Julian Le Grand, “Future Imperfect: Behavioral Economics and Government Paternalism.” Review of Behavioral Economics 5: 281–290, 2018.
• Nudges and even stronger government interventions are often justified on the grounds of allowing long-run, more considered or "truer" individual preferences to assert themselves. But there are problems with identifying and privileging any one set of preferences. This article offers two justifications for paternalistic interventions that do not rely on identifying true or long-run preferences.
• The defense of paternalism offered here applies (as is usually the case in economics) to means-related paternalism, not ends-related. People's goals are taken as given (and, implicitly, rational); can policies be designed to empower people to better achieve those goals?
• What if the government sees people engaging in an activity like smoking that the government believes will have future costs for smokers that with a high probability will more than compensate (in terms of the smokers' own values) for the increased value they enjoy from smoking now?
• The government might reasonably want to dissuade such smoking, but why would smokers make such a mistake? Maybe they lack information, so there is much to be said for ensuring that accurate information is readily available – but this is not the same as justifying a smoking tax or ban. Maybe smokers use a different discount rate than does the government in comparing current with future costs and benefits – again, this difference should not license coercive interventions by the government.
• But maybe (drawing upon Le Grand's 2015 book with Bill New) the problem is that smokers suffer from one or more "reasoning failures": "limited technical ability, limited experience or imagination, limited willpower and limited objectivity [p. 286]." In particular, can a young smoker imagine a realistic portrayal of herself as a 65-year old? The failure of imagination is not a problem of too little information about the health risks of smoking; rather, it is a lack of knowledge of how the well-being of future selves will be affected by current smoking. A paternalistic policy can be justified not only on the basis of better knowledge of true or more-considered preferences, but on a better understanding of health effects on well-being.
• A second defense of paternalistic interventions might be to consider how a person's future selves might contract with current selves to influence current decision making. Government could serve as a stand-in for those underrepresented future selves. Now the justification for a paternalistic intervention is market failure, in that future selves generally are unable to participate in market transactions that nevertheless implicate their interests.
• Le Grand adapts an example from a 2018 book by Robert Sugden. A young person inherits from an uncle a wine collection, though she has little interest in wine, and does not place much value on her inheritance. But her father suspects that in a few years the young person will feel differently. So he could offer her a low price for the wine today (which she will accept), and after a few years, offer to sell it back to her at a higher price. If the father was right, she will agree to both transactions, and everyone is happy.
• For goods which, unlike wine, cannot be transferred, the government could arrange a similar (though not voluntary?) deal, by subsidizing smoking avoidance today, with the subsidy repaid by taxes in the future on the now older non-smokers. But does this "contractarian approach" avoid the identification of a true or long-term preference? Le Grand thinks that it does not, as the (imposed) subsidy is designed to override the young person's current preferences.
Petr Špecián, “The Precarious Case of the True Preferences.” Society 56(3):
267-272, June 2019.
• Are voluntary trades (with no spillovers) Pareto improving? To assert that they are suggests a belief in coherent preferences. This is the standard economics approach: choices reveal underlying, true preferences.
• Behavioral evidence undermines the belief that choices reveal true preferences. Nonetheless, nudges aim to make people better off “as judged by themselves," so there is an appeal to some underlying true preferences from which those judgments emerge.
• But when can we know that people's un-nudged choices do not reflect their true preferences? How can we determine which preferences should be disregarded or questioned? Signposts of potential irrationality might include rare choices, intertemporal choices, choices involving temptation goods…
• Can we rely upon cold-state (as opposed to hot-state) preferences, or long-run, considered preferences, as somehow being "true" preferences? But maybe these proclaimed "more considered" preferences reflect social norms and are just marketed for public consumption, even as people really want to be Mr. Hyde, not Dr. Jekyll.
• Perhaps Sugden (2008) is right, perhaps there are no underlying coherent preferences at all.
• Nudgers might believe that their interventions make matters better in practice even if these fundamental questions about how to judge individual welfare remain unresolved. [That's pretty much my view, too -- JL] Nudgers should be humble, and wary of overconfidence.
Cass R. Sunstein, “Misconceptions about Nudges.” Journal of Behavioral Economics for Policy 2(1): 61-67, 2018.
• Professor Sunstein examines seven mistaken or misleading – but frequently voiced – complaints about nudges.
• (1) “Nudges are an insult to human agency”
But…compared to what?; how can the provision of information, for example, be such an insult?; try active choosing if defaults make you nervous – but people often prefer a default!
• (2) “Nudges are based on excessive trust in government”
But…compared to what?; governments must nudge; nudges, by definition, have low “error” costs; the private sector engages in lots of nefarious nudging; nudges can (and should) be made transparent.
• (3) “Nudges are covert”
But…aren’t GPS devices and warning labels transparent?; is this misconception based on concerns about randomized field experiments?; transparency doesn’t seem to undermine the effectiveness of nudges.
• (4) “Nudges are manipulative”
But…how is a reminder manipulative?; maybe a graphic warning is a little manipulative, ok?; but in general, manipulation should be made of sterner stuff.
