Tuesday 13 April 2010

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.

1 comment:

  1. I have read that book. The authors spend the bulk of it explaining how to apply “nudges” and “choice architecture” to a wide array of policy issues. Their stated goal is to show Americans a “third way” between post-New Deal “command-and-control regulation” and “freedom of choice” laissez-faire (which they mistakenly identify with the Republican party). Thaler and Sunstein present their libertarian paternalistic nudging as a compromise between liberalism and conservatism, and thus as a means of transforming seemingly intractable policy problems into broadly satisfying solutions.

    Throughout the book, they conflate the way that private institutions shape choices with the way that governments do. They treat as essentially the same a corporation that offers voluntary retirement packages to its employees and a government that offers Medicare drug plans to citizens. There is a fundamental difference, however, between choices contemplated under voluntarily chosen arrangements in the private sector and choices that are controlled by forcible interventions in the marketplace in the form of government welfare programs. Even if citizens may “opt out” of Medicare Part D, their available private options have been forcibly curtailed by the price and availability distortions that result from the very existence of Medicare.

    While seeking to make government programs more efficient they avoid the more fundamental issue of whether such programs are morally justified in the first place. Because they never question the propriety of a rights-violating government, they accept as a given (and explicitly defend) welfare programs, workplace health and safety regulations, Federal Trade Commission imposed “cooling off” periods for door-to-door sales, mandatory and standardized disclosure of mortgage costs by lenders, mandatory installation of replacement warning lights on air conditioner filters, new municipal taxation to raise funds to pay teenage girls to avoid pregnancy, and so on.

    The book’s deepest flaw is methodological. The authors propose that “if people can rely on their Automatic System without getting into terrible trouble, their lives should be easier, better, and longer” (p. 22). But reliance on one’s “Automatic System” is precisely the problem that the authors purport to recognize. To adopt their “nudge” approach is to further indulge the mental drift of the Homer Simpsons among us—and to leave them at the mercy of “choice architects.”

    If they really wanted to help people make better choices, they should write a book explaining what is involved in making rational, long-range, self-interested decisions. Given that they regard Americans as Homer Simpsons, however, it is unlikely that this will occur to them.