek to model preferences, utility and choices, not subjects.According to DellaVigna (2009), the standard economic model accounts formaximiz[ing] expected utility subject to a probably distribution p(s) of the states ofthe world, at time t= 0 (p. 316). Behavioral deviations from this standard modelmodify these terms and/or add new ones; for example, accounting for non-standardpreferences involves adding factors for preference discounting, time discounting andfuture payoffs (DellaVigna, 2009, pp. 318319). Overall, much as we saw above inthe way behavioral economics reenacts the market as the site of truth, so does itreiterate a government of the phenomenal republic of interests.I argue that behavioral economics acts as an educative force on behalf of

neoliberalism, shaping interests, preferences and choices to more deeply assimilatethem to neoliberalism. In accounting for the way that neoliberalism becomes adominant mode of thought, Harvey (2005) argues that it appeals to ourintuitions and instincts, to our values and desires (p. 5). What is missing from thisanalysis is an explicit articulation of those intuitions, instincts, values and desires asin part produced through techniques and rationalities of power. One of the powereffects of behavioral economics is the shaping of individual instincts, values, desiresand so forth to more closely conform to the market logics of neoliberalism.Neoliberalism operates with the presupposition that the real is programmable byauthorities: the objects of government are rendered thinkable in such a way that theirdifculties appear amenable to diagnosis, prescription, and cure (Rose, 1996, p. 53).We should understand behavioral economics as part of both the process of renderingobjects of government thinkable in its focus on preferences and choices as well asthe diagnosis, prescription and cure in its analysis and manipulation of thosepreferences and choices. By acting on those objects, it can assimilate them and theindividual persons that incorporate them into market-focused neoliberal rationalities.Neoliberalism is a mode of public pedagogy that targets desires, values, andidentities in prescribing a market-oriented subject (Giroux, 2008, p. 591). In itsunderstanding of and action upon its objects of governmentality, behavioraleconomics functions as a particular technique of neoliberal pedagogy.

Producing and governing homo economicus

Foucault identies a theory of human capital that relies on a specic notion of homoeconomicus as one of the unique elements of American neoliberalism. Whereas theclassical liberal homo economicus was a partner of exchange, the Americanneoliberal version is an entrepreneur of himself, being for himself his own capital(Foucault, 2008, p. 226). With this model, neoliberalism seeks to extend theeconomic realm and economic thought into a previously unexplored domain, and

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on this basis inaugurates the possibility of giving a strictly economic interpretationof a whole domain previously thought to be non-economic (Foucault, 2008, p. 219).The ultimate end of this process is the attempted absolute generalization of theeconomic form of the market throughout the social body and the whole of thesocial system (Foucault, 2008, p. 243). With neoliberalism, economics becomes anapparatus of how individuals, as homo economicus, pursue their self-enterprise in theface of scarcity. Because of the novel emphasis on analyzing the rationality of homoeconomicus, and because American neoliberalism seeks to render the entire socialeld intelligible through economic analysis, the question of how far homoeconomicus can be generalized becomes vital (Foucault, 2008, pp. 268269).At stake for American neoliberalism is the ability to diffuse the rationality of homoeconomicus throughout society.The problem that behavioral economics poses in this context is this: Is the model

of homo economicus accurate? And if not, can homo economicus be produced? As tothe rst question, the research program of behavioral economics challenges theempirical validity of the strategic rationality, strictly understood, of the Americanneoliberalism that Foucault critiques. However, homo economicus as economicsubject, and the spread of this model throughout the social realm, is not whollycontingent on its veriability as a completely accurate description. Instead, homoeconomicus is more of a grid of intelligibility, an epistemological matrix of economicand social relations. Furthermore, while behavioral economics does indeed challengethe veracity of the perfectly rational, self-interested, utility-maximizing model of homoeconomicus, it does nothing to upset the broader model of an individual allocatingscarce means to varied ends. Indeed, much of behavioral economics is the attempt tosystematically theorize and model that strategic rationality, even if it is different thanthat of the classical formulation. That is, while problematizing the content of homoeconomicus strategic rationality, the form remains unchanged. Camerer and Fehr(2006) push this even farther (unwittingly closer to Foucault, one could argue),contending that more robust formal models of behavioral economics would furtherembed the economic across the social eld, with a unied, and powerful, approachable to inform not just economics, but social sciences more broadly, the biologicalsciences, and governments, philosophers, and lawyers (p. 52). This indicates thecloseness of contemporary behavioral economics to the tendency of neoliberalism togeneralize the economic interpretation to the entire social terrain.Moreover, behavioral economics is in many ways an attempt to produce a more

