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.

Comments

[AllenM]

I disagree.

Opt out programs are a useful tool to correct a lot of societal problems.

Way too many people need to be put into a program of forced savings for retirement, and only the savviest need to opt out. A great example is the supplemental retirement program at my employer. Standard investment menu is 20 varying mutual funds, gics, and an insured credit union account. You can opt out to a schwab brokerage account under the umbrella and take whatever risks *you* think are appropriate.

96% use the standard menu. I prefer not to, even through it costs me a $50 per year charge, and brokerage fees.

But hey, *that* is the essence of choice. Do something, but if you want to take the time to do it yourself, you are free to do it.

If they had sold privatization of social security through such a model, they might have actually done it.

As for the rest of the nudges, well societal standards need to be reinforced for most of the 5% that don't follow them without that reinforcement.

Prisons are full of people who don't get the impact of the nudge and need the hammer of authority to make them comply with a barely civilized society.

So give them a nudge or drop the hammer.

[anne]

"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....' "

Barack Obama-David Cameron? Figures....

"Get me my tyre hose, Mort...."

[Barkley Rosser]

There is no alternative to presenting options for such things as pension plans in one way or another. One of the implications of this is that whatever way one presents effectively implies some sort of a "nudge" one way or another. So, I see no reason not to present such options in ways that we have been able to learn are likely to lead to more socially beneficial outcomes and decisions. And most people are not going to be all that interested in having all of that explained to them.

Part of the delusion here is the idea that somehow there is a "neutral" way to present things that is to be preferred. This is somewhat similar to the idea of some fiscal economists that there is a "non-fiscal policy" set of taxing and revenue levels. However any set of tax and spending levels is a fiscal policy, even if one is pretending that it is not one. The same applies here, although I would certainly grant that there is a potentially slippery slope into more manipulative and undesirable "pushing" that might come about based on claims that it is this sort of more benevolent "nudging."

[Bruce Wilder]

BR: "Part of the delusion here is the idea that somehow there is a "neutral" way to present things that is to be preferred."

An excellent point, which I would also tie to the delusion that "more freedom" can be achieved by "fewer rules", with no effect on sophistication/level of economic development.

As the economy becomes progressively more organized (and more productive), there are, inevitably, more choices and, therefore, more rules. The pretense that the alternative to Rule A is no rule, is more a debater's trick, in most instances, than it is a realistic assessment.

Rules are a way of economizing on the information and judgement necessary to make decisions.

As the economy becomes ever more organized, there are more and more choices, and a demand for more and better information on which to make choices, as well as better rules to economize on information and wisdom (and the time to consider, assess and calculate).

There are some potentially profound issues, here, about how we cope with a world of rapidly expanding information and choice, and not so rapidly expanding human brain pans.

[Jas Jain]

--
Slavery lies in the act of obedience; I could care less who the master [that lays down and administers the laws] is. – Alexis de Tocqueville.

Freedom of choice in a nation with tens of thousands of laws made by "politicians," i.e., corrupt agents of the moneybags?

Vast majority of Americans are economic slaves who have internalized slavery. Americans are BRED to be irremediable dopes via incessant propaganda and they die as dopes and slaves serving their capitalist masters.

Manipulation by any other name...

Jas

[Jas Jain]

--
Sorry, "Servitude lies in the act of obedience..."

Jas

[Noni Mausa]

If you really want to see the world of nudge, take a trip down to Disney World in Florida.

I visited there in the early 90s and had a very pleasant time. However the fact that the place was structured in order to control the movement of people and the kinds of things that they could do left me feeling a little creeped out. One aspect in particular, so beautifully depicted in the movie Shrek, were the back-and-forth waiting lines for various attractions. On the one hand, these waiting lines were a little too much like slaughterhouse ramps to suit my taste. But on the other hand, all the other people were obviously relaxed and reassured by the order and the reasonably quick movement.

Despite my opinion of waiting lines, by and large I approve of nudge tactics. I wouldn't have a pension without them.

