Monday, April 12, 2010

Deliver This Day Our Daily Nudge

Behavioural economics is in danger of misbehaving. It seems to be everywhere right now: Obama has a team of behavioural economists helping nudge the America people towards utopia, and instead of product placements on the telly we now have 'behavioural placements'. Behavioural economics is fast becoming the predator drone (or Unmanned Aerial Vehicle - UAV) of policy making: it promises targeted interventions that do no harm to the operator nor to the wider community whilst only affecting misbehaving individuals (though without the, er, stinger missiles).

What's to worry about? There's a vigorous debate over at Cato Unbound this month which debates whether the soft glove of libertarian paternalism is just a slippery slope away from the iron fist of illiberal paternalism. My gut says 'yes', but my head says 'let's test it and review the data'. But there's more to my gut concerns than slippery slopes. My fear is that behavioural economics (which continues to provide many fascinating insights into human behaviour) will pander to the perennial ambition of all politicians to keep on improving things, even when things are best left alone - the problem of 'relentless reformers' as Chris Dillow describes New Labour. Pretty soon we'll all find ourselves targeted for behavioural change - for our own good, of course.

But maybe I'm just being paranoid. Sure that's like saying all those UAVs used for killing alleged terrorists in Afghanistan will end up being used to police ordinary citizens in our cities. And that will never happen...

3 comments:

  1. Would be interested in debating this further with you Gerard. A few points

    (i) Taking Ireland as an example, there are serious issues of pension undercoverage, underinsurance, chronic illnesses related to behaviour and so on. Certainly worth examining whether these can in fact be rationalised as simple expressions of people's free preferences. However, it would be stupid to simply assume this without debate. For example, I asked a recent class how many would put 10 euro per week from their first pay packet into a pension. Almost noone raised their hand. I then asked how many would opt out of a pension at 10 euro per week if they had been opted in. Again, almost noone raised their hand. I confirmed that it wasn't just shyness by asking people who choose the alternative options to raise their hands also. Thaler and others are showing substantial examples like this. We need to debate these type of results. A very large group of the population are hurtling toward 2050 with no level of savings, wealth, healthcover and so on. It is worth at least asking whether this may be due to the way we have framed choices to people in our society. As Thaler and Sunnstein point out, it is simply naive to belief that we ever live in a society where we are free from such influences. The choice is how we want these influences to be debated and to work.

    (ii) It is a pity that "fly in the urinal" type results are distracting the debate. This makes people think it is a bit of a mess.

    (iii) I put it firmly to you that the project of simplifying our taxation, regulatory, pension and other systems is firmly in the spirit of promoting human freedom and achievement and will be best achieved by understanding and applying the behavioural results. This is a fundamentally democratic policy stance and one that can potentially act to enable people to gain more control over their lives and confidence in democratic institutions.

    (iv) The core philosophy behind the Thaler and Sunstein work is to avoid, where possible, mandatory schemes by allowing people to opt-out in most cases. The "slippery slope" argument is certainly worth thinking about. The versions of "slippery slope" that I worry about, in particular, in the UK and Irish case is that behavioural economics is being conflated too much with standard straight down the line paternalist behavioural modification strategies. We need to nail these distinctions. Secondly, it is clear that soft-mandatory options can become mandatory quickly enough. In the Irish case, it was very uplifting to read that our new pension will have an auto-enrollment with opt-out provision feature to it. It is somewhat less uplifting to note that you are reenrolled two years later if you opt-out. At some stage (earlier rather than later) it should be possible for a person to say "no, I simply do not want your pension at all ever".

    (v) The arbitrary split between economics and psychology does not help. In the Irish case, psychologists have very little influence whatsoever outside of specialist domains and economists are only now embracing models with adaquate realism embedded into them. Ultimately, this is where the main promise of behavioural economics lies. Not in a proliferation of "nudges" constructed without foundations but a more reasoned intellectual debate from which fundamental policy changes might ensue. Thaler's work on pensions is far better to use as an example as it draws in a fundamental way from the core intellectual advances in the field and puts forward a startling policy solution.

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  2. "Nudge" is a small corner of Behavioural Economics, albeit a well known one. Many economists, recognizing that psychology and neuroscience can provide insights into economics, might describe themselves as "behavioural" but without buying into the whole Nudge bandwagon. Thats how I see myself anyway. So I thinks its unhelpful to identify the two.

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  3. Its hardly a small corner. Thaler and Sunnstein are certainly the most influential by a long margin in terms of the influence behavioural economics has on policy. This is acknowledged, among others, by Kahneman in his Nobel lecture. I agree that there is a literature developing on "nudge" that is just different to what the original papers were about and some weird developments are ensuing from the melee. Its an open question as to whether they made a mistake by issuing the book in the way that they did. On the one hand it has completely busted open this literature for policy and business folks. On the other, it is just not coming across well in many of the debates. I would defy anyone with even a hint of economics training to read the Save More Tomorrow paper and not be convinced that something of value was in there. But musings about very specific psychological interventions are much less convincing and unfortunately tend to get airtime.

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