rational homo economicus, one more well suited to be an entrepreneur of the self onthe market. Jolls (2007), for instance, argues for using the legal system to de-biasindividuals, claiming that legal policy may respond best to non-rational errors byoperating directly on the errors and attempting to help people either to reduce or toeliminate them (p. 137). If the market cannot x the individual, perhaps govern-mentality can x individuals for the market. A prevailing thought among somebehavioral economists is that the biases, errors and miscalculations individuals make



prevent them from realizing their own self-interest. If this is the case, then thosedeviating from the neoclassical model are in effect imposing externalities onthemselves (Camerer et al., 2003, p. 1221). An asymmetrical paternalism that seeksto correct these errors is hence understood as helping people to behave in their ownbest interests (Camerer et al., 2003, p. 1212). Thaler and Sunstein (2008) offer asimilar defense of their own libertarian paternalism, arguing that this mode ofgovernmentality enables individuals to be better off as judged by themselves (p. 5).However, who is this self-blocked from achieving their real ends, and from where dothese real ends come? They derive from the truth of the market. The authors claimthat the economic agent is the one who deems certain ends best, but it is a certainmarket that generates particular agents with a set of specic ends that trains, managesand subjectivizes these actors in the rst place. They are still the selves and ends ofhomo economicus, only this time homo economicus, as an economic subjectivity, hasto be produced, through apparatuses such as behavioral economics.Ultimately, we should not be surprised that homo economicus must be produced,

for the truth of the market, and the marketization of the governmental state had to beproduced historically as well, as did liberal notions of freedom.9 Similarly, I argue,homo economicus and his freedom must be produced, and behavioral economics isintimately entangled in its production. An apparent paradox arises: How can homoeconomicus be absolutely free but also a central element of governmentality? I arguethat this seeming contradiction is resolved once we understand rst that freedom andhomo economicus both have to be produced, and second that this production occurswith direct reference to the market and to the neoliberal economic logic of the market.Within this framework, then, behavioral economics functions as a contemporaryapparatus engaged in the production of homo economicus and his freedom, anapparatus that submits what it has produced to a judgment of truth located in themarket. This is an eminently neoliberal practice.Kiersey (2009) maintains that in analyzing neoliberalism, we must understand

homo economicus as subject to government, as an ideal type which must beproduced in actuality, meaning that one of the crucial questions to ask aboutneoliberalism is that of how does actually existing capitalism produce [this] subject(pp. 381382). Along similar lines, Brown (2005) argues that neoliberal govern-mentality gures humans as homo economicus through the production of economic-ally rational actors and the imposition of market rationalities that cultivate and enactneoliberal life (pp. 4041). What is necessary, though, is to identify and analyzewhat, precisely, these practices producing homo economicus are. We shouldconceptualize behavioral economics as an indispensable technique of this generationof economic subjectivity, for it explicitly recognizes that homo economicus indeeddoes not exist, and then goes on to posit and advocate for means by which he could infact be produced. The unequivocal objective of behavioral economics is to cultivatesubjects that more closely conform to market logics. Neoliberalism is a new regimeof truth, and a new way in which people are made subjects, and homo economicus is

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a creature whose tendenc[ies] must be fostered (Read, 2009, pp. 2829). Moreattention must be given to the specic modes by which economic theory andgovernance specically engage in these processes of neoliberal subjectication, suchas behavioral economics. An analysis of the rationalities of behavioral economics is,I contend, vital for any attempt to account for, theorize, or criticize neoliberalism,for behavioral economics introduces new technologies of power into neoliberalgovernmentality in a way that buttresses neoliberal hegemony.