• (5) “Nudges exploit behavioral biases”
But…do GPS and other technologies that improve navigability exploit a bias in a nefarious way?; many nudges counteract behavioral biases, such as inertia; nonetheless, defaults might indeed work because of inertia.
• (6) “Nudges wrongly assume that people are irrational”
But…well, let’s say boundedly rational; nudging is inevitable; we needn’t resolve every philosophical issue to make pragmatic progress.
• (7) “Nudges work only at the margins; they cannot achieve a whole lot”
But…millions of additional school meals consumed?; billions in increased savings?; sigh.
• Education decisions often involve current costs and greatly delayed benefits. Some decisions are made by “agents” – parents and teachers – on behalf of their “principals,” the students.
• Many education decisions – such as whether to drop out of school or go to college – are not regular, everyday situations where feedback allows people to adapt to something tolerably optimal over time.
• Can we be confident that education decisions are well-made? Evidence suggests high returns to more education. The list of potential behavioral biases influencing education decisions is long: self-control shortcomings, limited attention, loss aversion, default effects, social norms, underconfidence… Recall John Stuart Mill: "Those who most need to be made wiser and better,
usually desire it least, and if they desired it, would be incapable of finding
the way to it by their own lights."
• Perhaps people can be nudged in ways that will improve their choices – and improve them from their own point of view.
• The targets of nudges can be young scholars, their parents, or their teachers.
• The authors find 122 studies of field implementations of nudges in education.
• Opt-in v. opt-out text messages to parents: only 7.8% opt-in, but only 3.5% opt out. Further, outcomes (grades, staying in school) improve with the opt-out default.
• Framing financial aid as a tuition waiver versus a loan: the waivers steer a lot more law school grads to public interest work. Monetary transfers to families can be framed as being for education, and administered through schools.
• Mixed results have been reported from framing grades as losses (as in Shrader, Wooten, White, et al., “Improving Student Performance through Loss Aversion”).
• Trying to take advantage of peer group effects is tricky, and sometimes counterproductive. Social comparison nudges can be both informational and motivational – and they can backfire.
• Intermediate assignments and deadlines seem to often raise grades.
• Self-imposed specific task-based goals also seem helpful, along with reminders of the goal. Unrealistically high goals are demotivating.
• Reminders to parents about their children’s education often seem helpful, too – likewise with providing informative updates to parents.
• Information provision about the returns to schooling seems to have some purchase in developing countries.
• “Boosting” skills like grit and goal-setting holds some hope for improved educational outcomes.
• Prizes: “The public can encourage the acquisition of those most essential parts of education by giving small premiums, and little badges of distinction, to the children of the common people who excel in them.” (Adam Smith) But the older the children, the less effective the prize nudge, and (like social comparisons), prizes can crowd out internal motivations.
• Growth mindset and social belonging nudges seem to work OK…
• Nudging will only overcome a binding constraint for a (small?) subset of students.
• In general, the long-term effects of nudgication remain unknown.
Richard H. Thaler, “From Cashews to Nudges: The Evolution of Behavioral
Economics.” American Economic Review 108(6): 1265–1287, June 2018.
• "In the beginning there were stories [p. 1265]." Those stories were of anomalies with respect to the standard economic model of rational choice. For instance, the "cashews" in the title refer to an incident where guests thanked then-graduate-student Richard Thaler for rendering inaccessible the pre-dinner snacks: the guests seemed to believe that the loss of the option to eat cashews made them better off.
• A key development in behavioral science was the work of Kahneman and Tversky, which indicated that departures from fully rational behavior are systematic. This non-randomness suggests that modifications of the rational model could do a better job at explaining behavior. Further, Kahneman and Tversky's prospect theory offers a simple explanation for some of these systematic departures.
• Standard economic theory often is presented as a descriptive theory of how people choose as well as a normative theory of how people should choose. It is better at the latter (normative) task than at the former (descriptive) task.
• Thaler and Shefrin propose a planner/doer model of intrapersonal (or intra-firm) conflict; the planner component of a decision maker can alter the doer's incentives by employing commitment strategies or deploying the (payoff-compromising) induction of guilt.
• Economics typically assumes that dollars are fungible, that the best way to spend them is independent of where the dollars originated. But people assign income to different "mental accounts" according to its origin. Some income might be allocated to a mental checking account, so it is psychologically available for spending, whereas other funds might be assigned to mental savings, and therefore, are psychologically unavailable for quotidian consumer purchases. Dollars, in practice, are not fungible -- as anyone who has ever "played with house money" knows.
• Is it fair to raise prices just because demand increases, as when a snowstorm makes snow shovels highly sought after? Many people (but not many economists!) think that such price increases are unfair, and might punish businesses that engage in such behavior.
• The endowment effect is when mere “ownership” of an object (like a coffee mug) seems to raise the valuation that the “owner” places on the object. Endowment effects reduce the willingness-to-trade of owned objects, and some of Professor Thaler's work shows that endowment effects are common even when decision makers operate in markets, and when they have opportunities to learn over time.