Noni

[Noni Mausa]

Do any of you remember an SF story (1960s?) where one man in an idyllic community had the feeling that something was wrong, and set out to try to walk away from his little town? All the landscape was laid out to make his choices almost irresistible as he walked, and all those irresistible choices turned him back towards his home community.

Finally, by forcing himself to take choices which felt all wrong, he was able to leave his community. I am not sure, but I think he discovered the town surrounded by a bomb-blasted or otherwise poisonous wasteland, or some other terribly dangerous or heartbreaking landscape.

Just a stray memory of a story I must have read in early puberty. Ah, Analog!

Noni

[robertdfeinman]

Sunstein belongs to the philosopher-king school of social organization. The wise ruler tells people what is best for them. Unlike the rabid libertarians he tries to temper his argument by calling it a "nudge".

What he never explains is who decides what is the "good" that people should be nudged towards.

He promotes a simple case of opting in to a pension plan so that the real implications of his philosophy won't seem so stark. Presumably "everybody" agrees that saving for retirement is a good thing, so the nudge is uncontroversial.

I'll play devil's advocate and say that some might claim that using the money to buy a bigger house would be a better choice. Under normal circumstances the rise in value of your home could exceed the gains from the stock market. There are no investment fees to deduct. When it is time to retire you sell your house and move into a smaller place and use the proceeds to buy an annuity. So even this example requires unstated assumptions.

The best that one can hope for is getting the most complete information available, including expert advice and then hoping your choice is a good one. We don't need experts to nudge us even if they think they are doing us a favor. Sunstein has taken some iffy psychological studies and turned them into over generalizations about human behavior. I wonder where I've come across that before?

Mark Thoma is right, it's big brother.

[zero]

noni - the story might be one where a guy is hiking and bitten by a snake - he survives and goes home to find all people are dead excpet those bitten by snake in the previous week.

He then travels to New York - and finds the few survivors and starts organizing.

The author was a plant biologist and the descriptions of how the flora and fauna did without man was fascinating - for example lawns did not last a year, corn disappeared from the great plains and the wheat was absorbed back into native grasses, etc..

[evagrius]

Don't you think that people have been nudged over the last 25 years into a rather catastrophic situation? Some weren't even nudged, they were pushed.

[Real Person from the Real World]

This society is getting too hooked on sales and psychological manipulation. Who gets to play god, and decide just how everyone should behave? Who benefits from the manipulation? This topic gives me the creeps. It is worse than Animal Farm or Nineteen Eighty four.

[outsider]

outsider says...

Noni, As an s.F. addict in the 60's I remember a short story where a young boy started to wonder why he was the only one to require periodical physicals in his town, and later, why whenever he suggested an acquaintance was unsatisfactory he or she disappeared.

Once he observed a "Doctor" talking to his "parents" saying they should stay together while he pretended to do exams due to the boy's questionings. They all became motionless for the prerequisite time, acting as robots.

There was an energy barrier preventing exit from the village due to "radioactive" forces outside the parameter from a legendary "nuclear war".

The boy dug out, saw the air was sweet and approached a "sign". Touching it he got a telepathic message to the effect that the Earth had been destroyed in an alien invasion, and that a few native species had been bred and protected in these zoos.

The final message was "If a specimen is found outside the parameter, deliver it to the vivisection labs." as the sounds of wheels rounded the corner.

Tried to find the author but failed. Is this the story?

[Alex Tolley]

Mark Thoma: "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."

We are all so embedded in our culture that I doubt we are aware of the cultural nudges that work on us every day.

Bruce Wilder: "As the economy becomes progressively more organized (and more productive), there are, inevitably, more choices and, therefore, more rules. The pretense that the alternative to Rule A is no rule, is more a debater's trick, in most instances, than it is a realistic assessment. .....
Rules are a way of economizing on the information and judgement necessary to make decisions."

I think you need to expand on that some more. I do not see the "inevitably" at all, nor do I see "rules" as being necessarily the way to economize on information for decisions.