Behavioral Economics, Neoliberalism and Foucault

My account of behavioral economics as a technique of neoliberal governmentalitysuggests some modications to Foucaults genealogy of neoliberalism. If myargument is correct, such that the contemporary governmentalization of behavioraleconomics functions to produce a certain economic subjectivity contingent on theexistence of the market as a site of truth, then the current neoliberal governmentalityin the United States is engaged in a deeper form of social regulation than Foucaultunderstood under his rubric of American neoliberalism. That is, the production ofhomo economicus with reference to the market exemplies, I believe, the kind ofGerman social policy that Foucault (2008) argues American neoliberalismrejected (pp.144145). My account thus demonstrates the way that changes andnew discourses in economics that post-date Foucaults inquiries, in this case thedevelopment of behavioral economics, ought to be used to modify and sharpenFoucaults critical analysis of neoliberalism. Biebricher (2013) has recently arguedthat, at least in Europe, we are witnessing the unlikely renaissance of ordoliberal-ism; for him, current European neoliberal market reforms involve an ordoliberalunderstanding of the market not as naturally emerging and self-sustaining, but assomething that needs to be established and cultivated (pp. 339340).10 I wouldconcur with his assessment, and furthermore extend the argument to suggest thatbehavioral economics marks a more general assemblage of ordoliberal and Americanneoliberal tendencies in neoliberalism as such. Neoliberalism has always been aheterogeneous eld (Madra and Adaman, 2013, p. 21),11 and behavioral economicstesties both to the limits of Foucaults genealogy as well as to contemporaryadmixtures of different threads of neoliberal thought and practice.The second modication the behavioral economic apparatus suggests is that of re-

evaluating Foucaults account of the relationship between homo economicus and thestate. This is a question of economic sovereignty. According to Foucault (2008),homo economicus is he who says to the sovereign you must not, because youcannot, because you are powerless, because you do not know, because youcannot know (p. 283). This absence or impossibility of an economic sovereign is acrucial question for the history of governmental reason, and neo-liberal thought[is] still a way of posing this problem of the impossibility (Foucault, 2008, p. 283).



What behavioral economics demonstrates, I believe, is that far from being powerlessor impossible in the face of homo economicus, the state and the economic sovereign,in the form of neoliberal governmentality, are involved in conjunction with themarket as the site of truth in the very constitution of homo economicus.12

The Behavioral Economic Rationality of Retirement Savings

I would now like to examine a specic policy example heavily inuenced bybehavioral economics changes to retirement savings policies in the United States in order to examine in some more detail precisely how the behavioral economicsapparatus seeks to correct behavioral deviations from homo economicus in a waythat entrenches neoliberal rationalities. The primary recommendation of behavioraleconomists in modifying retirement systems is to change dened-contributionemployee-savings plans which often take the form of Individual RetirementAccount and 401(k) tax-subsidized investment accounts from an opt-in choiceby the employee to an opt-out system where employees would have to activelydecide to exit the retirement savings vehicle in which they are automatically enrolled.Behavioral economics argues that individuals operate, to a substantial extent, throughinertia in their economic decision making, and that they typically undersave forretirement. Thus, automatic enrollment with an opt-out option seeks to use individualpassivity to increase savings (Bubb and Pildes, 2014, pp. 1314). There has been asubstantial increase in recent years in the number of workplace plans using automaticenrollment, federal law has been changed to encourage opt-out plans, and the Obamaadministration currently has regulatory plans to expand automatic enrollmentprograms (Bubb and Pildes, 2014, pp.14 no. 28; 2021). Indeed, behavioral law andeconomics has laid claim to retirement savings as perhaps its greatest policy-reformsuccess (Bubb and Pildes, 2014, p. 13).How, then, does this mode of behavioral economic governance work as a

