Behavioral economics as neoliberalism:

Producing and governing homo economicus

John McMahon
Political Science and Womens Studies, The Graduate Center, City University of New York, New York,
NY, 10016, USA.
johnmcmahon3@gmail.com
Abstract The research program of behavioral economics is gaining increasing inu-
ence in academic economics and in interest from policymakers. This article analyzes
behavioral economics from the dual perspective of Foucaults genealogical investigation
of neoliberal governmentality and contemporary critical theorizations of neoliberalism. I
argue that behavioral economics should be understood as a political economic apparatus of
neoliberal governmentality with the objective of using the state to manage and subjectivize
individuals 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 economics
enacts three components of neoliberal governmentality: positioning the market as a site of
truth and veridiction for the individual and the state; regulating what constitutes the objects
of 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 new
technologies of power into neoliberal governmentality. I illustrate this argument with an
analysis 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; homo
economicus; subjectivization
neo-liberal governmental intervention is no less dense, frequent, active, and
continuous than in any other system [] [government] has to intervene on
society as such, in its fabric and depth. Basically, it has to intervene on society
as such so that competitive mechanisms can play a regulatory role at every
moment and every point in society and by intervening in this way its objective
will become possible, that is to say, a general regulation of society by the
market. (Foucault, 2008, p. 145)
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www.palgrave-journals.com/cpt/
libertarian paternalism is not an oxymoron. Choice architects can preserve
freedom of choice while also nudging people in directions that will improve
their lives. (Thaler and Sunstein, 2008, p. 252)
Richard H. Thaler and Cass R. Sunsteins book Nudge which seeks to popularize
the research program of behavioral economics and apply it to questions of
governance puts forth an account of what they call libertarian paternalism. Their
libertarian paternalism, informed by the eld of behavioral economics, forcefully
illustrates the practices of neoliberal governmentality that became a central focus of
Foucault in the years 19771979. This article analyzes behavioral economics as
both a theoretical discourse and implemented governmental practice although, of
course, these two projects are not truly so separate from the dual perspective
of Foucaults genealogical investigation of neoliberalism and governmentality as
well as contemporary critical theorizations of neoliberalism. I argue that behavioral
economics should be understood as a political economic apparatus of neoliberal
governmentality that has the objective of using the state to manage and regulate
individuals, interests and populations by attempting to correct their deviations from
rational, self-interested, utility-maximizing cognition and behavior such that they
more 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 has
three 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 it
legitimately submits [that which does not exist] to the division between true and
false (p. 19). Behavioral economics, especially once articulated in specic policy
and governmental domains, does precisely this. It couples particular policy techni-
ques with a regime of positivist, socialscientic truths about the market to mark out
in 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 the
basis of their behavior in the market. As such, behavioral economics as practice and
as theory is another apparatus in the genealogy of regimes of veridiction bringing
together truth, law and policy (Foucault, 2008, p. 35). Behavioral economics
consequently illustrates, I demonstrate in this article, the way that forms of neoliberal
governmentality are intimately engaged in the functioning of the market and the
production 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 the
end of public good the obeying of God and/or men and had as its objects state
and territory, governmentality has plural ends intrinsic to its multiple objects of
governance, 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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2 2014 Macmillan Publishers Ltd. 1470-8914 Contemporary Political Theory 122
people as subjects of sovereign power. Governmentality develops as a mode of
governance that has populations (not subjects as such) as its main target and
apparatuses as its essential mechanism (Foucault, 2007, pp. 107108). It is the
broad term denoting a historical shift in Europe toward a reasoned, reective,
rationalized and self-conscious art of governing. Emerging from earlier incarnations
as Christian pastoral power and then raison dtat,
1
a decisive shift unfolds in the
eighteenth century when political economy makes possible the self-limitation of
governmental reason (Foucault, 2008, p. 13). In this liberal governmentality, the
market functions as the site of veridiction for the state, where the market formulates
its 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 a
crisis 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 of
Keynesian economics, and does so in what Foucault describes as German and
American variants.
2
What is important and decisive for both modes is
whether a market economy can in fact serve as the principle, form, and model
for a state which, because of its defects, is mistrusted by everyone on both the
right and the left, for one reason or another will liberalism in fact be able to
bring about its real objective, that is to say, a general formalization of
the powers of the state and the organization of the society on the basis of the
market economy? Can the market really have the power of formalization for
both the state and society? This is the important, crucial problem of present-day
liberalism (Foucault, 2008, p. 117).