[Ryan]

Ah, capitalizing on people's limited time and thus patience for detail by auto-enrolling them in "good" programs. Of course, the "good" is determined almost exclusively by the seller of the "good," no conflict of interest there.

The Obama "Tire-Pressure Initiative" reference is rather incongruous to the rest of the article. Obama’s comment on tire pressure would more accurately be described as a suggestion, you are perfectly capable to consider and act on the suggestion, while the nudge approach would entail acting and then considering (or, in most cases, not; which is how the nudge works to begin with.)

[Noni Mausa]

Thanks, zero and outsider. I don't think your stories are the one I am dimly remembering, (mine was definitely a short story, not a book), but yours both sound very interesting. Outsider, I think the book you are remembering is "No Blade of Grass", an apocalyptic novel, British of course, in which a disease affects all the monocotyledonous (grasslike) plants, including wheat, rye, rice, bamboo etc -- that is, the very plants which feed most of humanity.

The "we are exhibits in a zoo" theme was used often in the SF I recall in the 60s and 70s. One story springs to mind -- "Fishbowl", in which people disappear and are kept as lone zoo exhibits, by aliens of course. The theme of being unknowingly contained and managed by "others", benevolent or not, shows an claustrophobic and paranoid streak in humanity, probably a good thing overall but problematic if it is widespread.

I think containment and management, in the loosest definition of both, are necessary in order for communities to function, but at the same time the outliers of humanity are necessary for this to work -- acting as scouts, guardians, prophets, even lunatics.

The big tents of humanity need tent-pegs, and tent-pegs only function properly when they are outside the tent. The tension between the inside and the outside of the tent is what keeps the tent taut and upright.

/micro-rant

Noni

[dd]

Notice how nudged everyone is into accepting defined contribution limited-choice "plans" that enrich investment managers paid based on assets-under-management and corporate executives based on short term profits but contain absolutely no performance guarantees for long-term retirement investors are the path to retirement nirvana?
Anyone notice who is bearing the losses for the financial sector meltdown or notice that the vast majority of shares and "innovative" financial products are institutionally owned ie held in the very institutions Americans are relying on for their retirement funding?
Anyone doubt who will be blamed when defined contribution plans fall far short of boomer retirement needs given the dot com bust and the current financial meltdown?

[Syaloch]

Noni:

I think containment and management, in the loosest definition of both, are necessary in order for communities to function, but at the same time the outliers of humanity are necessary for this to work -- acting as scouts, guardians, prophets, even lunatics.

That, in turn, sounds a lot like the message of Robert Pirsig's book Lila. Far better IMO than Zen was.

[outsider]

outsider says...

Syaloch, Noni,

I will look up "Lila". i recall an essay somewhere on American small towns where characters had to be stereotyped. The town beggar, drunk, hero, bad girl, preacher etc. The towns had to have parameters in place that the majority could comfortably contain themselves within. These rolls were forced on the unwilling at times.

[outsider]

outsider says...

Tent pegs?

[piglet]

"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."

What? We are not isolated atoms heroically making free choices completely uninfluenced by any outside forces? Marketing is effective, after all?? The sky is blue??? I'm shocked.

[Dave]

"I don't like to feel as though I've been manipulated no matter how friendly the nudge... and I'm suspicious of other people deciding what is best for me..."

An ironic statement from someone who favors so much government intervention in free markets.

[Farrar]

Reminds me of "The Truman Show"

[Lafayette]

Take the bus

MT: 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.

This is happening whether we like it or not.

Does anyone really think they have a choice in a market place that has not already been decided by someone else? Corporate marketing is establishing most of the choices we make. Only our ability to select amongst the offering makes us think there is "freedom of choice".

If the defence of the nation were at stake, does anyone really think Congress would hesitate for a nanosecond to bring back forced enlistment of certain age groups? What choice is there?

We seem linked affectionately to a time when pioneers roamed the countryside and decided their fate in a country that had not developed. There was plenty of space to do precisely what one wanted to do, as they wanted to do it. That age is long since past and remains a tale recounted by Hollywood from time to time.

