Table of contents

• Introduction
• What is the value of freedom?
• How paternalistic is German economic policy?
• What causes paternalism?
• Reducing paternalism through smart regulation
• Conclusion
• References

Introduction

Economic policy may pursue many goals. Some have become so codified that standard economics textbooks treat them as cornerstones of normative judgment—questions of inequality and growth, to name just two. A vast body of economic scholarship has examined trade-offs among these and similar seemingly easily measurable “outcomes.” A less discussed aspect of modern economic policy is freedom, and the problem of paternalistic measures that curtail it.

Paternalism is a nuanced subject with competing definitions and classifications (Grossmann, 2025b), but we can draw on the conditions proposed by Dworkin (2020): paternalistic action requires that (i) the freedom of a decision-maker is interfered with, (ii) the decision-maker has not consented to this interference, and (iii) this interference is justified by reference to the decision-maker’s own goals. In place of goals, one may also substitute the decision-maker’s “values” or “welfare” (section 2 ibid.), regardless of whether the decision-maker actually holds or ought to hold them.

Paternalistic aspects of German policy rarely attract media attention. One such instance occurred when the Federal Constitutional Court declared the ban on the regular facilitation of suicide incompatible with the Basic Law and void (judgment of February 26, 2020, BVerfGE 153, 182). As correctly argued in the constitutional complaint—and confirmed by the Second Senate—this was primarily a paternalistic measure, irreconcilable with the fundamental liberty rights under Article 2(1) of the Basic Law.

As we shall see below, not all paternalistic interventions restrict the decision-maker’s freedom through outright prohibitions, but all of them modify a decision-making situation in some way by invoking the decision-maker’s well-being—usually to “protect” him. The restriction of the decision-maker’s freedom need only exist relative to a (non-intervention) baseline, i.e. it need only be relative. The restriction itself need not be the aim or desire of the intervener; only the effect matters. An intervention can also make an action impossible even where the “prohibition” penalizes only another market participant who stands in some bilateral relationship with the decision-maker. The decision-maker thereby loses the ability to consent to certain contractual arrangements. This reflects the incidence of market interventions: just as a tax may be statutorily paid by one market participant yet economically borne by another, state interventions can restrict the freedom of multiple market participants even though legally only one is subject to a supply- or demand-side prohibition.¹

This essay aims to identify paternalistic narratives surrounding current economic policy, to render them visible and open to debate, and to present current economic research in this area. The penultimate section discusses approaches for a diverse society.

What is the value of freedom?

This essay confines itself to a “negative” understanding of freedom (Berlin, 1958), which conceives of freedom as the absence of interference or other constraints—not as a positive capacity to act in any particular way. The discussion is further limited to actions affecting only the individual in question and any consenting third parties—the possibility of strategic discourse-shifting is addressed below.

It is plain that paternalistic measures restrict freedom in the negative sense while potentially strengthening it—under the right definition—in the positive sense. Let me anticipate an example discussed more fully below: the state’s prior-approval requirement for gambling. A proponent might argue that it enables (i.e. positively empowers) people to live debt-free, with a happy family, and so on. Let us take this admittedly absurd, caricature-like compression of the evidence as given for the moment.² The proponent interposes himself between the actor and his goals; he summarily declares certain other goals desirable for the actor and thereby already satisfies a core element of paternalistic action. Freedom in the positive sense is recursively constructed to serve ends that are state-prescribed rather than self-determined. Those who adopt a positive conception of freedom open the door to paternalism and even to oppression in the name of an alleged self-realization or “true freedom” (Berlin, 1958).

The gambling example is also particularly useful for grasping the value of freedom on non-ideological grounds. A core strategy of opponents of liberalization across all domains is to point to negative individual effects (internalities)—such as not being debt-free, as discussed above. It is therefore natural to ask why one would want liberalization. The answer lies in a subtle methodological argument that exposes practical limits of empirical economic research.

First, it is important to understand that the measures used in statistics and scientific studies are not naturally occurring data as such, but highly purpose-optimized, dimensionally reduced, and statistically processed capta that exist only because they serve a particular analytical purpose.³ Individual decisions, by contrast, are objective facts. This conceptual distinction between data and capta resolves the puzzle of the value of freedom: that a person chooses X rather than Y reveals that the decision-maker prefers X over Y ex ante. Even if this value cannot be captured in a simple metric, let alone articulated, it exists. The value of freedom is invisible and resides, encapsulated, within the acting subject. It defies everyday quantification,⁴ but is no less real than the capta we know all too well—gross domestic product or life expectancy. That many researchers and policymakers equate measurability with formalizability, and formalizability with comprehensibility, does not change this.⁵ That people routinely trade the measurable for the immeasurable—health for entertainment, say—does not demonstrate irrationality but rather the existence of subjective trade-offs that manifest in individual action.