That is, the crucial problem neoliberalism poses is whether the market can be the
ground and the vehicle of legitimacy for the state, and whether it can be the
organizing and regulating principle for society. As such, it is a distinct programming
of governmentality. This poses a question with much greater stakes than that of
eighteenth- or nineteenth-century liberalism, which sought only to free the market
from the state. Neoliberalism broadly, and American neoliberalism specically,
seeks to expand this project in terms of both surface and depth: its project is to
absolutely 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 specic
policy and governance implications of this socialscientic discourse. I then turn to
analyze behavioral economics in terms of how it and its rationalities transform and
introduce 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
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the individual and the state; regulating what constitutes the objects of political
economy and governmental intervention; and producing homo economicus (eco-
nomic man) and diffusing this mode of economic subjectivity across the social
terrain. These modalities of behavioral economics, I will contend, intensify processes
of neoliberalization. I end by illustrating my argument through an analysis of a
specic policy changes to retirement savings policy in the United States in which
the rationalities of behavioral economics have been taken up by governmental
practice 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 political
geographers. Work in this area has focused on situating the libertarian paternalism of
behavioral economics in a genealogy of the liberal production of economic subjects
(Huxley, 2011), exploring the potential points of contact between behavioral
economics and critical geographical research (Whitehead et al., 2012), examining
behavioral economics in relation to neuroeconomics and picoeconomics (Pykett,
2013), and generating more philosophical critiques of it from the standpoint of
deliberative democracy (John et al., 2009) and liberal concerns with autonomy
(Hausman and Welch, 2010). I take up a somewhat different project: directly engaging
behavioral economic theory as such, from a Foucaultian orientation, to explore what
behavioral economics says about itself, about the state, about the market and about the
economic subject. I seek to more thoroughly and comprehensively read behavioral
economics into a critical theoretical and epistemological account of neoliberalism and
governmentality. In doing this, I focus on a different and more wide-ranging set of
power 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 free
economic 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 a
new technique of neoliberal governmentality, one that works to deepen neoliberal
practices and rationalities. When we shift to thinking of neoliberalism not as
something homogeneous that can be understood as coming from the top down but
instead as a constructed project with interacting processes and practices that seek to
continually remake rule of, by and for the market (Peck, 2010, p. xi), we can see the
necessity of paying attention to behavioral economics as a constitutive technique of
neoliberal governmentality. As Read (2009) insists, any criticism of neoliberalism as
governmentality must not focus on its errors, on its myopic conception of social
existence, but on its particular production of truth (p. 34). Behavioral economics
functions as a particular mode by which neoliberalism works to produce certain forms
of truths as well as certain kinds of economic actors and subjectivities to conform to
those truths. As such, behavioral economics introduces new technologies of power into
neoliberal 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 about
economic actors. The basic economic unit of these models, homo economicus, is an
atomistic individual who has stable, coherent and well-dened preferences rooted in
self-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, he
3
accurately reects on the costs and benets of
various strategies and choices, pursuing the correct path to maximize his preferences
and the expected value of utility. Finally, the model assumes that in situations of
uncertainty, this individual has well-formed beliefs about how the situation will
resolve and updates their beliefs as new information becomes available. Overall,
then, individuals are presupposed as rational actors in the sense of forming
correct beliefs about their environment, their own behavior and others actions, and
in 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 the
foundation 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 economics
research. The rst sought to empirically investigate, describe and explain the variety
of ways in which people deviate from the assumptions of a rational choice model of
economic behavior. This predominantly took the form of experimental studies
demonstrating one or two kinds of divergences from one aspect of homo economicus.
The second wave comprises efforts to socialscientically consolidate these various
empirical ndings into testable models and predictions (ibid., pp. 12141216).
4
As
such, behavioral economics can be seen to have a few objectives: identifying
departures from the standard model that recur in predictable ways through the
incorporation of psychological research and theory; demonstrating how these
deviations matter in a wide variety of economic contexts; developing alter-
native formal models of economic behavior; and incorporating these deviations and
the models that attempt to systematize them into economic policy, law, regulation
and so on.
In attempting to briey summarize the major ndings of behavioral economics,
I follow DellaVignas (2009) classication scheme. He identies three ways in which
behavior deviates from the assumptions of rational, self-interested utility maximiza-
tion: non-standard preferences, non-standard beliefs and non-standard decision
making. In terms of preferences, the standard model assumes that the individual has
the same preferences about future plans at different points in time, but research
indicates 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
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given moment in time while stating a commitment to long-term savings plans.