• Even in financial markets, with their ongoing nature, high stakes, and sophisticated participants, security prices are not always right: for instance, parts of a firm can bizarrely be deemed more valuable in financial markets than is the entire firm (even though the complementary parts are not themselves of negative value).
• Draft picks in the National Football League are mispriced: the best value for teams seems to lie in draft picks in the early part of the second round. The people making the draft picks might be excessively optimistic about their ability to identify winners when making first round picks.
• In the standard rational choice model, nudges (aspects of the choice architecture that don't affect standard payoffs or incentives) would not have much influence on choices -- but they often do.
• Some firms try to use nudges to take advantage of those systematic departures from rational behavior on the part of their consumers; Professor Thaler calls this nefarious sort of choice architecture "sludge."
Cass R. Sunstein, “’Better Off, as Judged by Themselves’: A Comment on Evaluating Nudges.” International Review of Economics 65(1): 1-8, March 2018.
[Round 1 here; Round 3 here]
• In trying to improve wellbeing, individuals’ judgments of their own welfare are a central metric.
This metric is complicated, however, if people have different judgments before and after a nudge, say.
• Sugden argues that two potential interpretations of “as judged by themselves” (AJBT) are flawed, one by applying only to relatively rare self-control issues, and the second by allowing individual preferences to be sacrificed to the whims of nudgers.
• Sugden's title asks if people really want to be nudged towards healthier living. The empirical answer is “yes.”
• AJBT is not our method to rule out charges of paternalism, but rather, to limit the coercive element of paternalistic acts – like a GPS, we want to improve “navigability,” so people can better serve their own interests. Nudges are about means, not ends.
• Reminders (such as text messages) serve people’s pre-nudge preferences -- likewise with information provision, as with calorie counts.
Other nudges can change behaviors in a manner that the nudged individual endorses after-the-fact, but not before, such as a mechanism to dissuade texting while driving.
• With self-control problems (akrasia), nudges might help to bolster Dr. Jekyll (planner) at Mr. Hyde’s (doer) expense.
Sunstein asked folks online if they had a self-control problem: the majority said yes. And programs to ends addictions are quite popular.
• Yes, preferences can be formed in the process of elicitation; for instance, people might stick with, and endorse, any of various default settings. Then nudgers are forming preferences, but AJBT limits what nudgers can do.
• To summarize, some nudges serve ex ante preferences when they increase navigability; some help with (widespread!) self-control shortcomings; and some contribute to preference formation, but in a manner that still respects after-the-fact preferences.
Robert Sugden, “Do People Really Want to be Nudged towards Healthy Lifestyles?” International Review of Economics 64(2): 113-123, June, 2017.
[Round 2 here; Round 3 here; an earlier, related Sugden contribution here]
• The notion that nudges should be designed to push folks in favorable directions, where what constitutes “favorable” should be “as judged by themselves,” is ambiguous and potentially misleading.
Thaler and Sunstein employ the phrase to reassure us that they don’t want to impose their goals, they only want to help people avoid errors.
• Thaler and Sunstein, and others, speak as if people have rational, latent, true preferences, but these are wrapped in faulty psychological garments, including attention deficits and self-control shortcomings.
But we have no independent method of identifying when people make errors from the point of view of their posited latent preferences.
• Thaler and Sunstein just pronounce that much obesity arises from a mistake, without evidence. Why should we think that obese people are making a mistake, “as judged by themselves”?
• Or maybe latent preferences are those that the individual endorses (in the cold state, say) – people suffer from akrasia.
But Sunstein and Thaler discuss mistakes in many contexts not involving self-control shortcomings, such as those involving rare decisions.
But why should people view their own decisions in these rare, low-feedback situations, as mistakes?
• Consider a questionnaire for obese people, asking them why they eat cake instead of fruit, against the advice of health experts.
Most of the responses, presumably, would not center on repeated losses of self-control, nor would most involve self-reported errors.
Admitted self-control shortcomings are not as common as many behavioral scientists think.
George Loewenstein and Nick Chater, “Putting Nudges in Perspective.” Behavioural Public Policy 1(1): 26-53, 2017
• Nudging is popular, but perhaps its unintended consequences are worrisome; perhaps, for instance, nudges have crowded out better policies.
• The standard nudge involves a response to a problem that itself is a result of a behavioral issue, a rationality shortfall. But there is no reason that the best type of policy response – whether traditional, behavioral, or a hybrid – should match the condition that gives rise to the problem. Some rationality shortfalls might best be handled with taxes or regulations, not nudges…
• …though behavioral ideas can help package those taxes or regulations in ways that can maximize their impact.
• One important area of concern involves how to counter the nudging undertaken by profit-maximizing firms, often aimed at taking advantage of consumer rationality shortfalls.
• Many social problems can’t be explained by behavioral issues that should be roughly constant over time and in different areas. These problems perhaps require a structural response, not a nudge. The recent increase in obesity cannot really be due to an increase in present bias; nor will it be fixed by better placement of healthy products in stores.
• Don’t let nudges distract you from seeking more comprehensive solutions. Loewenstein and Chater go on to examine three policy areas from their "perspective."