Human decisions thus reveal the value of freedom, even when third parties find it difficult to comprehend.⁶ This observation is not meant to cast doubt on the value of empirical analysis; the author of this essay is a hardcore empiricist. Study results, however, are merely complements in a holistic weighing of conflicting values. The “outcomes” used in studies—mentioned at the outset of this essay—and the many conceivable relevant capta must not be conflated with economic policy goals, which they may or may not constitute. As Ludwig Erhard stated on many occasions, respect for the individual decisions of economic actors is a constitutive principle of the German economic order after 1945. The state must, as a matter of principle, accept individual decisions, even when they are accompanied by a deterioration in more easily measurable metrics.

This argument gains further strength when a decision is made by adults, is deliberate, even repeated, and is not contradicted by the decision-maker’s own statements. Yet even where these factors are absent, proof to the contrary is not easy to provide—particularly when the issue extends beyond a single case.

That restrictions on freedom require robust justification can trigger a strategic shift in discourse. The limitation to actions affecting only the individual can be circumvented by identifying external effects that are then used to front for the underlying paternalistic motivation. The “happy family life” invoked above is one such example, insofar as it appeals to the well-being of third parties. Extending the concept of externality to social interdependencies makes every individual decision potentially subject to regulation.⁷ If the dissatisfaction of third parties counts as an externality, the space for individual autonomy collapses. What is invoked as an externality is often spatially and socially circumscribed and can be negotiated and resolved within those structures (see Coase, 1960). The burden of proof lies with the claimant.

How paternalistic is German economic policy?

Germany is not generally regarded as a very paternalistic country. The Nanny State Index by Snowdon (2025) places Germany near the bottom of the list—Germany respects diverse lifestyles, even when it comes to cigarette consumption and sugary drinks. Nevertheless, numerous laws intervene in various areas of life in a paternalistic manner. Some have become so taken for granted that the media almost never questions them: the fact that we must contribute to a pension system is partly⁸ paternalistic; that all medications require regulatory approval, and many also require a prescription, is largely⁹ paternalistic; that one must demonstrate financial literacy to a broker before trading advanced financial products is overwhelmingly paternalistic; that one must wear a seatbelt in a car, equally so. The same holds for restrictions on organ and blood donation. Taxes on nicotine and alcohol products are officially justified on public-health grounds—which would be at least partly paternalistic—but as Fichte (2014) shows, fiscal motives in fact predominate.

A well-known paternalistic and overgeneralizing narrative is that of “protecting the vulnerable.” Under Section 3 of the Working Hours Act (ArbZG), the maximum permissible working time is 8 hours per working day (Monday through Saturday); it may be extended to 10 hours provided that an average of 8 hours per working day (= 48 hours per week) is not exceeded over six calendar months or 24 weeks—meaning up to 60 hours per week are temporarily permissible, so long as the average is balanced accordingly.

Recent research shows that many Germans would prefer to work fewer hours (Jarosch et al., 2025). This discussion paper reveals considerable heterogeneity in individually optimal working hours. Yet the Working Hours Act takes the form of a blanket prohibition. An employer who violates it commits a regulatory offense or even a criminal one (Sections 22, 23 ArbZG). First, this illustrates how important it is to think through policy incidence: the employee faces no restrictions per se, but cannot consent to additional hours because they cannot readily be offered. Second, one can observe that this regulation disregards all individual experience. Yet how much a person is able or willing to work obviously depends on many personal and professional circumstances. The state cannot know.

The old-school paternalism of the Working Hours Act pervades other areas as well. The 25th chapter of the Criminal Code offers some prime examples. One egregious—and largely unknown—case is the German gambling regime. Online gambling not expressly licensed by the authorities is prohibited, and German players themselves face criminal liability.¹⁰ The penalty is imprisonment for up to six months or a fine (Section 285 StGB). Naturally, some defendants will be able to invoke mistake of fact or mistake of law, or obtain a dismissal under Sections 153 ff. of the Code of Criminal Procedure. Far more serious—and independent of criminal culpability—is the possibility of confiscating all winnings without deducting stakes, up to 30 years after the “offense” (Sections 76a, 76b StGB); and this applies even if all winnings have long since been spent. Although the Interstate Treaty on Gambling of 2021 made many previously unlicensable games licensable, participation in foreign online gambling is strongly inadvisable unless the provider appears on the whitelist of the Joint Gambling Authority of the Länder, which is available online (Gemeinsame Glücksspielbehörde der Länder, 2025).