Furthermore, preferences are reference- and context-dependent; that is, instead of
calculating preferences on the basis of all available information and possibilities,
individuals preferences are more situational. Thus, to cite one argument of
behavioral economists, people overvalue (from the perspective of the market and
perfect rationality) what they already have and are irrationally averse to losses when
the opportunity for gains are present. Furthermore, individual preferences are often
socially inuenced and thus not purely self-interested. Behavioral economists
contend that people engage in positive reciprocity giving up individual gain in
the interests of some notion of fairness to a worthy other and negative reciprocity
incurring personal costs to economically punish others all based on ascribed
motivations, 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 and
commitment while underrating the probability of negative events and the time
necessary to complete projects. Hence, for example, individuals are considered to be
nave about their own future self-control with regard to gym attendance, CEOs
overrate their ability to manage a company, rank-and-le employees overestimate the
future performance of their employer and people overrate the precision of their own
information. Moreover, behavioral economists claim individuals overweigh informa-
tion that is available and representative, such as overinferring or overextrapolating
patterns from small numbers (that is, if a coin comes up tails four times in a row, it
has 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 to
predictions of individual investors in the stock market). Finally, actors exhibit a
projection bias, where they expect their future preferences to be close to their present
ones 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 decision
with the same underlying economic trade-offs and logic can be made differently
depending on the way it is framed in experiments. Individuals further exhibit limited
attention by not using all the available information to make economic decisions, for
instance, not factoring in shipping costs in online shopping choices. When faced with
a wide set of choices, people use limiting and simplifying heuristics to make
decisions, such as choosing to overdiversify their choices, only choose familiar
options, choose based solely on salience or avoid choosing all of these are
irrational and work against utility maximization. Moreover, decisions are subject to
persuasion 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 Camerer
et al.s (2003) two waves of behavioral economics research: the way that individual
behavior 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 have
attempted to translate this set of research into more specic analyses of economic
phenomena and contexts, and into concrete policy program. In this vein, I also want
to highlight some of the main areas into which behavioral economics has been
extended. Behavioral economics has gained some of the greatest attention in the eld
of nance, where the efcient market hypothesis has been challenged by behavioral
economists who argue that stock prices do not reect the true value of a security on
the stock market, that consumers overweigh new data and thus stock prices are to
some extent predictable and so on (Mullainathan and Thaler, 2000; Shleifer, 2000).
Behavioral economics has posed a broad set of constructive challenges to game
theory (Sent, 2004, pp. 750752; Camerer, 2005, pp. 21, 30; Camerer and Fehr,
2006). Behavioral economic analyses of poverty respond to standard economic
theorizations of poverty as adaptive to circumstances or stemming from a psycho-
cultural decits by positing that poverty tends to exacerbate the effects of the same
non-standard biases all have (Bertrand et al., 2004). Similar work has been done in
applying 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 as
saving, addiction and public goods (Bernheim and Rangel, 2007). Parts of the eld of
economics and the law have incorporated behavioral research to examine issues such
as distributive legal rules, the rules of evidence discovery in litigation, business
judgments, consumer protection law and so on, as well as investigating the potential
of the law to de-bias individuals (Jolls, 2007). Overall, behavioral economics, while
not fully accepted by a majority of economists, is increasingly entering the
mainstream (Sent, 2004, pp. 749750; Fudenberg, 2006).
6
It exhibits a unique
impact in public policy and governance today, as behavioral economists have put
forth models for governing and regulating based on behavioral economics, and have
played an inuential role in the Obama administration (Camerer et al., 2003; Thaler
and Sunstein, 2008; Grunwald, 2009; Dorning, 2010; Subramanian, 2013).
7
This
raises the crucial questions, then, of what it means when behavioral economics is
incorporated into the state apparatus.
Behavioral Economics as Neoliberalism
I now turn to analyze three techniques of behavioral economics, focusing in this
section on how behavioral economics transforms and introduces new technologies of
power into neoliberal governmentality. Here I am interested in articulating ways in
which behavioral economics connects to and in many ways extends neoliberal
formations. I more specically discuss three techniques of the behavioral economic
apparatus: positioning the market as a depoliticized site of truth and veridiction for
the individual and the state; regulating what constitutes the objects of political
Behavioral economics as neoliberalism
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economy and governmental intervention choices, preferences and interests; and
producing and subjectivizing homo economicus. By engaging both Foucaults
account of neoliberalism and governmentality as well as contemporary debates about
the formations, rationalities and techniques of neoliberalization, this section seeks to
investigate how behavioral economics entrenches modes of neoliberal governance.
Depoliticizing the market as truth
The rationality of homo economicus in market logics and actions remains the
benchmark dening the economic terrain for behavioral economics. I argue that in
the way it continues to privilege the market and seeks to organize government and
policy to participate under a market logic, behavioral economics enacts two of the
dening characteristics of neoliberal governmentality: the depoliticization of govern-
mental organization of the economy, as well as situating the market as the site of
sociopolitical truths. Here, the market becomes the site of fact and justice, and thus
the mode of examining governmental practice whereby being a good government
entails 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 delineated
relationship of economy and state of classical liberalism. There the two constituted
different 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 not
take something from government. Rather, it indicates it, it constitutes the
general index in which one must place the rule for dening all governmental
action. One must govern for the market (Foucault, 2008, p. 121).
