George Loewenstein and Nick Chater, “Putting Nudges in Perspective.” Behavioural Public Policy 1(1): 26-53, 2017
• Nudging is popular, but perhaps its unintended consequences are worrisome; perhaps, for instance, nudges have crowded out better policies.
• The standard nudge involves a response to a problem that itself is a result of a behavioral issue, a rationality shortfall. But there is no reason that the best type of policy response – whether traditional, behavioral, or a hybrid – should match the condition that gives rise to the problem. Some rationality shortfalls might best be handled with taxes or regulations, not nudges…
• …though behavioral ideas can help package those taxes or regulations in ways that can maximize their impact.
• One important area of concern involves how to counter the nudging undertaken by profit-maximizing firms, often aimed at taking advantage of consumer rationality shortfalls.
• Many social problems can’t be explained by behavioral issues that should be roughly constant over time and in different areas. These problems perhaps require a structural response, not a nudge. The recent increase in obesity cannot really be due to an increase in present bias; nor will it be fixed by better placement of healthy products in stores.
• Don’t let nudges distract you from seeking more comprehensive solutions. Loewenstein and Chater go on to examine three policy areas from their "perspective."
• Smoking: externalities, internalities, and depredations by sellers all motivate policy responses. Those responses include high taxes, advertising and marketing controls, product placement controls, graphic warnings, public smoking bans – and the combination is effective.
• Obesity: internalities, budgetary externalities, and the behavior of those profit-motivated sellers provoke policy responses. The main response is of the “traditional economics” variety, information provision, and it is not very helpful for what is after all a structural problem, not a big change in behavioral biases or time discounting. Perhaps bans on non-linear pricing are called for?
• Retirement Savings: Internalities, and the behavior of firms like payday loan companies, exacerbate the extreme savings shortfalls that exist. Successful interventions have been behavioral, especially defaults and automatic escalation of savings. Tax breaks are not very helpful, but much more needs to be done.
• Consider big issues, such as inequality, climate change,and employment overhauls: all of these problems need traditional economic responses,and perhaps some hard paternalism – but there still are plenty of contributions that behavioral science can make.
Professor Thaler responds with “Much Ado About Nudging,” on the Behavioural Public Policy Blog, June 2, 2017
• No one really believes that nudges are a panacea. In Nudge, we just want to inform policy with behavioral insights.
• Likewise, everyone agrees that present bias is not the sole cause of obesity.
• Don’t undersell the cumulative impact of many small behavioral interventions, including when applied to big problems like climate change.
“My own approach to thinking about such problems is to conduct what I call a ‘choice architecture audit’, the goal of which is to find the most critical decisions various actors have to make, as well as the potential levers (behavioral and economic) that policy makers can use to improve outcomes.”
• There is much to be said for nudging (soft paternalism) over hard paternalism when it comes to dealing with internalities. Either type of policy will push some subset of people in an inappropriate direction: how hard do we want that push to be?
• We know bureaucrats are biased and often mistaken: do we want them to be hard or soft paternalists?
T. Randolph Beard and Jim Leitzel, “Compensated Live Kidney Donations,” 2016; a slightly earlier version, June 17, 2015, is available at http://ssrn.com/abstract=2619934. This paper builds upon Beard and Leitzel (2014).
• To what extent are problems associated with compensation for kidney donations actually problems that already exist in the current system and/or are problems stemming not from the transplant system directly but rather from the organ shortage? The argument presented here is that most problems associated with the provision of donor compensation are either problems in the uncompensated system, too (and tolerably well-addressed), or, are problems of shortage, not of compensation.
• Uncompensated organ donation decisions -- which are not exactly of the everyday variety with meaningful feedback to build upon -- might not be made in a particularly rational fashion.
• Standard “behavioral” influences, such as risk misperceptions, loss aversion, endowment effects, and present bias, seem to push people in the direction of not being a live organ donor.
• Safeguards (including the provision of Independent Donor Advocates) are built into the donation system to counter misinformed, rash, or imprudent (psychologically, medically, or otherwise) donations, as well as coerced donations.
