Sunday, June 19, 2011

Nudging Public Policy

Nudge: Improving Decisions about Health, Wealth, and Happiness, a book by Richard Thaler and Cass Sunstein, argues that behavioural economics can help improve public policy. It's very persuasive about the value of 'nudging' people toward better decisions in their own interests, rather than trying to educate them or legislate them into those better decisions.   

In countries where you have to check off a box to be an organ donor, the overwhelming majority do not agree to donate their organs.  If you have to check off a box not to be an organ donor, the overwhelming majority agree to donate their organs.  You're taking a position on the question just by how you pose it.  So why not choose the way that will incline people to make the best choices for themselves and society?  In other words, make public policy that leverages on the natural behaviour of people rather than fighting against it.

Sunstein is working with the Obama administration to infuse their regulatory policy with these ideas.  A recent interview with Thaler in The McKinsey Quarterly publication described his contributions in the UK's so-called Nudge Unit.  This rather long quote comes in the preview of that article: 

Richard Thaler is the rare academic whose ideas are being translated directly into action. Since last year, the University of Chicago professor has been advising the “Nudge Unit,” established by the government of the United Kingdom to create policies that will enhance the public welfare by helping citizens make better choices. . . . Policy makers can nudge people to save more, invest better, consume more intelligently, use less energy, and live healthier lives, Thaler and Sunstein argue, through greater sensitivity to human tendencies such as “anchoring” on an initial value, using “mental accounting” to compartmentalize different categories of expenditures, and being biased toward the status quo.

It's worth reading the whole article.  Thaler says that policy makers in the UK have been very open to suggestions from the unit.

In their book, Thaler and Sunstein called this approach libertarian paternalism, and some people detest such paternalism (see  this article in The Telegraph.)  What do you think?

1 comment:

Rohan Jayasekera said...

"Libertarian paternalism" is an oxymoron. It's an attempt to make paternalism seem acceptable to those who would ordinarily find it objectionable. An attempt that won't work with actual libertarians, but that no doubt will be welcomed by politicians who like to pretend that what they're doing should be welcomed by everyone. I find this a horrible development.