Hence, under neoliberalism, we witness the subsumption of government by the
market. The market its functioning, growth, and production of truth becomes
the objective of governmentality and the very truth matrix of the governmental
state 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 middle
ground in American politics organized around governing for the betterment of the
market; Camerer et al. argue that their asymmetrical paternalism shifts focus away
from polarized politics in order to focus on empirical terms of actors, behaviors and
interests (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 to
organize governmental economic intervention, and thus enact the very subsumption
of 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 to
political debate, it is posited as an object of consensus to be sought after, as political
questions 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, for
example, has pursued a range of policies inuenced by behavioral economists.
Behavioral economists in the administration have been inuential in the design of the
Making Work Pay tax cut in the 2009 economic stimulus bill, the individual mandate
of 2010s health-care reform bill, various aspects of the DoddFrank nancial reform
bill, retirement savings programs (about which more is detailed in the next section),
and other policies and regulations (Dorning, 2010; Priluck, 2013). Moreover, there
has been an explicit attempt to keep behavioral reforms quiet: the behavioral
adherents lowered their prole, with White House advisers [making] sure of it by
rarely allowing them to speak on the record (Dorning, 2010). This downplaying of
the behavioral economics approach of the administration, I argue, illustrates the
depoliticization of economic decision making and governmental intervention in the
working of markets that behavioral economics and neoliberalism more broadly
entails. The Obama administration renewed its commitment to behavioral economics
in the summer of 2013, organizing a new working group modeled on the United
Kingdoms Behavioural Insights Team (Subramanian, 2013). David Camerons
Conservative government in the United Kingdom is itself strongly inuenced by
behavioral economics (Wells, 2010; Whitehead et al., 2011; Pykett, 2013;
Whitehead et al., 2012), and the governmentalization of behavioral techniques have
been 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 smoother
functioning 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 a
project of the economisation of the social that is materialised either through the
naturalisation of economic processes or technocratisation of their governance
or both and thus functionally depoliticizes the social eld (p. 2). That is,
neoliberalism seeks to ensconce itself as apolitical and pragmatic, limiting terms
of political debate to the neoliberal terrain. Behavioral economics self-con-
sciously adopts this non-ideological posture, as the above quotes from Camerer
et al. and Thaler and Sunstein demonstrate. It understands itself as simply solving
technical, empirical questions in a non-controversial and ultimately non-political
way. This ignores, however, that the very setting up of the market as the truth of
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individual actions and governmental interventions to enforce that truth is a
decidedly political decision. Indeed, behavioral economics-inected regulations
beg the question of exactly who is constructing these supposed rational and non-
ideological standards and policies; by trusting democratically unaccountable
bureaucratic actors to design the rational environments of behavioral
economics, there is little opportunity to question the political and economic
values that may lie behind these interventions (Whitehead et al., 2011, pp. 2834).
Behavioral economics should thus be understood as a technology of neoliberal
governance that deepens a broader neoliberal project of depoliticizing economic
decision 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 the
sake and the truth of the market. If there is a rationality to the irrationality of
economic actors, then the market can respond to, change and/or create incentives to
shift behavior. Indeed, as Camerer and Fehr (2006) argue, individuals who violate
the assumptions of economics may create powerful economic incentives for
Economic Man to change his behavior, but depending on the economic structure,
the existence of Economic Man may also create strong incentives for those with
bounded 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 the
existence of these subjects may cause aggregate outcomes to be close to the
predictions 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 which
the behavior of heterogeneous agents is evaluated and modeled. Behavioral
economics problematizes not the market itself, only the assumptions made about the
actors on the market, whose behavior is then measured against the truth of the
market. It seeks not to challenge or defy the market but to provide tweaks so as to
better assimilate all to the market; it captures the irrationality of economic actors and
disciplines that irrationality to the functioning of the market. As such, behavioral
economics functions as an apparatus in practice and in theory bringing together
truth, 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 should
understand neoliberalism as a normative claim about the pervasiveness of economic
rationality that then takes as it task the development, dissemination, and institutio-
nalization of such a rationality (p. 40), while Harvey (2005) contends that a central
feature of neoliberalism is its attempts to maximize the reach of market transactions,
including the building and enforcement of market conditions and logics by the state
where necessary (pp. 23). Conceptualizing behavioral economics as an effort
to compel actors to act more closely aligned with a rationality judged by the
market-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 rationality
and to enforce market logics by disciplining subjects to behave more rationally on the
market. Neoliberalization, as continuous efforts to x markets, to build quasi-
markets, and to repair market failures (Peck, 2010, p. xiii) needs some technology of
power to carry out these efforts, and the rationality and practice of behavioral
economics fullls this need. It proceeds from the premise that the market is indeed
the truth of rational behavior and then seeks to compel conformity to market
behavior, 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 raison
dtat), but instead works on interests, populations, enterprises, circulations produc-
tion, practices and utilities. It concerns itself with growth and the maximization of
life, and thus is caught up with the rise of biopolitical management. This marks a
substantial shift. As the market takes the place of the juridical as functional limit
on the state, interest comes to signify the primary object of governmentality.