• Smoking: externalities, internalities, and depredations by sellers all motivate policy responses. Those responses include high taxes, advertising and marketing controls, product placement controls, graphic warnings, public smoking bans – and the combination is effective.
• Obesity: internalities, budgetary externalities, and the behavior of those profit-motivated sellers provoke policy responses. The main response is of the “traditional economics” variety, information provision, and it is not very helpful for what is after all a structural problem, not a big change in behavioral biases or time discounting. Perhaps bans on non-linear pricing are called for?
• Retirement Savings: Internalities, and the behavior of firms like payday loan companies, exacerbate the extreme savings shortfalls that exist. Successful interventions have been behavioral, especially defaults and automatic escalation of savings. Tax breaks are not very helpful, but much more needs to be done.
• Consider big issues, such as inequality, climate change,and employment overhauls: all of these problems need traditional economic responses,and perhaps some hard paternalism – but there still are plenty of contributions that behavioral science can make.
Professor Thaler responds with “Much Ado About Nudging,” on the Behavioural Public Policy Blog, June 2, 2017
• No one really believes that nudges are a panacea. In Nudge, we just want to inform policy with behavioral insights.
• Likewise, everyone agrees that present bias is not the sole cause of obesity.
• Don’t undersell the cumulative impact of many small behavioral interventions, including when applied to big problems like climate change.
“My own approach to thinking about such problems is to conduct what I call a ‘choice architecture audit’, the goal of which is to find the most critical decisions various actors have to make, as well as the potential levers (behavioral and economic) that policy makers can use to improve outcomes.”
• There is much to be said for nudging (soft paternalism) over hard paternalism when it comes to dealing with internalities. Either type of policy will push some subset of people in an inappropriate direction: how hard do we want that push to be?
• We know bureaucrats are biased and often mistaken: do we want them to be hard or soft paternalists?
Ayala Arad and Ariel Rubinstein, “The People’s Perspective on Libertarian-Paternalistic Policies,” July 2015. This outline draws on the July, 2015 version of the paper, but a later version (October, 2017) of the paper is available here, as a pdf.
• Two online studies (each n>1000) are conducted with university students in Israel, Germany, and the US.
• In Study 1, subjects either are presented with an opt-in employee savings plan, or a government-mandated opt-out version with an 8% savings default.
• A large percentage (28-53% across the three countries) of subjects have a negative view of the opt-out version (especially if they are aware of the opt-in alternative), even if they intend to save 8% monthly. Indeed, fewer people indicate that they will take up the 8% savings rate when it is presented as the default than would take it up on an opt-in basis.
• Study 2 concerns attempts to decrease the consumption of fatty foods. Some measures (taxes, one-day-per-week ban) are hard paternalism, one is a System 1 nudge (shifting the placement of food items on menus), and two are System 2 nudges involving information provision (media campaign, smartphone app).
• The effectiveness of each of the measures in reducing consumption of fatty foods is presented to the subjects, with seven variations.
• Up to 25% of subjects think that government shouldn’t be in the business of trying to change diets.
• Most subjects (among those who do not object to the government being involved) seem to prefer whatever measure is most effective.
• But 19 to 54% of subjects prefer the info provision, even when it is less effective than the System 1 nudge.
• The “hard” interventions attract little support.
• The October 2017 version of the paper includes these two sentences in the abstract: "The opposition to soft interventions appears to be driven by concerns about manipulation and the fear of a 'slippery slope' to non-consensual interventions. Opposition to soft interventions is reduced when they are carried out by employers rather than the government."
Janice Y. Jung and Barbara A. Mellers, “American Attitudes toward
Nudges.” Judgment and Decision Making 11(1): 62-74, January 2016.
• System 1 nudges are those that take advantage of our relatively automatic, unthinking mechanism for making decisions – canny default settings are an example of a System 1 nudge.
• System 2 nudges enhance our cognitive abilities, perhaps by providing more information – calorie counts on food items are an example of a System 2 nudge.
• Study 1 conducted by Jung and Mellers looks at nine System 1 nudges and four System 2 nudges, in an internet-based survey (n=250). Subjects are asked if they are for or against nudges, and then rate the intensity of their feelings on the subject. (If you are unsure, you will be asked to explain why!) Subjects also rate nudges on various scales, such as whether they are a threat to autonomy.
• Jung and Meller's Study 2 manipulates the “framing” of the nudges, sometimes emphasizing individual effects, sometimes social effects; sometimes highlighting the benefits, sometimes highlighting the avoidance of costs. Attitudes also are collected about companies that institute nudges.
• System 2 nudges receive more support than System 1 nudges – but one System 2 nudge, where government provides a website that tracks people’s expenditures on food, energy, and so on, is disliked in a System 1-like manner.
• Also disliked are opt-out organ donation lists, those misleading white lines on Lake Shore Drive, one-click charitable donation opportunities at store check-outs, and credit card online payment mechanisms that default to fully paying off the debt.
• Empathic folks tend to support System 1 and System 2 nudges; conservatives and individualists tend to oppose both types of nudges. (“Reactant” people oppose System 1 nudges.) System 2 nudges are viewed as more effective, though evidence generally supports the superior effectiveness of System 1 nudges.
