Thursday, May 5, 2016

Bhargava and Loewenstein (2015) Want to Go Beyond Nudging

Saurabh Bhargava and George Loewenstein, “Behavioral Economics and Public Policy 102: Beyond Nudging.” American Economic Review 105(5): 396-401, 2015.

• The early behavioral economics-influenced policy proposals were aimed at internalities, and at nudging decisions quite proximate to the perceived problem. 

• The next stage, Bhargava and Loewenstein argue, should be to influence the design of policies that are more fundamental, but perhaps less proximate, to perceived problems. This approach need not be particularly controversial, given that the targeted problems often implicate externalities or other market failures. 

• Successful nudges have included easing the way to save more for retirement, along with improving the disclosure of information so that people receive useful information in a manner that is easy to understand and respond to. 

• Proposed principle #1: not only should choice environments be simplified, the objects of choice should be simplified. Financial products, for instance, could be required to be simple and to be presented in a standardized form. 

• Proposed principle #2: policy should look to counter nudges by the private sector that are detrimental to consumers. 

• Proposed principle # 3: traditional policy instruments, such as taxes, should be modified in a manner informed by behavioral considerations (framing, salience, inattention, etc.) to maximize the policies’ impacts. 

• Examples that the authors discuss include health insurance (lots of room for simplification and standardization); privacy and disclosure (again, simplification and standardization, along with controls on misleading disclosures); and climate change (contending against the many psychological dispositions that make it hard to recognize or respond to this global public bad).

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