In the regime of liberal governmentality, government is basically no longer to be
exercised over subjects and other things subjected by these subjects, but is to be
exercised 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 not
govern individuals, or rather, does so only indirectly. It addresses interests, utilities,
cognition, decisions, choices, actions, consumption, preferences, behaviors and so
on. The literature is quite explicit about this. In their justication of their
asymmetrical paternalism, Camerer et al. (2003) make a point of emphasizing that
their approach focuses on situations rather than persons (p. 1213). Instead of
applying 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 in
the eld of public and welfare economics, Bernheim and Rangel (2007) make the
argument for understanding preferences as real objects, and claim that the
discovery 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
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to create general, unied and formal mathematical models of their ndings
(Camerer, 2005; Fudenberg, 2006; Pesendorfer, 2006; DellaVigna, 2009). These
mathematical formulae seek to model preferences, utility and choices, not subjects.
According to DellaVigna (2009), the standard economic model accounts for
maximiz[ing] expected utility subject to a probably distribution p(s) of the states of
the world, at time t =0 (p. 316). Behavioral deviations from this standard model
modify these terms and/or add new ones; for example, accounting for non-standard
preferences involves adding factors for preference discounting, time discounting and
future payoffs (DellaVigna, 2009, pp. 318319). Overall, much as we saw above in
the way behavioral economics reenacts the market as the site of truth, so does it
reiterate 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 assimilate
them to neoliberalism. In accounting for the way that neoliberalism becomes a
dominant mode of thought, Harvey (2005) argues that it appeals to our
intuitions and instincts, to our values and desires (p. 5). What is missing from this
analysis is an explicit articulation of those intuitions, instincts, values and desires as
in part produced through techniques and rationalities of power. One of the power
effects of behavioral economics is the shaping of individual instincts, values, desires
and so forth to more closely conform to the market logics of neoliberalism.
Neoliberalism operates with the presupposition that the real is programmable by
authorities: the objects of government are rendered thinkable in such a way that their
difculties appear amenable to diagnosis, prescription, and cure (Rose, 1996, p. 53).
We should understand behavioral economics as part of both the process of rendering
objects of government thinkable in its focus on preferences and choices as well as
the diagnosis, prescription and cure in its analysis and manipulation of those
preferences and choices. By acting on those objects, it can assimilate them and the
individual persons that incorporate them into market-focused neoliberal rationalities.
Neoliberalism is a mode of public pedagogy that targets desires, values, and
identities in prescribing a market-oriented subject (Giroux, 2008, p. 591). In its
understanding of and action upon its objects of governmentality, behavioral
economics 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 homo
economicus as one of the unique elements of American neoliberalism. Whereas the
classical liberal homo economicus was a partner of exchange, the American
neoliberal version is an entrepreneur of himself, being for himself his own capital
(Foucault, 2008, p. 226). With this model, neoliberalism seeks to extend the
economic realm and economic thought into a previously unexplored domain, and
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12 2014 Macmillan Publishers Ltd. 1470-8914 Contemporary Political Theory 122
on this basis inaugurates the possibility of giving a strictly economic interpretation
of 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 the
economic form of the market throughout the social body and the whole of the
social system (Foucault, 2008, p. 243). With neoliberalism, economics becomes an
apparatus of how individuals, as homo economicus, pursue their self-enterprise in the
face of scarcity. Because of the novel emphasis on analyzing the rationality of homo
economicus, and because American neoliberalism seeks to render the entire social
eld intelligible through economic analysis, the question of how far homo
economicus can be generalized becomes vital (Foucault, 2008, pp. 268269).