• Framing doesn’t matter much on average, but does matter with some sub-groups; for instance, “reactant” people oppose nudges more strongly when the frame points out the individual costs of not going along. Feelings about companies that nudge basically track the feelings about the nudges the companies implement.
W. Kip Viscusi and Ted Gayer, “Behavioral Public Choice: The Behavioral
Paradox of Government Policy.” Harvard Journal of Law & Public Policy
38(3): 973-1007, 2015 [pdf].
• Behavioral departures from full rationality are often used as justifications for government interventions in markets. But the resulting government policies can institutionalize, not rectify, the rationality shortfalls.
• Regulators themselves possess rationality shortfalls, and there are features of the environment in which regulators operate that push them away from pursuing first-best policies.
• If the median voter possesses biases, then a democratic government is likely to share those biases.
• Less-than-rational individuals tend to bear the costs of their errors themselves – not so with regulators. Further, individuals might have enhanced incentives (relative to bureaucrats) to acquire relevant information. Regulators, like all of us, can be overconfident in their abilities.
• Can we trust the claims that people are less-than-rational, or at least the universality of the claims? People are heterogeneous, and what looks like a mistake might reflect specific, reasonable preferences.
• Many consumer durables now have energy efficiency mandates, justified by internalities. But the energy-efficiency misjudgment is far from a proven problem. The claims of energy savings tend to be engineering-based, unavailable in practice, while individual circumstances can rationalize seemingly myopic choices.
• We could be more confident in an even-handed use of behavioral economics if a lot of pre-existing mandates were being replaced by non-coercive nudges. But instead, we see behavioral economics being used to tighten regulation, not to loosen it. Notice that the less-than-complete (narrow) self-interest that behavioralists often emphasize implies that even externalities might be internalized without government policy.
• The EPA instituted a fuel economy labelling requirement that seems intended to remedy all the problems that their later efficiency mandates also targets – don’t they trust their own labelling regulation?
• In dealing with health and safety risks, government does not seem to be more rational than individuals. In practice, worst-case scenarios are over-weighted in regulatory policy; EPA methodology leads to cascading of conservative estimates so that extremely low-likelihood problems can dominate policy. Further, the number of people exposed to a risk, which should be central in formulating policy, is ignored.
• Increases in risk are a sort of loss, and loss aversion kicks in – in the form of alarmist regulatory responses to ebola, terrorism, etc.
• The FDA fears errors of commission much more than errors of omission. [Nonetheless, the evidence base is weak – look how often risks are revealed only after approval; then there are off-label uses, which are quite legal, despite not having been tested in the usual sorts of controlled trials.]
• If organic veggies carry less risk than non-organic vegetables, but they cost more, it could still be better health-wise for people to eat more, non-organic veggies.
• For people to accept a small increase in risk often involves a payment some six times larger than they would pay for the same reduction in risk – a reflection of loss aversion. The “first, do no harm” principle leads to a similar effect in policy. It is often hard to identify victims of the FDA’s failure to approve a useful drug.
• Agencies can have tunnel vision, treating their issue in isolation. In OSHA, for example, regulators are not even allowed to look at the costs of fixing a hazard. One result: costs per life saved vary widely across domains, in ways that seem to be far from optimal.
Cass R. Sunstein, “People Prefer System 2 Nudges (Kind Of),” July 19, 2016. Duke Law Journal, Vol. 66, 2016. [The outline here is based on an earlier version, that of February 19, 2016.]
• In Kahneman’s terminology, System 1 is the automatic, intuitive part of our decision making, whereas System 2 represents our more considered (though not necessarily better) thoughts.
• Some types of nudges, such as graphic labels on cigarette packages or the selection of defaults, tend to be aimed at affecting System 1 responses. Other nudges, such as the provision of better information on nutrition, engage with System 2. System 2 nudges help people “exercise their own agency [p. 5],” that is, make better considered decisions.
• Sunstein arranges for a survey to be administered to seven groups of Americans, with more than 400 people in each group; they are paid for their participation.
• The participants are presented with four issues -- savings, smoking, clean energy, water -- and two alternative approaches, one System 1 nudge and one System 2 nudge, for each of the issues. The majority tends to prefer System 2 nudges, but a sizeable minority feels the other way. Democrats seem slightly more likely than Republicans to support System 1 nudges.
• If told that the System 1 nudge is significantly more effective, about 12% of folks switch to preferring the System 1 nudge; precise quantitative evidence of superior effectiveness does not seem to increase any further the attractiveness of System 1 nudges. When folks are told that System 2 nudges are more effective, that information has no effect on overall preferences between the options.
• Sunstein also explores a second set of three, more ideologically charged issues: voter registration, childhood obesity, and abortion. For voter registration and anti-obesity, a majority favor System 1 nudges. For dissuading abortions, most people prefer System 2 nudges, even when System 1 (show fetus photos) is said to be more effective.
• Alternatively, some people like System 1 nudges, even when they are told that those nudges are less effective. It seems that when people feel strongly about an issue, they support System 1 nudges that push their side of the issue.