technique of neoliberal power and rationality? Neoliberalism and behavioraleconomics rely on the market as the site of truth, as I demonstrated above. Automaticenrollment policies further entrench the market in the form of nancial investmentand speculation as a truth of individual retirement savings and of the governance ofindividual retirement savings. Harvey (2005) argues that neoliberalization hasmeant, in short, the nancialization of everything: the economy, the state apparatusand individual life (p. 33). With automatic enrollment policies, behavioral economicsas governmentality insists that individual investment in the stock market is the truthof rational individual savings behavior and of government intervention in retirementsavings. In this entrenchment of the market, the objects of governmentality of thisbehavioral economic rationality are less so individuals as such, and more so choices(opt-in versus opt-out), decisions (about savings strategies) and investments.

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In terms of neoliberalism-as-depoliticization, this increased emphasis on enrollingindividuals in personal retirement savings accounts through automatic enrollment ispresented as non-partisan and non-ideological; for example, the 2006 PensionProtection Act received substantial support from both Democrats and Republicansand was perceived as non-controversial. What behavioral economics focus onemployee retirement plans ignores, though, is what is considered to be the morepoliticized, more ideological issue of increased Social Security benets or otherpolicy proposals to more universally provide benets.13 More broadly, we canunderstand the increased reliance on employee-contribution retirement savings as apolitical economic effect of decades of neoliberalism (Clark, 2012).The behavioral economic emphasis on automatic enrollment also intensies the

production of homo economicus as the rational neoliberal economic subject. If thespecic objective of behavioral economic governance is to have more individualsinvesting more money, then this intervention generates more force subjectivizingthe individual as someone who must rationally manage an investment portfolio.Automatic enrollment produces homo economicus and seeks to compel that subjectto self-manage in the realm of the neoliberal nance economy. Moreover, automaticenrollment further shifts all the risk to the individual by making individualinvestments primary instead of government-provided or dened benet pensions.The approach of behavioral economics to retirement savings thus endeavors toconvert passive non-participation in the nance economy into elicited activemanagement of their own retirement investments in this economy through automaticenrollment. In general, neoliberalism compels the individual to become an entre-preneur of their own life and existence, forcing them to new heights of self-responsibility, rational economic calculation and individual risk management(Duggan, 2003, Chapter 1; Brown, 2005, pp. 4043; Harvey, 2005, pp. 6466;Foucault, 2008, Chapter 9). Behavioral economics, as an apparatus of governmen-tality, intensies this neoliberal project by attempting to compel more people tobecome these risk-managing entrepreneurs of their own savings and future.

Conclusion: Neoliberal Nudging

In their critique of behavioral law and economics in relation to retirement savings andother policy areas, Bubb and Pildes (2014) note a tension in the implementation ofbehavioral economic-guided policy: while the social science of behavioral econom-ics document[s] the failure of individual choice, all the political regulatoryinterventions are all about preserving, improving and insisting upon individualchoice, and this emphasis on choice tends to win out even if the literature cautionsagainst it (pp. 23). Although their account (which never mentions neoliberalism)argues that this is a contradiction, I would argue that it is an unsurprising feature ofbehavioral economics that is explained by its ability to instantiate rationalities that



function as new techniques of power produced by neoliberal governmentality. Ifneoliberalism is going to be understood as processes of instantiating market-orientedgovernance and market rule over social actors (Peck, 2010, pp. xixiii), and if asI have argued behavioral economics functions as an entrenchment of neoliberalgovernmentality, then it is to be expected that behavioral economics would seek toemphasize individual choices and decisions on the market over other concerns.Indeed, in Nudge, Thaler and Sunstein (2008) regularly return the idea of maximizingchoices that are presented in the correct way. The (over-)emphasis on choice inbehavioral economics theory and practice further reveals the intimate connectionsbetween behavioral economics and neoliberalism I have been describing throughoutthis article.As the above discussion of retirement savings indicates, behavioral economics