At stake for American neoliberalism is the ability to diffuse the rationality of homo
economicus 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 to
the rst question, the research program of behavioral economics challenges the
empirical validity of the strategic rationality, strictly understood, of the American
neoliberalism that Foucault critiques. However, homo economicus as economic
subject, and the spread of this model throughout the social realm, is not wholly
contingent on its veriability as a completely accurate description. Instead, homo
economicus is more of a grid of intelligibility, an epistemological matrix of economic
and social relations. Furthermore, while behavioral economics does indeed challenge
the veracity of the perfectly rational, self-interested, utility-maximizing model of homo
economicus, it does nothing to upset the broader model of an individual allocating
scarce means to varied ends. Indeed, much of behavioral economics is the attempt to
systematically theorize and model that strategic rationality, even if it is different than
that of the classical formulation. That is, while problematizing the content of homo
economicus 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 further
embed the economic across the social eld, with a unied, and powerful, approach
able to inform not just economics, but social sciences more broadly, the biological
sciences, and governments, philosophers, and lawyers (p. 52). This indicates the
closeness of contemporary behavioral economics to the tendency of neoliberalism to
generalize 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 on
the market. Jolls (2007), for instance, argues for using the legal system to de-bias
individuals, claiming that legal policy may respond best to non-rational errors by
operating directly on the errors and attempting to help people either to reduce or to
eliminate them (p. 137). If the market cannot x the individual, perhaps govern-
mentality can x individuals for the market. A prevailing thought among some
behavioral economists is that the biases, errors and miscalculations individuals make
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13 2014 Macmillan Publishers Ltd. 1470-8914 Contemporary Political Theory 122
prevent them from realizing their own self-interest. If this is the case, then those
deviating from the neoclassical model are in effect imposing externalities on
themselves (Camerer et al., 2003, p. 1221). An asymmetrical paternalism that seeks
to correct these errors is hence understood as helping people to behave in their own
best interests (Camerer et al., 2003, p. 1212). Thaler and Sunstein (2008) offer a
similar defense of their own libertarian paternalism, arguing that this mode of
governmentality 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 do
these real ends come? They derive from the truth of the market. The authors claim
that the economic agent is the one who deems certain ends best, but it is a certain
market that generates particular agents with a set of specic ends that trains, manages
and subjectivizes these actors in the rst place. They are still the selves and ends of
homo economicus, only this time homo economicus, as an economic subjectivity, has
to 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 be
produced historically as well, as did liberal notions of freedom.
9
Similarly, I argue,
homo economicus and his freedom must be produced, and behavioral economics is
intimately entangled in its production. An apparent paradox arises: How can homo
economicus be absolutely free but also a central element of governmentality? I argue
that this seeming contradiction is resolved once we understand rst that freedom and
homo economicus both have to be produced, and second that this production occurs
with direct reference to the market and to the neoliberal economic logic of the market.
Within this framework, then, behavioral economics functions as a contemporary
apparatus engaged in the production of homo economicus and his freedom, an
apparatus that submits what it has produced to a judgment of truth located in the
market. 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 be
produced in actuality, meaning that one of the crucial questions to ask about
neoliberalism 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 enact
neoliberal life (pp. 4041). What is necessary, though, is to identify and analyze
what, precisely, these practices producing homo economicus are. We should
conceptualize behavioral economics as an indispensable technique of this generation
of economic subjectivity, for it explicitly recognizes that homo economicus indeed
does not exist, and then goes on to posit and advocate for means by which he could in
fact be produced. The unequivocal objective of behavioral economics is to cultivate
subjects that more closely conform to market logics. Neoliberalism is a new regime
of truth, and a new way in which people are made subjects, and homo economicus is
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14 2014 Macmillan Publishers Ltd. 1470-8914 Contemporary Political Theory 122
a creature whose tendenc[ies] must be fostered (Read, 2009, pp. 2829). More
attention must be given to the specic modes by which economic theory and
governance specically engage in these processes of neoliberal subjectication, such
as 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 neoliberal
governmentality in a way that buttresses neoliberal hegemony.
Behavioral Economics, Neoliberalism and Foucault
My account of behavioral economics as a technique of neoliberal governmentality
suggests some modications to Foucaults genealogy of neoliberalism. If my
argument is correct, such that the contemporary governmentalization of behavioral
economics functions to produce a certain economic subjectivity contingent on the
existence of the market as a site of truth, then the current neoliberal governmentality
in the United States is engaged in a deeper form of social regulation than Foucault
understood under his rubric of American neoliberalism. That is, the production of
homo economicus with reference to the market exemplies, I believe, the kind of
German social policy that Foucault (2008) argues American neoliberalism
rejected (pp.144145). My account thus demonstrates the way that changes and
new discourses in economics that post-date Foucaults inquiries, in this case the
development of behavioral economics, ought to be used to modify and sharpen
Foucaults critical analysis of neoliberalism. Biebricher (2013) has recently argued
that, at least in Europe, we are witnessing the unlikely renaissance of ordoliberal-
ism; for him, current European neoliberal market reforms involve an ordoliberal
understanding of the market not as naturally emerging and self-sustaining, but as
something that needs to be established and cultivated (pp. 339340).
