Afternoon roundup

A closing of the browser tabs:

• New Zealand's space industry keeps growing. Here's BusinessDesk on Dawn Aerospace. So neat. 
• America's economists are very sceptical about the latest round of tariffs on imports from China.
• Ancient bugs hiding in NZ amber.
• Statistics New Zealand is shifting out of central Auckland because of increasing levels of 'intimidating behaviour' in the neighbourhood. Police victimisation stats had a surge in crime in Auckland Central West in 2023 that's since abated, but the number of victimisations there remains far higher than in the Lambton area around the SNZ Wellington office. 
• Easy to find claims that public ownership is better than private because private operators are too short-term oriented. Meanwhile, half the board of Christchurch City holdings has resigned. Why? "...the decisions council has subsequently taken over 2024 to maximise short-term dividends at the expense of paying down group debts and investing in the future of its companies has caused us to lose confidence in council's ability to responsibly own core strategic infrastructure."
• Satya Marar at Mercatus on America's populist turn in antitrust policy. 
• Modern desalination is pretty cheap. The energy required for desalinating a household's water is roughly on par with the power needed for its refrigerator.
• Whenever you're depressed by NZ problems like deteriorating council infrastructure, messes in government IT systems, and crises in public media funding, always worth checking over at Canada's seemingly worse problems in the same areas.
• Concrete is neat.
• There is no good version of a central bank digital currency.
• Eli Dourado wants floating cities.
• Worried about the de-banked - people who can't reasonably access normal banking serives? Fix AML.
• If I were still teaching Public Choice, this would be added to the syllabus. If you want the implicit models behind critiques of the left's shift into identity politics from folks like Chris Trotter, it's a good read.
• Cass Sunstein's 'Economic Constitution of the United States' would also hit the syllabus. I've viewed the Public Finance Act and Reserve Bank Act as being part of New Zealand's economic constitution. Sunstein here makes the case around the rules around regulation and regulatory impact assessment.

Morning roundup

A closing of the browser tabs:

• The Economist's write-up of Barcelona's new Museum of Prohibited Art. The museum's website is here. 
• Europe considering pricing agricultural emissions.
• Bill Gates on some of the climate tech in the pipeline.
• Cass Sunstein on goods that people buy but wish did not exist. Fun as a logical exercise - this class of goods could exist in this way. But banning them would just push status-seeking onto other margins. Other margins can be worse. And what if there's an additional class of goods: ones that people loudly claim they wish didn't exist, but secretly enjoy? In that case, could you ever tell which ought to be banned?
• Stephen Jennings's Conversation with Tyler. Great stuff on building new cities in Africa, and a gloomy bit about New Zealand. 
• What happens when central government tries to centrally plan daycare. Maybe Stephen Jennings is right to be pessimistic about the place. 

The Preference for Choice

Bias or preference?

Tyler at Marginal Revolution links to a new paper by Sunstein and co-authors showing that people in the lab prefer not to delegate responsibility for choices over to advisors, even when doing so would expectationally improve payoffs.

Now underdelegation can be a real problem in business and organisational environments: figuring out how to delegate well is important for productivity.

But think too on the flip-side of this. Some branches of behavioural economics suggest that people need to have choices taken away from them, or that their choices need to be strongly guided towards particular outcomes.

This paper suggests that people just hate having choices taken away from them, even when it reduces the payoffs they get in the lab.

Our results demonstrate that participants are willing to forgo rewards for the opportunity to control their own payoffs. This preference was observed not only when faced with potential gains (in accord with Owens et al. 2014), but also when faced with potential losses. Moreover, our findings indicate that participants accurately assess the (sub)optimality of their delegation choices, suggesting that they are aware of the premium they are paying to maintain control. 

Was it because people are stupid and overconfident about how well they'll do making their own decisions?

