By Barkley Rosser, Professor of Economics at James Madison University in Harrisonburg, Virginia. Originally published at Angry Bear
Last weekend I attended a conference at NYU Law School on “Behavioral Economics and the New Paternalism, organized by Austrian economist Mario Rizzo and classical liberal law professor Richard Epstein. It included economists, lawyers, philosophers, and a couple of psychologists. While there was a range of views present a theme for many and especially of the organizers was bashing the ideas about “libertarian paternalist” nudging advocated by Richard Thaler, winner of the most recent economics Nobel Prize, and Cass Sunstein. In particular, Rizzo and participant Glen Whitman have written a book charging the nudgers with advocating a creeping totalitarianism with their advocacy of governments nudging people to do what governments think is best for them. While there were no full-blown Thaler defenders at the conference, the more philosophically oriented attendees rose to the bait and argued against the anti-nudgers, with an especial sharp debate happening between Epstein and Robert Sugden a philosophical economist from East Anglia in England.
Pethaps the most substantial anti-nudge and also critical of behavioral economics paper came from George Mason law professor, Todd Zywicki. While he overdid it a bit he argued with some good reason that most legal decisions in the US relying on claimed behavioral economics foundations, especially on matters involving credit and consumer finance issues, have been seriously flawed. They have either relied on misinterpretations or else mere assertions that have not been empirically demonstrated. He raised a point of more general interest in charging that there has been a problem of “citation cascades,” where a string of decisions have been based on people citing people citing other people in a cascade that eventually boils down to an initial claim that has no clear basis. He noted several of these where the original argument was mere speculation in a paper by Thaler for which no empirical support was provided, but then people quoted his opinion as proof and then quoted each other quoting him, and so on.
Much less polemical but more serious intellectually were papers by Gerd Gigerenzer and Nathan Berg. The former directs a branch of the Max Planck Institute in Berlin and has written an important book with the late Reinhard Selten. Berg was a professional jazz musician before he became an economist, now based in Otago, New Zealand. I have published a paper in my journal, ROBE, on their general themes, which draw on ideas of Herbert Simon and his bounded rationality. In particular Gigerenzer pointed out lots of cases where people doing things that look supposedly irrational for one reason or another in fact lead them to perform better than supposedly rational actors. So there may be a hot hand after all and the “gambler’s fallacy” may actually make money. One point is that sample parameters may not be the same as population ones. Even being inconsistent may actually allow one to perform better than consistently. So to the extent nudge paternalism is supposed to help people overcome hurtful damaging of themselves, well, it may not really help them.
The philosophical defenders of the nudge agenda appealed to multiple selves theory, among other things. One problem was that some of the nudge critics denied findings of behavioral economics that hold. So Richard Epstein denied the endowment effect, noting that most experiments about it have involved undergrads and coffee mugs, demanding more for ones they have been given than they are willing to pay for ones they do not own. Epstein argued that coffee mugs are not a big part of the economy. Also, he and others cited papers by Plott and Zeiller that showed it is possible to structure these experiments so that the effect disappears. However, Sugden and others noted that this is a special case, and that generally the endowment effect holds and does so in important and large scale situations. So people will demand much more compensation for giving up some wilderness area than they are willing to pay for more of it.
I noted that this is like the matter of the ultimatum game, where people tend to refuse what they consider unfair offers, even though it costs them money to do so. Over 30 years ago Ken Binmore showed that it was possible to set up ultimatum game experiments where the usually found effect disappears. But the oddity of that result in the end shoed that Binmore’s result was an exception. The ultimatum game result is very robust. People really do care about fairness.
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Are the papers from this conference “up” anywhere? In particular, Gigerenzer’s work on this is something I’d like to have a long look at; he’s been doing good stuff for decades. Your account of Zywicki’s presentation also seems interesting.
Per Betteridge’s law, no :)
It’s unfortunate how behaviour economics came to be associated with nudging thanks to Thaler and the likes
“Noting that most experiments about (the endowment effect) have involved undergrads”. By definition aren’t they WEIRD people – Western, Educated, Industrialized, Rich, and Democratic? Not a typical population slice then.
This article reminds me of a talk by Mark Blyth at https://www.youtube.com/watch?v=nwK0jeJ8wxg and listen to what he says at the 1:10 mark as it is relevant.