10
I would
concur with his assessment, and furthermore extend the argument to suggest that
behavioral economics marks a more general assemblage of ordoliberal and American
neoliberal tendencies in neoliberalism as such. Neoliberalism has always been a
heterogeneous eld (Madra and Adaman, 2013, p. 21),
11
and behavioral economics
testies both to the limits of Foucaults genealogy as well as to contemporary
admixtures 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 the
state. This is a question of economic sovereignty. According to Foucault (2008),
homo economicus is he who says to the sovereign you must not, because you
cannot, because you are powerless, because you do not know, because you
cannot know (p. 283). This absence or impossibility of an economic sovereign is a
crucial 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).
Behavioral economics as neoliberalism
15 2014 Macmillan Publishers Ltd. 1470-8914 Contemporary Political Theory 122
What behavioral economics demonstrates, I believe, is that far from being powerless
or impossible in the face of homo economicus, the state and the economic sovereign,
in the form of neoliberal governmentality, are involved in conjunction with the
market 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 by
behavioral economics changes to retirement savings policies in the United States
in order to examine in some more detail precisely how the behavioral economics
apparatus seeks to correct behavioral deviations from homo economicus in a way
that entrenches neoliberal rationalities. The primary recommendation of behavioral
economists in modifying retirement systems is to change dened-contribution
employee-savings plans which often take the form of Individual Retirement
Account and 401(k) tax-subsidized investment accounts from an opt-in choice
by the employee to an opt-out system where employees would have to actively
decide to exit the retirement savings vehicle in which they are automatically enrolled.
Behavioral economics argues that individuals operate, to a substantial extent, through
inertia in their economic decision making, and that they typically undersave for
retirement. Thus, automatic enrollment with an opt-out option seeks to use individual
passivity to increase savings (Bubb and Pildes, 2014, pp. 1314). There has been a
substantial increase in recent years in the number of workplace plans using automatic
enrollment, federal law has been changed to encourage opt-out plans, and the Obama
administration currently has regulatory plans to expand automatic enrollment
programs (Bubb and Pildes, 2014, pp.14 no. 28; 2021). Indeed, behavioral law and
economics has laid claim to retirement savings as perhaps its greatest policy-reform
success (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 behavioral
economics rely on the market as the site of truth, as I demonstrated above. Automatic
enrollment policies further entrench the market in the form of nancial investment
and speculation as a truth of individual retirement savings and of the governance of
individual retirement savings. Harvey (2005) argues that neoliberalization has
meant, in short, the nancialization of everything: the economy, the state apparatus
and individual life (p. 33). With automatic enrollment policies, behavioral economics
as governmentality insists that individual investment in the stock market is the truth
of rational individual savings behavior and of government intervention in retirement
savings. In this entrenchment of the market, the objects of governmentality of this
behavioral 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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16 2014 Macmillan Publishers Ltd. 1470-8914 Contemporary Political Theory 122
In terms of neoliberalism-as-depoliticization, this increased emphasis on enrolling
individuals in personal retirement savings accounts through automatic enrollment is
presented as non-partisan and non-ideological; for example, the 2006 Pension
Protection Act received substantial support from both Democrats and Republicans
and was perceived as non-controversial. What behavioral economics focus on
employee retirement plans ignores, though, is what is considered to be the more
politicized, more ideological issue of increased Social Security benets or other
policy proposals to more universally provide benets.
13
More broadly, we can
understand the increased reliance on employee-contribution retirement savings as a
political 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 the
specic objective of behavioral economic governance is to have more individuals
investing more money, then this intervention generates more force subjectivizing
the individual as someone who must rationally manage an investment portfolio.
Automatic enrollment produces homo economicus and seeks to compel that subject
to self-manage in the realm of the neoliberal nance economy. Moreover, automatic
enrollment further shifts all the risk to the individual by making individual
investments primary instead of government-provided or dened benet pensions.
The approach of behavioral economics to retirement savings thus endeavors to
convert passive non-participation in the nance economy into elicited active
management of their own retirement investments in this economy through automatic
enrollment. 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 to
become 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 and
other policy areas, Bubb and Pildes (2014) note a tension in the implementation of
behavioral economic-guided policy: while the social science of behavioral econom-
ics document[s] the failure of individual choice, all the political regulatory
interventions are all about preserving, improving and insisting upon individual
choice, and this emphasis on choice tends to win out even if the literature cautions
against 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 of
behavioral economics that is explained by its ability to instantiate rationalities that
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17 2014 Macmillan Publishers Ltd. 1470-8914 Contemporary Political Theory 122
function as new techniques of power produced by neoliberal governmentality. If
neoliberalism is going to be understood as processes of instantiating market-oriented
governance and market rule over social actors (Peck, 2010, pp. xixiii), and if as
I have argued behavioral economics functions as an entrenchment of neoliberal
governmentality, then it is to be expected that behavioral economics would seek to
emphasize individual choices and decisions on the market over other concerns.