• Sunstein makes a meta-observation, that perhaps our brain's System 1 likes System 2 nudges, but sometimes System 2 overrides that preference. Note that often System 1 nudges are fairly easy to implement, such as by setting a default, for instance.
Robert Sugden, “Why Incoherent Preferences Do Not Justify Paternalism.” Constitutional Political Economy 19(3): 226–248, September 2008.
• Standard economics takes individual preferences as sacred; hence, revealed preferences are respected and interference in individual choices, absent externalities, is disparaged.
• Behavioral economics questions whether choices reflect preferences, and whether preferences are stable, context-independent, and rational; as a result, behavioral economics seems to undermine the pre-disposition against paternalistic interventions.
• From the point of view of behavioral economics, nudges are forms of paternalism that are respectful of the deeper concerns about influencing individual choices that traditional economics reflects. Behavioral researchers sometimes argue that because choices are not context-independent, influencing choice is inevitable, so we might as well be paternalistic about it.
• The incoherent preferences that behavioral economists highlight look like a sort of “corrupted data [p. 229]” from the point of view of a welfare-maximizing planner. But if we take Hayek’s approach, we can dispense with the planner, and note that incoherent preferences provide little bits of information about preferences, and that markets can still use these bits of information in socially productive ways, and perhaps help to form more regular preferences.
• Voluntary exchange and mutual advantage are hallmarks of market exchange. Further, Sugden argues, these features are not compromised by incoherent preferences: for the version of a person who makes the trade, at least, these exchanges are welfare improving. Competitive markets will still exhaust all such mutually advantageous exchanges, even with incoherent preferences.
• Can a planner do better than mutual, voluntary exchange? How can a soft paternalist know that he or she is serving the interests of the nudged individual if preferences are incoherent?
• In the “arranging food in a cafeteria” example, why not task the choice architect with the pursuit of profit maximization? Profit maximization leads to a “customer is always right” bias, which doesn’t seem bad for customers.
• The profit-maximizing cafeteria owner doesn’t care about the coherence of customer preferences, only about the willingness-to-pay of the acting version of actual customers. A person with incoherent preferences nevertheless understands his interests.
• The cafeteria example, as well as others, suffers from the initial set-up, that there is some choice architect (planner) who will give the people what they really want: control is vested in the planner from the start. This hardly captures the crux of the argument against paternalism.
• Which approach, a choice architect aiming to maximize customer well-being, or entrepreneurs wanting to maximize profits, will best serve social welfare? Shouldn’t we, like the profit-maximizing cafeteria owner, privilege the acting self, too?
• Perhaps cafeteria managers don’t so much serve preferences as create them. But how is that a problem? Do people have preferences for fashion designs before they are produced? Doesn’t profit maximization do a good job in this incoherent setting to get desirable designs produced and exchanged, even without knowledge of consumer preferences?
• “…I would rather have my willpower challenged by tempting cakes than license cafeteria managers to compromise on the attractiveness of their products so as to steer me towards the ones that they think best for me [p. 247].”
Jay Bhattacharya, Alan M. Garber, and Jeremy D. Goldhaber-Fiebert,
“Nudges in Exercise Commitment Contracts: A Randomized Trial.” NBER Working Paper 21406, July 2015.
• The authors implement a natural field experiment: people who browse their way to stickK.com looking to sign a contract that requires them to exercise regularly are randomized into one of three conditions.
• The three conditions differ based upon the default length of the exercise commitment contract; the default (which is easy to override) can be 8 weeks, 12 weeks, or 20 weeks. More than 8,000 people take part in the experiment (unbeknownst to them, it seems), though some of the analysis relates to approximately 3,000 subjects for whom a longer period of data is available.
• A nudge towards longer contract durations succeeds; that is, a 20-week default setting leads to longer duration actual contracts than do the shorter default terms. More than one-in-five contractors choose to put up monetary stakes – they lose money if they fail to exercise to the terms of the contract – that average $23 per week.
• Not only does the 20-week nudge result in longer duration contracts, it induces more weeks of exercise – though the average weeks of successful exercise are less than half of the specified durations.
• About 6% of the sample enters into a second commitment contract after the expiration of their earlier contract. The data suggest that people would be much more likely to sign a second exercise commitment contract if they were placed into a long (more than 18 weeks) initial commitment contract, as if the longer duration helps cement an exercise habit.
• Following the reporting of their empirical results, the authors develop a parallel theoretical model. The model offers a four-period version of a quasi-hyperbolic utility function; the four periods allow for a pre-contract period and, later, the option of signing a second contract.
• The subjects are assumed to be present biased and sophisticated about their bias – after all, the subjects are interested in committing to exercise. Exercise in the model is a habit-forming good, but one involving current costs along with future benefits. Without commitment, present-biased people will choose to exercise too little, from the point of view of their own long-run (non-present-biased) preferences.
• Small changes in the depreciation of exercise “capital” (which underpins the habit-forming nature of exercise) lead to large changes in optimal exercise choices. In contrast, even sizable changes in the degree of present bias have little impact on optimal exercise.