The primary objective of gambling regulation in Germany is the prevention of gambling addiction and the protection of players (Section 1 GlüStV 2021). These are quintessentially paternalistic aims. The state implicitly claims that all players require the same protection, regardless of personality or individual circumstances. The current regulatory framework is neither targeted nor efficient. At the same time, the state purveys its own gambling offerings, whose advertising is scarcely less forceful than that of the controversial private operators.

The state enforces “protection” regardless of the declared or revealed preferences of players. By overriding those preferences, demanding unconditional obedience to licensing processes for which the citizen bears no responsibility, and backing it all with criminal sanctions, the state exceeds its legitimate scope of action.¹¹ Not least, the current legal framework renders prediction markets impossible—markets that help aggregate dispersed knowledge and could be of considerable social value (Arrow et al., 2008; Hayek, 1945).

The same applies to certain provisions of Section 291 StGB and Section 138 BGB (“usury”). The Federal Court of Justice has established when, for instance, loan interest rates constitute usury: a conspicuous disproportion is regularly found when the effective contractual rate exceeds the market rate by roughly 100% in relative terms or by 12 percentage points in absolute terms. Anyone with a basic grasp of economics knows that price controls—and an interest rate cap is nothing else—produce substantial market distortions. People with poor credit are therefore generally unable to obtain formal loans in Germany—even though they might willingly accept high interest rates in a given case. The consequences are manifold and in some cases likely include recourse to loan sharks or criminal activity. The state meets these consequences of paternalistic feel-good policy with stone-cold indifference.

It stands to reason that policy can also aim to systematically favor one side in negotiated solutions. To the extent that a regulation does not exceed the so-called “core” of a (Pareto) bargaining solution, it is not paternalistic, since no action is precluded and Dworkin’s first condition is not met. It is unlikely, however, that real-world regulation actually functions this way in every case.

Three well-known examples of policies where such a null effect on the extensive margin is often claimed are minimum wages, data protection laws, and consumer protection in general. The minimum wage law frequently invokes the protection of workers, and insofar as the minimum wage prevents even a single person from selling their labor at a freely negotiated price below the minimum, it is paternalistic. Despite widely circulated claims to the contrary, such effects can be demonstrated, though with considerable heterogeneity (Neumark et al., 2007; Neumark, 2017).

The same applies to data protection. The data-protection regime practiced in the European Union incorporates numerous recent policy innovations. One example is the principle of data minimization (“privacy by default”) enshrined in Article 25(2) GDPR: controllers may, by default, process only those personal data required for the respective purpose—even the data subject’s consent does not lift this restriction—while Articles 12 through 14 GDPR simultaneously oblige them to be transparent about the purpose and scope of data use. A growing number of American technology companies are excluding European users because of high compliance costs. Such situations look like paternalism through the back door, though one reaches the limits of Dworkin’s criteria: the General Data Protection Regulation, for example, binds only service providers, not consumers. When a product is not offered in Europe, that is formally the free decision of a company—but it may be causally traceable to a (paternalistically motivated) regulation. Once again, this underscores the importance of considering policy incidence.

Consumer protection can produce the same indirect paternalistic effect. If a consumer cannot purchase a product online because, say, it cannot be offered due to the 14-day right of withdrawal (Section 312g(1) BGB), paternalism is plausible. The legislature has, however, provided for exclusions from this right under certain conditions (Sections 312g(2), 356(5) BGB): for digital products delivered immediately, for instance, or custom-made goods. Intelligent regulation has thus nearly eliminated the paternalistic side effects of consumer protection. And consumers are presumably grateful for this shift in power—with the result that the paternalism objection falls away for consumer protection (Dworkin’s second condition).

What causes paternalism?

Why do people intervene in the decisions of others? One problem in studying this subject is that externalities can often be claimed. Regardless of how persuasive such objections may be, controlled economic experiments (Roth, 1986) put basic aspects of paternalistic intervention to the test. In these experiments, simple scenarios are typically constructed, then systematically varied and refined to elicit core determinants of human behavior.