Indeed, in Nudge, Thaler and Sunstein (2008) regularly return the idea of maximizing
choices that are presented in the correct way. The (over-)emphasis on choice in
behavioral economics theory and practice further reveals the intimate connections
between behavioral economics and neoliberalism I have been describing throughout
this 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 of
power that entrench neoliberalism and its rationality. In retirement savings, one can
choose how to manage their investment portfolio, but those choices are available
only within the constrained, power-lled zone of rational participation in the
neoliberal nance economy. Whether in the specic form of automatic enrollment
into retirement savings vehicles or in its broader theoretical and policy program,
behavioral economics transforms and introduces new technologies of power into
neoliberalizing processes. Behavioral economics, I have argued, enacts three
components of neoliberal governmentality: positioning the market as a site of truth
and veridiction for the individual and the state; regulating what constitutes the objects
of 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 and
further entrenched ongoing processes of neoliberalization, and any critical analysis of
neoliberalism must account for the increasing deployment of the rationalities and
techniques of behavioral economics.
Acknowledgements
I 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 article beneted immensely from the thoughtful criticism of two
anonymous reviewers. An earlier iteration of this article was presented at the
Northeastern Political Science Association Annual Meeting, where I received helpful
feedback from the Critiquing the State, Critiquing Modern Institutions panel and
audience.
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18 2014 Macmillan Publishers Ltd. 1470-8914 Contemporary Political Theory 122
Notes
1 For Foucaults account of these movements from non-territorial, non-sovereign Christian pastoral
power to a reexive raison dtat focused on the maintenance and preservation of the state through the
management 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 and
politics 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 German
neoliberalism 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 both
forms of neoliberalism, suggesting later that behavioral economics suggests a need to understand them
as 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 thoroughly
gendered. While functioning as the universal subject of the neoclassical economic model, he is, upon
analysis, a white, heterosexual, elite, and male subject; thus, it becomes apparent once homo
economicus emerges in all of his positionality that economic rationales are often merely a way to
preserve the patriarchal status quo (Fineman and Dougherty, 2005, p. 58). Furthermore, the liberal
philosophical 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 gender
dynamics of economic theory, see also Pujol, 1992, Nelson, 1993 and Nelson, 1995. Future research
into 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 a
strong challenge to develop alternative models, while new behavioral economics has sought
to 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 slight
variation on DellaVignas account. For example, Mullainathan and Thaler (2000) view the eld as
having 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 of
modeling, 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 Affairs
from 2009 to 2012. In November 2013, Daniel Kahneman, one of the founding scholars of the eld of
behavioral economics, received the Presidential Medal of Freedom (Obama, 2013).
8 This Behavioral Economics as Neoliberalism section engages most directly with Camerer (and often
his co-authors), and with Thaler and Sunstein (2008), as they are some of the more prominent
behavioral economics, and because Thaler and Sunsteins work is one the most explicit and most
publicly circulating attempts to connect behavioral economics and public policy. Per the previous
section, their work should be considered to be characteristic of the dominant themes, methodologies
and kinds of knowledges produced by behavioral economics. Similar analyses could be carried out in
relation to any of the behavioral economists discussed in the preceding section, and this section does
indeed discuss some of this work as well.
9 Liberal governmentality operates as a consumer of freedom that can only function if the freedom it
consumes actually exist: if the government must consume freedom, it must produce freedom; if it must
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19 2014 Macmillan Publishers Ltd. 1470-8914 Contemporary Political Theory 122
produce freedom, it must organize and manage freedom. Freedom is not a given but must be constantly
manufactured (Foucault, 2008, pp. 6265).
10 He also argues that ordoliberalisms elite, undemocratic and technocratic political philosophy is
returning; given my earlier claim that behavioral economics further entrenches neoliberalisms
depoliticizing tendencies, I would concur.
11 Madra and Adaman (2013) provide a detailed problematization of Foucaults classicatory schema and
attempt 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 trends
into liberal and neoliberal rationalities (for example, Rose, 1999) in order to analyze behavioral
economics, which is itself a particular nexus of psychological research and microeconomics. Although
the current article focuses on neoliberal power effects of behavioral economics as such, genealogical
inquiry into power knowledge processes involved in the emergence of behavioral economics would be
a fruitful project. Related to this kind of inquiry are contemporary critiques of psychological aspects of
policy applications of behavioral economics in the United Kingdom, such as Cromby and Willis (2013)
and Whitehead et al. (2011).
13 Lind (2014) of the New America Foundation describes the ever-increasing emphasis on individual
retirement accounts to be perceived as the reasonable, responsible policy position in opposition to
abolishing Social Security and to increasing Social Security benets.
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