grants priority to choice, but only if that choice is presented in the correct (read:neoliberal) way, and thus falls within a narrow range of techniques and forms ofpower that entrench neoliberalism and its rationality. In retirement savings, one canchoose how to manage their investment portfolio, but those choices are availableonly within the constrained, power-lled zone of rational participation in theneoliberal nance economy. Whether in the specic form of automatic enrollmentinto retirement savings vehicles or in its broader theoretical and policy program,behavioral economics transforms and introduces new technologies of power intoneoliberalizing processes. Behavioral economics, I have argued, enacts threecomponents of neoliberal governmentality: positioning the market as a site of truthand veridiction for the individual and the state; regulating what constitutes the objectsof political economy and governmental intervention; and producing homo econom-icus while diffusing this mode of economic subjectivity across the social terrain.Each of these modalities of the behavioral economics apparatus has intensied andfurther entrenched ongoing processes of neoliberalization, and any critical analysis ofneoliberalism must account for the increasing deployment of the rationalities andtechniques of behavioral economics.

Acknowledgements

I would like to thank Rosalind Petchesky, Leonard Feldman, Joanna Tice andRachel Brown for insightful commentary on earlier drafts; thanks to GeorgeDeMartino and William Seitz for their assistance in orienting me within behavioraleconomists. This article beneted immensely from the thoughtful criticism of twoanonymous reviewers. An earlier iteration of this article was presented at theNortheastern Political Science Association Annual Meeting, where I received helpfulfeedback from the Critiquing the State, Critiquing Modern Institutions panel andaudience.

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Notes

1 For Foucaults account of these movements from non-territorial, non-sovereign Christian pastoralpower to a reexive raison dtat focused on the maintenance and preservation of the state through themanagement of everyday life and of populations, see Foucault, 2007, Chapters 5, 9; Foucault, 2008,pp. 110). Foucaults account of the historical development of governmentality is limited to Europe.Others have attempted to utilize the analysis of governmentality in non-Western histories; Chatterjee,2004, 2011, for example, theorizes the junctures and disjunctures of colonialism, governmentality andpolitics in India both historically and in the present.

2 Foucaults genealogy of German neoliberalism (or ordoliberalism) occupies a series of ve lectures(Chapters 4 through 8 in Foucault, 2008), and his account of American neoliberalism three chapters(Chapters 9 through 11). Although differences do exist, Foucault discusses their shared projects,techniques and discourses as well as the mechanisms and course of the diffusion of Germanneoliberalism to the United States at multiple points (Foucault, 2008, pp. 6870; 7579; 117119;160161; 177179; 192193). For the purposes of this article, I draw on Foucaults analysis of bothforms of neoliberalism, suggesting later that behavioral economics suggests a need to understand themas more closely linked in light of contemporary neoliberal formations.

3 It is important to note that homo economicus, while presented as a neutral subject, is in fact thoroughlygendered. While functioning as the universal subject of the neoclassical economic model, he is, uponanalysis, a white, heterosexual, elite, and male subject; thus, it becomes apparent once homoeconomicus emerges in all of his positionality that economic rationales are often merely a way topreserve the patriarchal status quo (Fineman and Dougherty, 2005, p. 58). Furthermore, the liberalphilosophical and theoretical heritages of the neoclassical economic subject are themselves gendered,for example, in John Lockes account of private property ownership (Mayes, 2005). On the genderdynamics of economic theory, see also Pujol, 1992, Nelson, 1993 and Nelson, 1995. Future researchinto behavioral economics should examine its own gendered processes, assumptions and proposals,especially in relationship to neoliberalism and the gendered forces of neoliberalism.