The results could not be explained by participants’ overconfidence in their ability to maximize rewards and minimize losses, as their beliefs regarding their own ability were elicited and accounted for. In fact, on average participants did not express overconfidence in Experiment I and were only slightly overconfident in Experiment II. This is not surprising, as the task was designed to minimize overconfidence; participants (1) were unlikely to hold prior beliefs about their ability from “real world” experience (2) had a 50% likelihood of making the correct choice on every trial, and (3) were given plenty of experience with the task. Participants were also given complete information about potential advisors, which would allow them to make rational decisions. Thus, under-delegation could not be attributed to a systematic misperception of either the subject’s expected utility or the advisor’s expected utility. Indeed, when questioned about their ability to delegate accurately, participants provided surprisingly accurate assessments.

People are willing to pay a premium to control their own choices: the ability to choose has value. On the flip side, though not in this paper, taking those choices away from people is insulting.

Would that the value of choice were not assumed away in policy applications of behavioural economics.

UK Nudges

I've been pretty critical of Sunstein and Thaler's "Nudge" programme of libertarian paternalism. The emphasis seems to be pretty heavily on the latter. In theory, we could imagine replacing a lot of existing paternalistic regulations with nudge-style interventions that would reduce the total amount of coercion; however, it's seemed rather more likely that nudges would be added on to the existing set of regulations to increase the scope of paternalism rather than to make existing paternalism less onerous. Richard Thaler's objected that this isn't the point of libertarian paternalism:

The point of libertarian paternalism is precisely to devise policies that help but don’t intrude. I don’t like most pure paternalism either. But I really feel that the best way to fend off pure paternalism is by utilizing nudges instead of shoves, and by insisting that we keep the nudges as gentle as possible. Can any true libertarian really disagree?

But let's see how the UK Cabinet Office's Nudge Unit is implementing Thaler's advice.

The application of behavioural economics does not imply a paradigm shift in policy-making. It certainly does not mean giving up on conventional policy tools such as regulation, price signals and better information. Sophisticated behavioural programmes to reduce smoking or excess drinking don‟t imply giving up on taxes on cigarettes and alcohol. Similarly, programmes to persuade us to eat five portions of fruits or vegetables a day mean still have to address practical barriers such as how the lack of supply of fresh food in poorer neighbourhoods.

Nudges are complements to standard paternalistic regulation, not substitutes for it. The total amount of paternalism increases.

The document above-linked makes few policy recommendations other than that nudge approaches be considered as part of the policymaker's toolkit. But here are some of their general suggestions.

• Use social norms to convey examples of desired behaviours: "Most people do X" as information campaigns
• If taxes aren't normally incorporated into the sticker price on the shelf, start adding them into the sticker price of bad things so they'll appear to be pricier (alcohol).
• Affect matters, so aim for emotional responses to interventions.
• People desire positive self-image; link negative self-image to targeted behaviours (smoking causes impotence, etc)
• Because some may not approve of government pushing folks towards desired behaviours, use public campaigns with messengers "that are not seen as agents of the state": peer to peer programmes, non-government organizations
• Encourage "opt out" contributions as part of prices to help fund public projects. Examples given are Washington State's default $5 addition to drivers' licence fees for state parks. "This has implications for policy-makers either concerned with raising revenues in a non-compulsory manner, or with more nuanced ways of regulating and adjusting for market failures."
• Priming folks with songs with "pro-social" lyrics increases altruistic behaviour, but "more research evidence is needed before such interventions could be recommended". I'd hate to guess where they'd wind up going with this. Reduced spectrum licence fees for radio stations playing a quota of pro-social music?
• Social marketing drawing on affect to encourage blood donation and community volunteering
• Bottle deposit schemes use loss aversion to encourage recycling; make them mandatory.
• Train kids in schools to provide health information to parents and grandparents.
• Evidence that interventions affecting individual behaviour, like workplace smoking bans, may indirectly affect their peer group's behaviour and consequently "may increase the legitimacy of policies that are used to target other unhealthy behaviours."
• "Where confusion exists in pricing structures, it may be necessary to require companies to present their prices in structured formats that allow consumers to make the choice that is best for them."
• They note, without recommendation, that among the factors that prime folks for excessive drinking are container size. Presumably this would lead to measures making the half-pint the standard default unit rather than the pint.
• Mood can affect choices; decisions made in "hot" states may be regretted, so "it may be useful to have a formal 'cooling off' period that allows us to come back and reconsider our decision at a later date"; insurance and personal loans are given as example.
• Mechanisms requiring casinos, including those online operating out of the UK, to exclude problem gamblers who've signed onto self-exclusion agreements. (recall that Julia Gillard has done this one worse in Australia)
• Default opt-out private pension contributions.