One of the world’s first modern paternalism experiments was conducted at the Cologne Laboratory for Economic Research in 2018 (Ambuehl et al., 2021)—assisted by a student research assistant who is now the author of this essay. In any event, this study introduced an important experimental design: two people are paired, one of whom sets rules for the other. The so-called Choice Architect determines how much freedom a so-called Chooser receives. The Chooser could choose between payoffs at different points in time: either more later, or less sooner. But the Choice Architect first determined what the Chooser was even allowed to choose. The Choice Architect could, for instance, compel the Chooser to be more patient—and could even go so far as to leave the Chooser with only a single option. But the Choice Architect could also grant (negative) freedom. The Choice Architect could likewise advise the Chooser against certain decisions.

Choice Architects systematically tend to discourage the Chooser from impatient decisions or to prohibit them outright. A majority of Choice Architects believe that their restrictions help Choosers—evidence of a paternalistic motive. In 65 percent of cases where they removed options, they judged this to be beneficial to the Chooser. And the more restrictive the mandates, the more convinced Choice Architects are of their benefits.

Choice Architects project their own ideals onto others. Patient Choice Architects impose stricter patience mandates on Choosers—not because they wish to intervene more often, but because they believe patience is objectively better. This pattern also appears in surrogate decisions, where Choice Architects must select a single option for Choosers. Patient Choice Architects believe Choosers are more patient than they actually are, which leads many of them to underestimate the stringency of their interventions.

This account of the experiments in Ambuehl et al. (2021) already reveals important basic patterns of paternalistic behavior. Further experimental work deepens our understanding of the underlying mechanisms.

A central question is the extent to which asymmetric information justifies or causes paternalistic interventions. John Stuart Mill argued in his classic On Liberty (Mill, 1869) that interference with the freedom of others can only be justified when decision-makers are uninformed—as when someone is about to cross a decrepit bridge without knowing of the danger. This intuition has been formalized in a recent discussion paper (Grossmann, 2024) and systematically investigated through experiments.

Choosers face decisions between a safe sum of money and a binary lottery under varying degrees of ambiguity: Choice Architects know the objective probabilities in the lottery, while Choosers may not. The results show a strong relationship: the greater the ambiguity facing the Chooser, the more frequently Choice Architects intervene. This confirms Mill’s intuition on the extensive margin: ignorance on the part of the decision-maker legitimizes paternalistic intervention.

The findings on the intensive margin of intervention are equally revealing. When Choice Architects know the hypothetical well-informed preferences of Choosers, they do use this information in their interventions. Yet they weight their own preferences roughly as heavily as the Chooser’s. This is a clear contradiction of Mill’s normative demand that interventions follow exclusively the actual will of the affected party, where that will is known.

Closer examination reveals a remarkable asymmetry: Choice Architects give the safe option a slight boost, regardless of their own risk attitude or that of the Chooser. This points to the existence of “cosmic ideals”—options perceived as objectively “more correct” or “more reasonable.” This tendency toward risk aversion in paternalistic decisions may explain why many laws or decisions made on behalf of others exhibit an inherent precautionary bias (see also Batteux et al., 2020). Further experiments are needed, however, to investigate and understand this pattern systematically.

The experiment also examined whether Choice Architects strategically withhold information to justify later interventions. The overwhelming majority provide information to the Chooser when they can. Only a small minority exploit information asymmetries strategically. This shows that most people do not fundamentally wish to impose their will on others, but view intervention as a necessary evil when information gaps cannot be closed.

A further experiment (Grossmann, 2025a) examined the interplay between different paternalistic instruments (e.g. Tor, 2022). In a decision scenario, Choosers can open virtual boxes each containing $20—but one random box contains a bomb that eliminates all winnings. Choice Architects can both set an upper limit on the number of boxes opened (hard paternalism) and impose a one-day waiting period (soft paternalism).

The results from a large, representative U.S. sample are unambiguous: waiting periods and caps do not substitute for each other. Choice Architects who impose a waiting period do not relax the upper limit—on the contrary, they use both instruments cumulatively. Roughly 40% of Choice Architects impose the waiting period on top of the cap. This refutes the optimistic notion that soft paternalistic measures crowd out harder ones on their own.

Interestingly, Choice Architects do not adjust their caps when Choosers have more time to think. Comparing Grossmann (2024) and Grossmann (2025a) reveals that information functions as an (endogenous political-economy) substitute for intervention, leading to a markedly reduced probability of intervention. Waiting periods, by contrast, do not seem to bear fruit. Perhaps they are simply too weak to produce genuine improvement in decision-making: although Choice Architects believe that Choosers who deliberate longer make better decisions (closer to the Choice Architects’ preferred “bliss point”), they do not adjust their rules. Perhaps hard constraints primarily target extreme cases, while soft measures are meant to address moderate deviations.