• The introduction of compensation does little in terms of introducing new problems, though it might exacerbate present bias in decisions to donate, or intensify the potential for loss aversion along the "financial expectations" axis.
• One desirable system with compensation would look like the current system, though supplemented with back-loaded compensation, both in-kind and monetary.
• What are the likely effects of ending the kidney shortage, beyond the lives saved? Nine effects are identified: (1) a diagnosis of End-Stage Renal Disease becomes less devastating; (2) the reluctance to add patients to the transplant list dissipates; (3) the “who gets to live” question loses much of its salience; (4) patient incentives to seek out the black market evaporate; (5) the expansion of acceptability criteria for a kidney ends or is reversed; (6) one risk of donating a kidney declines, in that a donor is assured of being able to acquire one later him or herself; (7) the need for ESRD patients to plead their case for an organ is obviated; (8) family relationships become less strained by an ESRD diagnosis; (9) the incentives to take preventative measures to stave off kidney failure decline.
• So, eight of the dimensions affected by an end to the kidney shortage would alter for the better if the shortage were eliminated -- and the undesirable impact along the ninth dimension simply reflects the fact that an improvement in the treatment of a medical condition implies that the threat represented by the condition diminishes.
George Loewenstein, Cass R. Sunstein, and Russell Golman, “Disclosure: Psychology Changes Everything.” Annual Review of Economics 6: 391–419, 2014 (pdf).
• A good deal of information is disclosed through government mandate, and much of this information would not be disclosed in the absence of the mandate. The information would not be disclosed perhaps because it would not benefit sellers, or because information has a public good aspect that lowers the incentive for any single private entity to produce and disseminate the information.
• Mandated disclosures involve some subtle costs, such as the time they take for consumers to read them, the subsequent loss of attention to other pieces of information, and even the emotional costs associated with graphic warnings, for instance.
• Mandated disclosures tend to occur when there are significant gaps in the information known to sellers and that known to buyers, and when the informational disadvantage threatens the interests of consumers. Disclosure also can be used to help consumers overcome their own departures from rational decision making: perhaps “behavioral market failures” provide a rationale for policies to limit internalities.
• Some information – such as a physician’s assertion that a certain treatment is needed – is not verifiable, and hence problems connected with this information cannot be solved simply through disclosure. But physicians might be required to disclose their interests (such as receiving royalties from the recommended treatment) if those interests are not fully aligned with patient interests.
• Disclosure of conflicting incentives does not fix every problem. The disclosing agent might view the disclosure as allowing for carte blanche, for any sort of self-interested advice. The recipient (principal) might feel compelled to follow the advice, to avoid the inference that the advice giver is viewed as untrustworthy.
• The technology of disclosure – who makes it, when, and what effort is made to render it noticeable – helps to determine its impact.
• Sellers have little reason to put effort into those dimensions of a good that potential consumers do not pay attention to. A producer of a less deadly cigarette might not want to disclose its relative safety, because to do so might make the fatal consequences of smoking more salient.
• Warning labels don’t seem to accomplish much; more generally, see Omri Ben-Shahar and Carl E. Schneider, More Than You Wanted to Know: The Failure of Mandated Disclosure, Princeton U. P., 2014.
• The absence of information should best be met, perhaps, by assuming the worst, as otherwise the information would have been provided. But people often do not draw this inference, even when it is rational to do so. This presents a potential rationale for mandating disclosure.
• Sometimes we want to be ignorant, sometimes information can lower our utility – a tendency that motivated the May, 2015 on-air radio killing of a young rabbit in Denmark.
• The tell-tale heart effect: mandated disclosure might cause producers to up their game, even if no consumers pay attention. Revelation of calorie counts might lead to lower calorie offerings, even if consumers do not respond to the calorie information. Maybe producers suffer from a spotlight effect, a belief that people are observing their disclosures more closely than really is the case.
• Simplified information, like restaurant health grades, is often more valuable to consumers than is more finely grained information.
• Comparative information – how does my energy use stack up against my neighbors? – might be more influential on energy usage than other types of usage disclosures. But the potential for perverse outcomes exists, too.
• Personal policies for information disclosure or non-disclosure on social media, for example, do not seem to be fully rational.
