Leitzel (2021) on Regulating Cocaine

Jim Leitzel, “Double Defaults: Behavioral Regulation of Cocaine.” Journal of Behavioral Economics for Policy 5(1): 7-12, 2021 [pdf here]. 

• Can we protect against the dangers of excessive or highly risky cocaine use without imposing the huge costs that accompany cocaine prohibition? 

• Yes, we can! We can offer some protection against diseased or impulsive decision-making, without posing a large barrier to “rational” cocaine use. 

• We can manage the supply side like alcohol, perhaps, or prescription drugs, but… we also can “nudge” people towards rational cocaine-related behavior. 

• We can take advantage of the surprising power of default options. 

• The First Default: You are Not Eligible to Purchase Cocaine. 

• If you are of age, you can choose to override this default of ineligibility.

• Pass a test, pay a fee, acquire a cocaine buyer’s license; behave well or you will lose your cocaine buyer’s license!

• The Second Default(s): You Can Only Purchase Cocaine in Moderate Doses.

• Prices, Quantities, Waiting Periods – the default settings on all of these are aimed at enforcing modest consumption. The waiting period involves ordering your cocaine purchases in advance, by three days, say. 

• At some cost (time, money), you can override these default terms for more liberal access to cocaine (if you have a record of unproblematic cocaine-related behavior); alternatively, you can opt-in to more stringent rules, at low cost or even some subsidization. Want to only be allowed to purchase cocaine on weekends? – great, you can impose this restriction, and the suppliers will enforce it.  Want to have a cocaine-free February? Great, you can put in a no-purchases-during-February rule, and the sellers will enforce it.

Disclosing Conflicts of Interest: Loewenstein, Cain, and Sah (2011)

George Loewenstein, Daylian M. Cain, and Sunita Sah, “The Limits of Transparency: Pitfalls and Potential of Disclosing Conflicts of Interest.” American Economic Review 101(3): 423–428, 2011 [pdf available here].

• Disclosure of conflicts of interest to customers would presumably eliminate any potential problems with such conflicts, if customers were standard rational actors. 

• But how do people respond to mandated disclosures? Those providers who have conflicts might increase the bias in their advice, realizing that their advice will tend to be discounted. They might even feel that the disclosure provides them with a “moral license” to mislead. 

• The recipients of the disclosure might think that the disclosure itself is a signal that the provider must be trustworthy. Further, they recognize that the rejection of the provider’s advice is now a sort of tacit accusation that the provider is corrupt – and people are wary of sending such signals. The desire to help out the provider might also push consumers to accept the conflicted advice. 

• The authors describe some experiments in which mandatory disclosure of conflicts of interest did indeed lead to worse advice, and acceptance of worse advice, with degraded outcomes for consumers (relative to when conflicted advisors were not required to disclose their conflicts.) 

• If the disclosures were not made by the provider, but by someone else, then consumers were better able to respond appropriately. It appears that it is when there is “common knowledge” of the conflict – the provider knows it, the consumer knows it, the provider knows that the consumer knows it, etc… – that the consumer’s incentive to go along with the biased advice is maximized. More time to respond to biased advice – a sort of cooling-off period – also is helpful to consumers. 

• An in-depth follow-up article on disclosure previously received the BE Outlines treatment.

Camerer, et al. (2003) on Asymmetric Paternalism

Colin Camerer, Samuel Issacharoff, George Loewenstein, Ted O'Donoghue, and Matthew Rabin, “Regulation for Conservatives: Behavioral Economics and the Case for ‘Asymmetric Paternalism’.” University of Pennsylvania Law Review 151(3): 1211-1254, 2003.

• An asymmetric paternalistic regulation creates large gains for the less-than-rationals, while imposing little upon rationals. 

• Are there predictable circumstances in which people tend to be less than rational? 

• Asymmetric paternalism as a method for correcting internalities. The tradeoff is meant to assure that the interventions do not impose high costs on rationals. 

• It cannot be taken as given that people’s choices maximize their well-being. It’s an empirical issue, of course. 

• Many current regulations are asymmetrically paternalistic. 

• Defaults have to take into account what would be the most common best choice, as well as the possibility that the costs of error are asymmetric. 

• Cooling-off periods allow bad decisions to be reversed, but generally lower the value of the decision when it is rational. If sellers bear costs when decisions are reversed, they might want to ensure rational deliberation ex ante. Should consumers be allowed to waive cooling-off periods? 

• Constitutions implement the equivalent of cooling-off periods. 

• Are there private incentives to provide paternalistic interventions? Maybe the reason such interventions are needed is the reason they will not be demanded.