4 Sent (2004) provides a different periodization, arguing that old behavioral economics represented astrong challenge to develop alternative models, while new behavioral economics has soughtto begin from the benchmark of rationality, formalizing alternate theories to explain anomalies(pp. 740748).

5 There are other ways to classify the ndings of the eld of behavioral economics that provide a slightvariation on DellaVignas account. For example, Mullainathan and Thaler (2000) view the eld ashaving studied three bounds bounded rationality (encompassing overcondence, optimism,anchoring, extrapolation and availability), bounded will-power and bounded self-interest.

6 Camerer (2005) contends behavioral economics is not a distinct subeld of economics. It is a style ofmodeling, or a school of thought which is meant to apply to a wide range of economic questions (p. 3).

7 For example, Cass Sunstein was Administrator of the Ofce of Information and Regulatory Affairsfrom 2009 to 2012. In November 2013, Daniel Kahneman, one of the founding scholars of the eld ofbehavioral economics, received the Presidential Medal of Freedom (Obama, 2013).

8 This Behavioral Economics as Neoliberalism section engages most directly with Camerer (and oftenhis co-authors), and with Thaler and Sunstein (2008), as they are some of the more prominentbehavioral economics, and because Thaler and Sunsteins work is one the most explicit and mostpublicly circulating attempts to connect behavioral economics and public policy. Per the previoussection, their work should be considered to be characteristic of the dominant themes, methodologiesand kinds of knowledges produced by behavioral economics. Similar analyses could be carried out inrelation to any of the behavioral economists discussed in the preceding section, and this section doesindeed discuss some of this work as well.

9 Liberal governmentality operates as a consumer of freedom that can only function if the freedom itconsumes actually exist: if the government must consume freedom, it must produce freedom; if it must



produce freedom, it must organize and manage freedom. Freedom is not a given but must be constantlymanufactured (Foucault, 2008, pp. 6265).

10 He also argues that ordoliberalisms elite, undemocratic and technocratic political philosophy isreturning; given my earlier claim that behavioral economics further entrenches neoliberalismsdepoliticizing tendencies, I would concur.

11 Madra and Adaman (2013) provide a detailed problematization of Foucaults classicatory schema andattempt to rethink a genealogy of neoliberalism as interaction and contestation between Austrian,Chicago and post-Walrasian approaches.

12 Further critical Foucaultian inquiry into behavioral economics could also productively use Foucaults(2006) writing on psychiatric power and Foucaultian accounts of the infusion of psychological trendsinto liberal and neoliberal rationalities (for example, Rose, 1999) in order to analyze behavioraleconomics, which is itself a particular nexus of psychological research and microeconomics. Althoughthe current article focuses on neoliberal power effects of behavioral economics as such, genealogicalinquiry into power knowledge processes involved in the emergence of behavioral economics would bea fruitful project. Related to this kind of inquiry are contemporary critiques of psychological aspects ofpolicy applications of behavioral economics in the United Kingdom, such as Cromby andWillis (2013)and Whitehead et al. (2011).

13 Lind (2014) of the New America Foundation describes the ever-increasing emphasis on individualretirement accounts to be perceived as the reasonable, responsible policy position in opposition toabolishing Social Security and to increasing Social Security benets.

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Behavioral economics as neoliberalism: Producing and governing homo economicusBehavioral Economics: A Challenge to Homo EconomicusBehavioral Economics as NeoliberalismDepoliticizing the market as truthThe objects of neoliberal governmentalityProducing and governing homo economicus

Behavioral Economics, Neoliberalism and FoucaultThe Behavioral Economic Rationality of Retirement SavingsConclusion: Neoliberal NudgingI would like to thank Rosalind Petchesky, Leonard Feldman, Joanna Tice and Rachel Brown for insightful commentary on earlier drafts; thanks to George DeMartino and William Seitz for their assistance in orienting me within behavioral economists. This articACKNOWLEDGEMENTSNotesA8

behavioral economics as neoliberalism: producing and governing homo economicus - john mcmahon

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