An economy as large and diverse as ours does not require Central Planning, but the planning of the Supply is nonetheless constrained to certain inputs, regulations and, therefore, prices. The most specific factor determining choice is Discretionary Income, i.e., that which is left after all non-discretionary payments (mortgage, electricity, etc.) are paid. GM makes sure that there will be car for my pocket book. Toyota does the same. My choice is restricted to the market offering.

The market for health care is the same. If you work, then you have program insurance, and more than likely you don't care about "choice". Is there really that much choice in health care specialists, anyway? We always want the best for our personal health care, but who is keeping score of individual performance?

If a National Health Care scheme was established by the Federal Government, based upon the expansion of Medicare, why should anyone care about "choosing my Health Care practitioner" -- as long as they were registered and certified as competent.

We have a choice, after all. Whether a Public Service should be available to all at a uniformly affordable cost, OR whether we purchase Health Care in the same manner as a car. Meaning, in terms of the service, we buy a "Cadillac" or a "Chevy" or "take the bus to the local ER". If we chose the latter, which depicts presently HC in America, expect nothing to change. Health Care will just get more expensive.

If we want an affordable service, available to all Americans, then we shall need a system that is regulated, and where we make an engagement to observe certain rules in order to have certain outcomes.

[Lafayette]

Article: 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

The article is interesting, because its precept clearly depicts how humans make decisions. The foremost input, that which has the greatest weight, is the behaviour of others.

When there is a lack of defined information, we typically chose to behave willingly as others do.

All the article is saying is, "Hey, look, this is the best we can do in terms of Public Services to arrive at an acceptable level of service for all. Now, we aren't forcing this on you! You are free to do as you chose ..."

With the inference being, "You’re a bloody idiot if you don't choose it, because the alternative is really and truly not worth considering."

If that is Libertarian Paternalism, then so be it. It doesn't matter if the cat is black or white, as long as it catches mice.

What's in a label? Food for forum discussions ... that's all.

[Lafayette]

Deep Denial

Public Services, especially those that are beyond simple fire fighting and policing or judiciary, are going to be VERY HARD to pass onto the American public.

Because they have very little history of them and the little they have had is wrapped up in "connotational difficulty". Which means "welfare" has a bad name, applying to those "who don't wanna work".

However, as a larger part of the comparatively un- or semi-skilled workforce is progressively challenged by lower cost-for-equivalent-unit-productivity from abroad, there are is going to be a lot of misery about in the land, unless precautions are taken.

Now and not tomorrow when that misery translates into highly vociferous (if not violent) disdain for the "public order". (Anyone for a bit of Watts Redux?)

Public Services that offer baseline more-than-subsistence existence, with an alternative path up the escalator to a decent living (by means of training and or education) will become an increasingly more important objective in terms of reforming our social infrastructure.

And, anyone thinking it is going to happen all by itself (because Mother Nature will make it happen) is in Deep Denial. Americans have been suffering from this aspect of globalization for the past decade. It has come to a head very recently.

And it ain't goin' away any time soon. Nope. It ain't gonna go away all by itself.

Wakey, wakey.

[Alex Tolley]

Lafayette: If a National Health Care scheme was established by the Federal Government, based upon the expansion of Medicare, why should anyone care about "choosing my Health Care practitioner" -- as long as they were registered and certified as competent.

For many reasons. Firstly, even without knowing skills and competency, there is the personal relationship dynamic between patient and doctor. This is not trivial. Style of practice and communication is important. When competency is added, then it would be foolish toi believe all doctors, whether general or specialist are equally competent. Just as reputation and competency amongst any goods or services supplier is important information sought for, so it is for physicians, as health outcomes are vitally important to the patient.

[Patricia Shannon]

How much freedom do we really have?
In many places we don't even have freedom for hanging our clothes line, which is not just harmless, but is environmentally friendly.