That is a great clip. Blyth is a master of the pithy and succinct debunk.
Is nudging something I should already know? Because I have no idea what it is.
Nudge was the title of a book by Richard Thaler and Cass Sunstein on how to manipulate people in their supposed best interest, like in cafeteria lines, to put whole fruit before desserts made with sugar.
See here for more detail:
https://www.emporia.edu/dotAsset/39566e2a-afb9-46ef-92ad-d46860e964f6.pdf
https://www0.gsb.columbia.edu/mygsb/faculty/research/pubfiles/5055/nudge.pdf
If you liked Nudge, you’ll love “cognitive infiltration“:
Is not this what discerning MIC’s all do these days, via
FBIFB?In the best interest of who, the financial oligarchs?
That’s interesting, I learnt about nudging during my MPP at KCL, no idea it was a behavioural economics topic. I think in England we have been practicing nudging for a very long time. It’s very effective for controlling transport behaviour
A nudge too far?
Constant and persistent nudging generally results in an angry backlash. Somewhere around when a person realizes “This is not where I wanted to be.”
And of course we mopes have been “nudged” into pretty much that blind serfdom alluded to. Back in the Cave, with not much chance of dispelling the belief in and subjection to the shadows projected on the wall we are forced to face…
just a minor typo: Pethaps to Perhaps
I would hope not! Hayek’s “Road to Serfdom” was bad enough!
As a progressive, my problem with nudging is that it’s not effective enough. For things like Opting in/out it can make a difference. But in many cases, nudging causes more trouble than its worth and with a limited actual payoff in terms of public benefit (for example, requiring calorie counts on menus).
How are calorie counts nudging?
I use them for comparison shopping. Maximize calories per dollar within a category.
As a progressive, my problem is who gets to dictate the nudges. With the regulators and the media controlled by the 0.01%, I don’t see much correlation between what’s being nudged and what’s good for us.
Also, it’s being compelled to pay the government to be manipulated by the government (or other authoritative institution). Even if the manipulation were democratic I would prefer not to be subjected to it.
…manipulation is the sowing of a Karmic garden…
I bet “house” money differently than my “stake”. I would not feel bad paying big taxes if I won the lottery.
If you made me feel all my tight fisted possessions were just a matter of luck would I give you more of them?
Nudges as ‘paternalism’ just shows how male centric economics & behavioural economics is. Blind to their own gender bias.
I know this…Cass S’s wife was trying to nudge us to war in Syria. As she did in Libya as well.
The classic nudge example is opting you into a 401(k) unless you opt out.
That’s supposedly better for you … but it is DEFINITELY better for the brokerage handling your account.
I had to look it up: https://en.wikipedia.org/wiki/Nudge_theory
I hadn’t heard of it before.
I rather detest the notion of someone or entity ‘nudging’ me in the direction of some behavior, especially in a paternalistic mode where the assumption is that they know better than I what I ‘should’ be doing or thinking.
On one level, isn’t that a working definition of advertising? On another, it smacks of authoritarianism. Don’t we have enough of this kind of thing already? Worse, what’s the first reaction one naturally has when they realize they’re being manipulated? Seems to be a strategy fraught with risk of getting exactly the wrong response.
If I’m to be encouraged to behave in a given way, show me the respect of offering a conscious, intelligent argument to do so on the merits, or kindly go (family blog) yourself!
Social Security is nudging. So is employer based health insurance. I don’t know if we want to call that “totalitarian” or not.
Social Security is not a nudge (manipulation of choice). It’s overtly compelled.
you’re right, that is advertising. it’s also the basis on which our current consumer society is built.
if you “detest the notion of someone or entity ‘nudging'” you, then you obviously detest every single aspect of our modern society.
every decision we make is up for grabs by someone and we have to continually question how we came to make any one decision, how we decided to choose one product over another or made one choice instead of another because honestly, it’s really hard to separate one’s own agency from the ‘nudgings’ of outside forces.
In economics, the single most important thing to understand is debt.
If you understand debt; you won’t have any debt.
Debt and freedom are the antithisis of each other.
Without debt; nudges have no influence.
A follow up:
https://www.esquire.com/lifestyle/money/a19181300/nassim-nicholas-taleb-money-advice/
A very frank discussion of debt and freedom.