There are two fundamental changes currently under way in the welfare state. These are the development of quasi-markets in welfare provision, and the supplementation of ‘fiscal’ welfare by ‘legal’ welfare: policies that rely on redistributing income through regulation and other legal devices, instead of through the tax and social security system. This article argues that these changes are in part the result of a fundamental shift in policy-makers' beliefs concerning human motivation and behaviour. People who finance, operate and use the welfare state are no longer assumed to be either public spirited altruists (knights) or passive recipients of state largesse (pawns); instead they are all considered to be in one way or another self-interested (knaves). However, since neither the ‘new’ nor the ‘old’ set of assumptions are based on evidence, policies based on the new set are as likely to fail as those based on the old. What is needed are ‘robust’ policies that are not dependent on any simple view of human behaviour.