They note that getting public approval for some of their proposals might be difficult; they recommend deliberative forums where citizen juries get to hear evidence and discuss issues, with results of those forums helping to build legitimacy for proposed policies. I wonder whether they've here hoping to exploit Cass Sunstein's work finding a strong severity shift in jury deliberations.

If the event has such legitimacy, then it could be seen that some personal responsibility has been preserved because people have been able to make a considered and informed decision to allow government to change their behaviour.

Nice. Libertarian paternalism has shifted from opt-out to "if we have a forum, it's ok".

As example of judging whether an intervention might be controversial, they suggest a potential policy of "acceptable eating contracts", where the obese would sign contracts mandating certain eating behaviours; they suggest this would be less controversial than policies using priming to achieve similar ends. The Acceptable Behaviour Contracts with which they're compared are given as alternative to prosecution for low-level offending; I'm not sure whether Acceptable Eating Contracts would be entirely voluntary or "nudge" voluntary, where the NHS doctor says you'll be sent to fat camp in the alternative (but it's still your choice).

I wonder how long it'll be until the Ludovico Technique is recommended as Nudge-based policy as alternative to worse things for folks whose preferences don't conform to those of the nudgers.

HT: John Humphries and Joseph Clark.

No Logo: Ten Years On

Reason Mag has a very nice review of the tenth anniversary of Naomi Klein's book.

A decade on, there is no question who won that fight. From eco- to organic, fair trade to locally sourced, sweatshop safe to dolphin friendly, sales pitches that 10 years ago would have reeked of patchouli oil and set the red baiters on full alert are now thoroughly mainstream. Companies like Whole Foods (and its quarterly “5 Percent Day,” when each location donates 5 percent of its net sales to a nonprofit) or the Vermont-based Seventh Generation (a natural soap and detergent company devoted to all forms of sustainability, whose co-founder and executive chairman is known as the “inspired protagonist” of the firm) are massively successful operations.

Virtually every marketing book published in the past few years, from Martin Lindstrom’s Buyology to James Gilmore and Joseph Pine’s Authenticity: What Consumers Really Want, has stressed the primacy of authenticity as a selling point. Everyone agrees that the quest for authenticity is the contemporary advertising equivalent of the search for the Holy Grail, and being able to play the authenticity game is now a fundamental requirement of marketing, the standard against which all brand strategies are judged.

At this point you might expect Naomi Klein to raise her arms and declare victory. The days when Shell, McDonald’s, Nike, and others could bigfoot around the planet while ignoring their public responsibilities are gone, their behavior transformed, thanks to the efforts of a relatively small but highly vocal, motivated, and intelligent group of connected activists. The taming of the brand bullies is all the proof you need that corporations don’t own brands; consumers do.

Yet Klein is not happy. In a remarkably self-aware passage toward the end of No Logo, she points out that there has to be more to environmentalism than an Energy Saver sticker on your computer monitor and more to social justice than a Fair Trade logo on your coffee mug. If all politics becomes absorbed into consumer politics, she warns, you end up with the wholesale privatization of what was once the democratic responsibility of the public sphere.

That is why Klein is so unappreciative of what would appear to be a great triumph for her side. Her goal was never merely to change corporate behavior. It was to change the entire economic system. As she sees it, the newfound emphasis on selling authenticity is just further evidence of capitalism’s ability to co-opt dissent and exploit seemingly subversive niches. Reform is always the enemy of revolution, and any change that maintains the overall status quo is to be viewed with suspicion. Writing about branding was only an excuse to talk about politics, and what led Klein to re-engage with the discourse of marketing after 10 years was the emergence of Barack Obama, the first U.S. president who is also a “superbrand.”

For a nice academic treatment of the links between consumer products and expressive politics, check Cass Sunstein's highly interesting "Solidarity in Consumption".

Nudge nudge

I like Andrew Ferguson's piece in the forthcoming Weekly Standard (not online as yet). There's been a lot of talk around the traps of late on paternalism - watch my shared items feed for a fair bit of it, but do check especially the ongoing debate over at Cato Unbound.

