Knowing and Making

A couple of times recently - notably in Bill Easterly's otherwise very positive review of Daniel Kahneman's new book - I've seen the following common critique of Nudge-style approaches: "But if people are irrational, regulators are irrational too - so how can they make rules to counter citizens' irrationality?" Easterly says: But [the case for libertarian paternalism] is much too sweeping, because it overlooks everything the rest of the book says about how the experts are as prone to cognitive biases as the rest of us. Those at the top will be overly confident in their ability to predict the system-wide effects of paternalistic policy-making... While it's right for regulators to be humble about their degree of knowledge about the world, and to be cautious in creating new regulations, there are several reasons why this particular criticism is wrong. First, we are not comparing like with like. There is no claim that a regulator, when placed in the same ...

A very strong article here (by Claire Hill, law professor at University of Minnesota) focusing on two principles: how people see the world, and how they value things. Perhaps I like the article because these two points align closely with my model of beliefs and values. The article is one of a number of contributions to Truth on the Market's behavioural economics symposium , but most of the others are entirely different in character to Hill's. The symposium is dominated by strong skepticism about behavioural economics and particularly its application by governments. It's interesting to see the strong feelings that this subject arouses. Among the various contributors there's a mix between resistance to regulation in general, dislike of the assumption of irrationality, insistence that regulators are just as irrational as citizens, and the assertion that people know their own preferences better than any well-meaning nanny-state regulator possibly could. Richard Thaler ...

The BBC covers the potential for behaviour change projects to improve public health. The article mixes up a few different kinds of interventions, though: Classic nudge-style policies: changing defaults, trying to influence social norms. Incentive-based policies: shopping vouchers for dieters. Full-blown regulation: banning branded cigarette packages. The oddest thing about this confusion is the last sentence of the article: The mandatory wearing of seat belts and the introduction of the ban on smoking in public places are two examples where legislation fundamentally altered, and some would say restricted, the choices of individuals. Some would say ??? The last couple of months seem to have seen a surge in mainstream interest in behavioural economics, which is good news - but also quite a few misunderstandings about what it is. Some people understand it better, though - for example the OFT, which has carried out some behavioural experiments and released an interesting report ...

This article from Suzy Dean of the Institute of Ideas utterly misunderstands - or maybe understands, but thoroughly misrepresents - the ideas, application, scope and definition of behavioural economics. Some choice quotes: If we consider at the growing influence of ‘nudge theory’ within political circles, the tendency to explain social ills through the individual and widespread hostility towards lower class drinking, we can see that price fixing is symptomatic of the contempt politicians and other elites have for the public and their behaviour. ...Thaler and Sunstein argue the state can prompt people to behave a certain way by creating a ‘choice architecture’ which enables people to make the right decisions. The government’s ‘Nudge Unit’ has been tasked with public health issues including obesity and alcohol intake. Yet the problem with nudge is evident in the decision to place a minimum cost per unit on alcohol. It skips the debate about whether it is the government’s business in ...

My Counteradvertising post from last week is not an isolated example. Andrew Lansley, the health secretary, has suggested that: "If we are constantly lecturing people and trying to tell them what to do, we will actually find that we undermine and are counterproductive in the results that we achieve" The newsworthiness of this story is, of course, not because the media wants a debate about which are the most effective cognitive incentives in the public health arena. It's because Lansley is going up against popular cheeky-cockney-chef Jamie Oliver . Putting that aside - and I've no idea if Lansley is correct on this individual issue - he does have a valid point. Telling people what to do is, in many situations, ineffective or counterproductive. Anecdote alert: a Polish friend claimed over dinner today that Britain has, by far, the highest number of nagging public health warnings of any country: posters, TV ads, product packaging. This may or may not be accurate,...

Here we go again. Every so often, somebody reads about a policy idea based on behavioural economics and thinks they're so clever to have come up with the following counter: "Well people may  be irrational, but people who work in the   government  are just as irrational. Therefore their attempts to regulate will be just as flawed as the behaviour they're trying to fix." Now to be fair, Chris Dillow is  clever, but he falls into the same trap here. Of course politicians and civil servants make many incorrect judgments, and have the same cognitive biases as any of us. But this is irrelevant. We don't expect physicists and engineers to be immune from the law of gravity. Yet we still trust them to design planes that can help us transcend our own gravitational problems. The goal, of course, is to design a limited number of interventions to help achieve agreed-on social goals - designing them carefully, rationally and with sufficient time and th...