In the Weekly Standard, Andrew Ferguson notes the paradox of behavioral economics, that proving people are often irrational then begs the question as to why we think some subset of intellectuals or regulators are more rational:
Thaler, in a recent interview, said, “If there’s a regulatory philosophy in behavioral economics, it’s that we should recognize that people in the economy are human and that there are people out there trying to take advantage of them.” In this sense, behavioral economics is just conventional 1960s liberalism—and conventional 1960s economics, too—that assumes the free market itself is a kind of unending con game, with the smart guys exploiting the saps. As an advocate for the market’s hapless victims, the government has the responsibility to undo the con, a task that will require only the smartest administrators operating according to only the latest scientific research and making the most exquisite moral judgments.
You can see how useful the notion of irrational man is to a would-be regulator. It is less helpful to the rest of us, because it runs counter to every intuition a person has about himself. Nobody sees himself always as a boob, constantly misunderstanding his place in the world and the effect he has upon it. Surely the behavioral economists don’t see themselves that way. Only rational people can police the irrationality of others according to the principles of an advanced scientific discipline. If the behavioralists were boobs too, their entire edifice would collapse from its own contradictions. Somebody’s got to be smart enough to see how silly the rest of us are.
I would add for every quirky predictable irrationality for the masses--like the 401(k) default choice or bad toilet aim for men --there are offsetting irrational public policy fads such as Y2K, affordable housing goals, busing, the Iraq war, windfarms, ethanol, and global warming. As Reagan said, "The nine most terrifying words in the English language are: 'I'm from the government and I'm here to help.'"