Ferguson notes the Obama administration has pushed towards behavioural economics, with OIRA being staffed up with behaviouralists. Nevertheless, he argues, the soft paternalism Sunstein claims to advocate seems to be having little influence relative to a harder line command and control.

In the grander areas of public policy, in the environment, financial reform, and health care, the administration’s hoped-for libertarian paternalism is nowhere to be found. In place of gentle pokes and prods and nudges, the administration is hoping to levy taxes and bans, impose mandates and caps, set prices and restrain trade to make people behave properly - all the command-and-control methods from the Old Kind of Democrats’ handbook. Removed from the nurturing environment of the university, soft paternalism stiffens up considerably.

He argues further that behaviouralists jump too quickly to findings of irrationality on the basis of lab experiments of dubious connection to the real world, with claimed irrationalities often coinciding with normative political 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.

Traditional economics has always been more modest. Assuming the rationality of man was a device that made the discipline possible. The alternative—irrational people behaving in irrational ways—would complicate the world beyond the possibility of understanding. But the modesty wasn’t just epistemological. It was also a democratic impulse, a sign of neighborly deference. A regulator who always assumed that man was other than rational was inviting himself into a position where he could exert a control over his fellow citizens that wasn’t proper for a true democrat. Self-government demands this deference. It won’t work otherwise.

I'm always nervous about metamodels that have the modeler sitting dispassionately outside of the process and not subject to the constraints he imposes on the folks inside the model, with policy recommendations that require similar levels of dispassionate omniscience from those required to draft the regulations that will give force to the policy and from those required to implement it.

I still like my review of Nudge for the Christchurch Press:

While Sunstein worries about our decisions over investment plans or our weakness of will at the buffet table, I worry about our decisions at the voting booth. We vote infrequently, there’s no feedback from our personal voting decision to any policy outcome (unless you happen to hit Lotto by breaking a tie), the voting decision is complex and we may have little grasp of the issues at stake let alone our own positions on those issues. In my own research, I’ve found that only about half of voters in 2005 could place National, United Future, and Labour correctly on a left-right spectrum, for example, and that individuals’ political knowledge independently affects their policy and party preferences even after controlling for income, education, race, employment, gender, and other demographic characteristics. And so I think we (by which I mean you) need a nudge. Under my libertarian paternalistic voting system, your electoral enrolment would be linked to your census details. You’d then answer a brief questionnaire when entering a computerized voting booth, and I’d tell you, through the computer’s algorithms, for whom you should vote. Trust me: I’d be choosing the option that really would be best for you, if you only understood all of the policies supported by each of the parties and had a PhD economist’s understanding of the likely effects of these policies. You’d still be free to pick some other candidate or party, but you’d have to first reject the default choice I’d pick for you. The remaining options would then be presented in an order designed to maximize the chances of your choosing the next best option.

I trust that you find this kind of scheme repugnant. I’d find it great, so long as I got to be the choice architect. But opinions surely would vary, and I’d surely oppose the scheme if anyone other than me got to be the architect. The problem is that most of the arguments against my scheme cut similarly against Sunstein’s. More worrying, Sunstein seems pretty happy to blur the line between nudges and shoves: increasing cigarette taxes to discourage smoking is surely paternalistic, but is a bit stronger than a nudge. And, honestly, even the choice preserving nudges, like cars that nag you about the petrol you could save by easing up on the pedal, sound thoroughly unpleasant: I’d be nudged into learning enough automotive electronics to cut the right wires.

There are a few cases where Sunstein recommends nudges instead of regulation as a way of rolling back current nanny state protections. In particular, his recommendations to get the state out of the marriage business and instead provide default “civil union” contracts, with the option for couples to select into alternative arrangements, is rather nice and not that far from practice in New Zealand. And, allowing problem gamblers to sign onto a state-provided list banning their entry into gambling facilities is surely a less intrusive solution than blanket regulations catching all punters. For the most part, though, nudges are recommended in addition to existing regulations, not as a way of expanding the range of choice. But couldn’t we imagine creative nudge-based alternatives to current regulatory regimes in areas like drugs or health and safety regulations?

