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Tuesday, August 12, 2008

Nudges

Are you ready to embrace libertarian paternalism?

The dramatic effect of a firm nudge, by Cass Sunstein and Richard Thaler, Commentary, Financial Times: In the past three decades, psychologists and behavioural economists have learnt that people’s choices can be dramatically affected by subtle features of social situations. For example, inertia turns out to be a powerful force. If people’s magazine subscriptions are automatically renewed, they renew a lot more than if they have to send in a renewal form. More­over, people are influenced by how problems are framed. If told that salami is “90 per cent fat-free” they are far more likely to buy salami than if they are told it is “10 per cent fat”.

Social norms matter a lot. If people think others are recycling, or paying their taxes, they are far more likely to recycle and to pay their taxes. The important message is that small details can induce large changes in behaviour.

Findings of this kind suggest that even when people have freedom of choice they are influenced, or nudged, by the context in which their decisions are made. This power gives business and governments opportunities. Automatically enrolling people in a savings plan dramatically increases participation, even though people retain the right to opt out. Informing citizens of how their energy use compares with that of neighbours can nudge energy hogs into adjusting their thermostats.

In this light, it is not surprising that policy teams for Barack Obama, the US Democratic presidential candidate, and David Cameron, the UK’s Conservative party leader, have shown an interest in nudge-like solutions to social problems..., ... an approach we call “libertarian paternalism”, by which governments try to move people in good directions without imposing penalties, mandates or bans.

The mounting international interest suggests the possibility of developing a genuine Third Way, one that accepts some of the progressive goals traditionally associated with the left, but insists on the market-friendly means traditionally associated with the right. Libertarian paternalists resist coercion. They think that freedom of choice is an important safeguard against the bias, confusion and self-interest of government. They also think that everyone can benefit from a friendly nudge.

Now that prominent leaders are showing an interest in the potential effects of nudges, a counter-reaction is starting to develop. One objection is that while we may be able to nudge litterers, for many of the most important problems, such as terrorism, nudges are not enough: they need to be solved with mandates or bans. ... We concede that in some contexts libertarian paternalism is not enough. .... That does not eliminate a role for nudging. ...

Mr Obama recently suggested that people can improve fuel economy by having the right air pressure in their tyres. Five minutes with an air hose can save 3 per cent or more on fuel bills. But the reaction of John McCain, the Republican presidential candidate, to this nudge was to mock it. ... Mr McCain’s critique is a good example of an anti-nudger’s mistake. No one suggests we can solve the world’s energy problems by correctly filling our tyres, but who in their right mind would reject a plan that could, at little cost, save millions of gallons of fuel? ...

No sensible person could argue that government action should be limited to nudges. But too often governments resort to coercion when gentler approaches, preserving freedom of choice, are at least as effective.

I don't like to feel as though I've been manipulated no matter how friendly the nudge, even for my own good, and I'm suspicious of other people deciding what is best for me, especially when I push these ideas to their logical limits. But I can see advantages to this as well, so I guess I'd be okay with it if those doing the nudging look me in the eye and say we have found that presenting the options in this way has this effect, so we are presenting the options as follows. So long as all the cards are on the table, so long as I know how I am being manipulated (okay, nudged), fine, but if it relies upon me being unaware of how I am being nudged, that would feel coercive and I'd rather not have someone else deciding how I should behave even if it is, in their opinion at least, for my own good.

    Posted by on Tuesday, August 12, 2008 at 04:23 PM in Economics, Policy | Permalink  TrackBack (0)  Comments (31)

          

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