[Lafayette]

Firstly, even without knowing skills and competency, there is the personal relationship dynamic between patient and doctor.

A doctor’s beside manner is one thing. His competence is quite another. And, except at a very high level of specialist competency, it is rarely unique.

The front-line of Health Care, as I never tire of reminding, is Preventive. This is the responsibility of a GP who cannot afford 30 minutes of chit-chat regarding comparative golf-handicaps. It is a matter of deciding, in fairly short manner, what is the malady. Is it evident and therefore curable, or is it longer term, or does it require more intense analysis (scans, x-rays or blood analysis) -- meaning it is going to be definitely cost for which the patient may not have the means to pay.

This process of identifying the problem is hardly metaphysical in nature. (Unless one has watched too much of Dr. House on TV.) We’ve all been through it -- the longest time spent is not in front of a doctor but in their waiting room.

When competency is added, then it would be foolish to believe all doctors, whether general or specialist are equally competent.

Why? What recorded proof do you have of this accusation? Is there truly a great disparity at the GP level and, if so, what study shows this? Specialist surgeons, yes, because both knowledge and dexterity are involved – which can indeed differ from one practitioner to another.

But, does that mean that because one donates a wing to a hospital that they and their family “deserve” special attention. Because, frankly, aside from the public acclaim, that is precisely why they do donate the money ... in our modern plutocracy.

Granted, there’s a difference between an automobile mechanic and a GP. But, let’s not forget, the only reason for that is not esoteric skills. We just don’t know how to educate and train enough doctors. And, when we do, the end-product is too damn expensive.

America will NOT have affordable/accessible Health Care until and only when it solves the “cost problem”. Till then, we are just dancing around the problem without having the courage to solve it correctly.

Just as reputation and competency amongst any goods or services supplier is important information sought for, so it is for physicians, as health outcomes are vitally important to the patient.

Right, which is why we go get second opinions? Because we “trust” our GP or Specialist?

Regardless of the fact that we might want a second opinion, it should be not only accessible but affordable. The latter is NOT the case today, which is why remedial care is so damn expensive and legal insurance so necessary to the practitioner.

[Alex Tolley]

lafayette: "The front-line of Health Care, as I never tire of reminding, is Preventive. This is the responsibility of a GP who cannot afford 30 minutes of chit-chat regarding comparative golf-handicaps. It is a matter of deciding, in fairly short manner, what is the malady....Why? What recorded proof do you have of this accusation? Is there truly a great disparity at the GP level"

Firstly, deciding a malady is not simple. Time harassed physicians often make snap judgments which are only corrected by repeat visits by the patient. I've had the experience in my younger days of British GPs writing Rx's as I walk through the surgery door - hardly doing any real analysis there, I think. I've also met GP's in Britain who should have retired years ago and were clearly incompetent to treat. If there was no competency issue, then GP's would not be struck off the Medical register, would they?

I think you have a very strange idea of how doctors actually operate. As for costs, we are somewhat stuck in the US because we ask physicians to pay for their own training - this is very costly. They have to recoup it somehow. Europe is different, it can, and does, force physicians to accept comparably lower rates for treatment, as was done in Switzerland recently.

Trying to make a system based on interchangeable 'plug and play' physicians is not a good idea, and it was the fear of losing the choice of physician, exemplified by the "Harry and Louise" ads, that helped sink the move to universal healthcare the last time.

[Lafayette]

AT: I've had the experience in my younger days of British GPs writing Rx's as I walk through the surgery door - hardly doing any real analysis there, I think. I've also met GP's in Britain who should have retired years ago and were clearly incompetent to treat.

Purely anecdotal, Alex. And to be treated as such.

Brit GPs too old to treat people usually find themselves with a reduced clientele anyway ... so they retire. The market allows people to shop around -- and they should.

And low cost access to GPs/Specialists makes shopping around easier. The same market factors apply to Health Care as any other. The reason Remedial Health Care costs are so high is insufficient supply of practitioners for a demand that is far too abundant because preventive Health Care is so ineffective.