• The authors offer a definition of a nudge that incorporates asymmetric or libertarian paternalism: a nudge in a given period t cannot decrease the person’s period t utility by very much. (But a nudge surely will decrease that utility, that is, it cannot make the period t person better off.) And though nudges must be small in this sense, they nevertheless can have a large effect on exercise choices, in particular, by helping to promote an exercise habit. A large nudge, however, can lead to so much present exercise that in future periods, exercise is eliminated, as the subject finds it optimal to rest on his or her exercise laurels.
• Are sophisticated but present-biased people better off with a nudge? By definition, here, the person in the nudged period is not better off. Future selves can be helped or harmed, however – the overall welfare effects of nudges for a heterogeneous population are ambiguous.
Jayson L. Lusk, “Are You Smart Enough to Know What to Eat? A Critique of Behavioural Economics as Justification for Regulation.” European Review of Agricultural Economics 3: 355-373, 2014.
• People make some 200 food-related decisions per day!
• Food policy activists presume that people should be eating differently than they do.
• Lusk argues that behavioral economics-inspired policies are best when they are applied to rules that are aimed at externalities, not internalities.
• Behavioral economics is sort of an intellectual fad, boosted by the interest of journals in novelty. At the same time that behavioral economics articles started appearing claiming that humans are not rational, other journals were publishing articles claiming that non-human animals are rational.
• Some behavioral economists jump quite quickly from small-scale experiments on undergraduates to major claims about appropriate policy. Laboratory conditions are not the real world, and lab experiments reveal how people operate in the lab.
• People need practice to make good decisions, so the government should not remove opportunities for people to choose. People self-regulate, self-commit, and even employ stickk.com.
• Behavioral economics incentivizes the abdication of personal responsibility and normalizes abnormality. Markets, alternatively, anticipate our changing preferences.
• If we abandon traditional “welfare” analysis based on consumer surplus, all we have to go on are the prejudices of researchers.
• Is there really any evidence that those people who are subject to all of these behavioral biases actually do worse in life than others not similarly afflicted?
Adam Oliver, “Nudging, Shoving, and Budging: Behavioural Economic-Informed Policy.” Public Administration, 2015; doi: 10.1111/padm.12165.
• There is no accepted definition of libertarian paternalism or nudges. As a result, many policies are described to be behavioral despite having little claim to that moniker. You should worry about being pro-nudge, because the nudgers might go way beyond what you think you are signing up for.
• Oliver claims nudges should present “no” burden on the rationals while attempting to correct an internality.
• Loss aversion is not something you choose, but something you are, like a White Sox fan [Okay, the White Sox are not actually mentioned in the article.]
• Libertarian paternalism concerns internalities, respects liberty, and employs behavioral means. The British Behavioural Insights Team goes beyond nudging: sometimes it addresses externalities, as with organ donation. Having teenagers mentor toddlers to reduce teen pregnancy is not an obvious behavioural policy, nor is the provision of information about the drinking habits of one’s peers.
• Straight out paternalism, without the libertarian adjective, is a “shove”; smoking bans are shoves.
• A “budge” is a behaviorally informed regulatory intervention, designed to counter the misleading nonsense thrown up by profit-seeking corporations, like the payments made by candy makers to grocery stores for check-out line product placement.
• Maybe it is the opportunity to choose, and not the utility derived from the choices, that is the real measure of welfare.
Alberto Alemanno, “Nudging Healthier Lifestyles: Informing the Non-communicable Diseases Agenda with Behavioural Insights.” Chapter 14 in A. Alemanno and A. Garde, eds., Regulating Lifestyle Risks: The EU, Alcohol, Tobacco and Unhealthy Diets, Cambridge University Press, 2015.
• The European section of the World Health Organization has begun an initiative to combat “lifestyle” non-communicable diseases: those associated with tobacco, alcohol, and goods high in salt, sugar, and fat.
• Regulations that commonly are applied to lifestyle goods include mandatory information disclosure; marketing limitations; taxes and other devices to reduce availability.
• Behavioral economics-style nudges fit well with lifestyle issues. They tend to be low cost and preserve individual choice. Lifestyle nudges might include disclosure rules; default settings; and, simplification. For instance, the extremely graphic photos required on cigarette packs, and nutrition fact panels, are nudges of a sort.
• The European Union (oddly) is requiring that cigarette packs not disclose tar, nicotine, and carbon monoxide content. The rationale is that such information might lead smokers to think that some cigarettes are less harmful than others. (There is some evidence that consumers smoke low tar and nicotine cigarettes more intensely, undoing any relative health benefits.)
• Thaler and Sunstein’s “publicity principle” (borrowed from John Rawls, building on Kant) is that governmental nudges must be supportable if everyone is informed about them. If people will be upset if they were misled, even if the misleading resulted in better choices for them, then the misleading is wrong.
• Much of the evidence for nudges comes from the laboratory, and might not work in the real world. Or, a nudge might work at first, but then become less effective over time. Notice that marketing experts think that nudges work, however.