Maybe David Henderson and I read the book differently; it would be interesting to count up the number of proposed nudges in each direction, weighted perhaps by likelihood of adoption.

Nudge

My review of Nudge appeared in the Christchurch Press this morning. Enjoy!

Cass Sunstein, the phenomenally productive legal scholar and now head of the Office of Information and Regulatory Affairs in the United States, wants to give you a nudge. And I do too. You might not like my nudge, but I can’t see a convincing argument against my nudge that doesn’t also cut against Sunstein’s.

Sunstein and coauthor Richard Thaler argue that foibles in human rationality mean that we are prone to making bad decisions: especially on decisions we make infrequently, where short term gains are outweighed by longer term costs, where we don’t get good feedback from the consequences of our decisions, where the choice is difficult and where we may not even ourselves have a good sense of our own preferences. Moreover, for lots of these kinds of choices, the choice architect – the person who arranges the order of the menu items or who picks the default Kiwisaver investment fund for your firm – can’t avoid influencing your choice; Sunstein provides a good deal of evidence that choice context matters. In these kinds of cases, he argues for what he calls a “libertarian paternalism”: set the choice architecture so as to maximize the chances of folks making the right decision, but let them make the wrong decision if they really want to. So the chef at the workplace cafeteria should make sure that the healthiest options are given the most prominent position, the HR director should make sure that the default Kiwisaver plan is the one that makes the most sense for the most workers, and the government should make it harder for us to make choices that redound to our own detriment unless we’ve given evidence of having put some thought into it.

While Sunstein worries about our decisions over investment plans or our weakness of will at the buffet table, I worry about our decisions at the voting booth. We vote infrequently, there’s no feedback from our personal voting decision to any policy outcome (unless you happen to hit Lotto by breaking a tie), the voting decision is complex and we may have little grasp of the issues at stake let alone our own positions on those issues. In my own research, I’ve found that only about half of voters in 2005 could place National, United Future, and Labour correctly on a left-right spectrum, for example, and that individuals’ political knowledge independently affects their policy and party preferences even after controlling for income, education, race, employment, gender, and other demographic characteristics. And so I think we (by which I mean you) need a nudge. Under my libertarian paternalistic voting system, your electoral enrolment would be linked to your census details. You’d then answer a brief questionnaire when entering a computerized voting booth, and I’d tell you, through the computer’s algorithms, for whom you should vote. Trust me: I’d be choosing the option that really would be best for you, if you only understood all of the policies supported by each of the parties and had a PhD economist’s understanding of the likely effects of these policies. You’d still be free to pick some other candidate or party, but you’d have to first reject the default choice I’d pick for you. The remaining options would then be presented in an order designed to maximize the chances of your choosing the next best option.

I trust that you find this kind of scheme repugnant. I’d find it great, so long as I got to be the choice architect. But opinions surely would vary, and I’d surely oppose the scheme if anyone other than me got to be the architect. The problem is that most of the arguments against my scheme cut similarly against Sunstein’s. More worrying, Sunstein seems pretty happy to blur the line between nudges and shoves: increasing cigarette taxes to discourage smoking is surely paternalistic, but is a bit stronger than a nudge. And, honestly, even the choice preserving nudges, like cars that nag you about the petrol you could save by easing up on the pedal, sound thoroughly unpleasant: I’d be nudged into learning enough automotive electronics to cut the right wires.

There are a few cases where Sunstein recommends nudges instead of regulation as a way of rolling back current nanny state protections. In particular, his recommendations to get the state out of the marriage business and instead provide default “civil union” contracts, with the option for couples to select into alternative arrangements, is rather nice and not that far from practice in New Zealand. And, allowing problem gamblers to sign onto a state-provided list banning their entry into gambling facilities is surely a less intrusive solution than blanket regulations catching all punters. For the most part, though, nudges are recommended in addition to existing regulations, not as a way of expanding the range of choice. But couldn’t we imagine creative nudge-based alternatives to current regulatory regimes in areas like drugs or health and safety regulations?

Nudge provides a provocative read. Just be sure to think about the kinds of folks who’d be likely to be giving the nudges, and how hard they’d be pushing.