These experimental findings show that paternalism is complexly motivated. Projection of one’s own preferences, overestimation of risks facing others, strategic exploitation of information asymmetries, and the cumulative use of multiple instruments—all contribute to the emergence of paternalistic regulation. The heterogeneity in the behavior of Choice Architects further underscores that blanket pronouncements about paternalism fall short. What emerges instead is a multifaceted picture of human motivations, ranging from genuine concern to projective overreach.

Reducing paternalism through smart regulation

It is hardly a novel insight that individuals can find themselves in situations where they need help or make mistakes. But this does not apply to everyone, even though classic prohibitions invariably do. Blanket rules can be replaced by graduated, targeted protection systems that serve both to prevent harm and to reduce paternalistic overreach.

The recognition of social diversity across multiple dimensions is of central importance here. Blanket bans on undesirable conduct ignore the fact that modern societies are profoundly heterogeneous. The Germans of 2025 come in many colors and forms. They have different preferences; they differ in ambition, forbearance, intelligence, and information. They learn from experience, but at different speeds. The Germans of 2025 are embedded in social milieus that they control and that control them in return. Policymakers must understand that they do not govern a collection of simplistic caricatures, and that laws in a country that considers itself free must reflect this diversity.

This diversity exists not only in the cross-section but also intertemporally. We all experience moments of weakness and moments of strength. One example of a diversity-respecting approach is “asymmetric paternalism” (Camerer et al., 2003). Asymmetric paternalism aims to help those who need help without curtailing the freedom of those who can act rationally. Regulation is designed to correct the mistakes of people with limited rationality while imposing minimal or no costs on fully rational actors.

An illustrative example is opt-out systems for retirement savings (Knabe & Weimann, 2015; Madrian & Shea, 2001): individuals are automatically enrolled in savings plans but can opt out at any time. Those who deliberately choose not to save bear only a minimal burden (the effort of opting out), while forgetful or procrastinating individuals are effectively protected. Another example is simplified information presentation for financial products or foods (e.g. the so-called Nutri-Score). Anyone wishing to consume these products is free to do so, yet the uninformed at least receive basic information that may prompt further inquiry.

These approaches recognize that people possess different capacities for self-regulation and that these capacities vary by situation. They avoid the collateral damage of blanket prohibitions while respecting individual autonomy and providing protective mechanisms for vulnerable groups. Elias et al. (2024) and Cseh et al. (2024) address solutions in the area of blood and organ donation. These approaches are also sensible in the broader medical context.

How can these ideas be applied within the framework of German economic policy? Regarding working hours, individual agreements with graduated safeguards could be introduced. Starting at 9 hours of daily work, documented consent could be required; from 10 hours, a medical fitness certificate. Vulnerable workers would remain protected, while those willing to work longer hours could do so flexibly. At the same time, it would be conceivable to grant employees the right to readily reduce their hours back to the contractually agreed level.

As for gambling, the new Interstate Treaty on Gambling already shows progress through self-exclusion systems that allow players to lock themselves out in lucid moments. These could be supplemented by time-limited “cooling-off periods” following major losses. Instead of blanket bans on foreign providers, automatic licensing upon satisfaction of minimum standards would be conceivable—and of course, the criminal liability of players must be abolished immediately, irrespective of these reforms.

The usury ceiling on consumer loans should be abolished entirely and existing transparency obligations expanded: lenders would be required to present interest rates in a standardized format alongside market benchmarks and to continue itemizing total costs under representative scenarios. A mandatory 24-hour reflection period for interest rates above 20% p.a. or high loan amounts would prevent impulsive decisions without depriving responsible citizens of their freedom of contract. Anyone who, upon mature reflection, wishes to accept high interest rates should be permitted to do so—and such contracts should be enforceable.

Targeted measures of this kind can preserve autonomy while achieving important state protection goals. The result: reduced risk, greater freedom, and fewer market distortions.

Conclusion

In a free economic order, individual decisions must be respected as a matter of principle, even when they are difficult to comprehend. Interventions can be justified only where effects on third parties are credibly demonstrated, or where a decision-maker earnestly communicates that he cannot extricate himself from his situation. This perspective is relevant not only from a classical liberal standpoint but aligns with the jurisprudence of the Federal Constitutional Court. The German constitutional order places high demands on paternalistic policy.

A house does not necessarily collapse when a wall is removed—and government action can serve many ends. But by sketching paternalistic narratives in German economic policy and rendering them visible as such, open to debate and challenge, this essay contributes to dismantling long-standing and long-outdated regulation. Smart regulation can support the vulnerable while respecting individual freedom.

References