Cass R. Sunstein, “Choosing Not to Choose.” Duke Law Journal 64(1):
1-52, October, 2014.
• This article essentially responds to a critique of one common behavioral economics-style policy intervention, the strategic use of default settings. The critique is that using default settings to nudge people is an affront to their autonomy, even if it is easy to choose something other than the default.
• Sunstein’s response is to suggest that a failure to provide a default could just as easily be an affront to autonomy: often, people do not want to choose, they want a well-chosen default in place so that they can avoid choosing.
• Therefore, mandating an active choice (as opposed to setting up a default) can itself be paternalistic, and maybe not even in a libertarian fashion. Sunstein calls it “choice-requiring paternalism” (page 7).
• A compromise between using a default and requiring an active choice would be to ask people if they want to choose, knowing that if they do not, they can “opt out” of choosing and receive a default choice (which they could alter) instead; this approach is called “simplified active choosing” (page 8).
• Of course, the question of whether you want to choose might itself be an unwelcome query.
• If you can’t trust the default, there is much to be said for active choosing. But if the situation is unfamiliar, then why choose, if the default setters can be trusted?
• Active choice might make more sense in situations where you can learn about choices over time, or develop your preferences.
• The rise of big data means that sellers might know better than consumers what the consumers want.
• One reason not to want to choose is to deflect responsibility. Also, people have plenty of decisions to make (200 a day for food, we are told) and might prefer to focus their autonomy on an important but manageable subset of decisions.
• Sometimes active choice is to protect third parties, or to provide credible proof that a choice was made in a deliberate fashion. This might be the case with organ donation, for instance.
• Is GPS undermining our ability to navigate? Does Pandora hinder learning about different types of music? Jane Jacobs noted that cities bring about unwelcome but nevertheless consciousness-expanding encounters, by providing an architecture of serendipity.
• People seem to value more highly options they have chosen than options they have been assigned, that is, they have a bias in favor of choice.
• Would you be willing to have your book purchases chosen by big data? How would you feel about being defaulted into a regime where big data chose your books and charged your bank account? (You could return the books for a refund.) Would you feel differently if we were talking not about books but about household goods like paper towels or detergent?
• In summary, choice can sometime be a curse, undermining your autonomy and your welfare.
• This article later spawned a book with the same title.
George Loewenstein, Cindy Bryce, David Hagmann, and Sachin Rajpal, “Warning: You are About to Be Nudged,” March 28, 2014
• Does informing people about the use of a behavioral nudge – here, default choices – alter their behavior relative to using the nudge without informing them?
• The experiment involves a hypothetical directive concerning end-of-life care. Subjects could choose the “Prolong” option, in which medical authorities do whatever is necessary to keep someone alive, despite the potential for more suffering, or subjects could choose the “Comfort” option, in which doctors would try to be make the patients comfortable, at some cost in terms of longevity. Subjects also could choose to deputize their relatives and doctors to make the choice for them at the appropriate time.
• Each subject was provided with a default option, either “Prolong” or “Comfort,” though it was easy to override the default. Most people preferred the “Comfort” alternative, and the default setting did not influence these preferences in the aggregate. Telling people in advance about the extraordinary staying power of defaults had no effect relative to telling them after their initial choice.
• Along with the general Prolong/Comfort option, there were questions concerning five specific medical interventions. Choices on whether to pursue these options showed a significant influence from the default settings, even when subjects were pre-informed that they were being “defaulted.” Some of the influence remained for the respondents who were post-informed that they had been defaulted, and were asked to choose again without a specified default.
• Pre-informing people of the default had little impact on diminishing the power of the default nudge; likewise, post-informing them of the default, and giving them the opportunity to choose again, did not diminish the power of the default. Nonetheless, these findings take place in an experimental context in which default pressures themselves are not large.
M. Ryan Calo, “Code, Nudge, or Notice?” University of Washington School
of Law Research Paper, February 7, 2013.
• Code (including physical and virtual architecture), nudges, and information disclosure (notice) can be alternatives to formal law. They can alter behavior, but they might not include the procedural safeguards, nor the transparency, that commonly accompany law. Some nudges, for instance, can be invisible and unknown to the public. Like placebos, they might even lose their effectiveness if they were known.
• Consider driving. Speed bumps are a type of “code; visual illusions like those lines on Lake Shore Drive are a type of nudge; and, “kids at play” signs are a species of notice.
• If code precludes violations, then the potentially beneficent role of civil disobedience is undermined. Code makes some types of legal activity impossible; for instance, some fair uses of copyrighted material are ruled out by Digital Rights Management techniques.
• Calo invokes a rather singular definition of “nudges,” such that they necessarily take advantage of decision-making biases (such as the status quo bias) to push people in a preferred (by whom?) direction. Code rebiases, as opposed to debiases.
• Does frequent nudging lead to infantilization?
• Notice works where informed decision making works (and informing works, too). Some scholars take a very negative view of mandated information disclosure, on the grounds that it is frequently ineffective and even counterproductive.
• Are extremely graphic cigarette warnings a case of information provision (notice), or nudge? The answer might determine the constitutionality of mandates for such warnings.
