Friday, 18 July 2008

A Nudge and a Myners strike

I went to two different events at the RSA yesterday, both of which were interesting for different reasons. First up was the lunchtime presentation by Richard Thaler, author of the latest behavioural economics book Nudge, which is being talked up by all and sundry. He gave some interesting examples of behavioural nudges, my personal fave (which shows the level I operate at) being the fake flies painted in urinals in the loos in one airport. Apparently since they were introduced 'spillage' has gone down by 80%, because blokes aim at the fly!

He also talked about the importance of choice architecture and made the point - relevant for later on - that there isn't a 'neutral' option. One design or other has to be decided upon and this will have an effect on subsequent choices.

Julian Le Grand also spoke, and gave some examples of policy ideas developed using insights from behavioural economics. I think the idea of a smoking permit which he used is a really interesting one. You would need to get a permit once a year in order to buy cigarettes, which could be quite an effective nudge (imagine having to start each year thinking 'I must get my permit to smoke for the next 12 months'). Unfortunately it was shot down in flames in the media, though I wonder a clever bit of framing could have helped out there.

The event was packed, and they seemed to be doing a brisk trade in copes of Nudge when I left. I've not actually got the book yet though it is on order from Amazon and quite looking forward to getting it.

Back at the RSA in the evening was the launch of the Tomorrow's Investor project which looks like an interesting initiative. The event featured a presentation by David Pitt Watson followed by responses from UKSIF's Penny Shepherd, personal finance journo Jasmine Birtles and PADA chair Paul Myners. A good turn out from the Unison capital stewardship mob too!

I think it's fair to say the real action was the split between the views of Pitt Watson and Myners. David sketched a more optimistic picture, arguing that the democratisation of ownership through funded pensions and other savings had already started to have an influence on the nature of ownership. He gave the example of the success of UNPRI. (He also gave John Gray and his blog a plug - what are you paying him John?!)

Myners was far more critical, arguing that there had been very little real progress. Most institutional shareholders didn't take ownership seriously, SRI barely figured on the radar of company boards (as an influence on them), trustees were still spoon-fed by advisers and still focus on short-term performance despite its irrelevance.

I think the broad consensus from our little group was that although the Pitt Watson view was the one we would like to believe, the Myners perspective seemed to fit more with our own experiences.

One point of disagreement with Myners. When discussing how Personal Accounts will consider ownership issues he said that members should have the choice of an SRI fund, but that that decision should not be made for them. But, as Richard Thaler said at lunchtime, neutrality isn't an option. If the PA trustees decide that SRI will be done via a fund option, they are also making a decision about the default fund where we all know the overwhelming majority of members will probably end up. That's why we have to think properly about the default fund's design. The PADA consultation on investment will take place later this year - this is a major opportunity for the unions to push the ownership issue.

More broadly yesterday left me convinced that some serious work needs to be put into applying things we can learn from behavioural economics to capital stewardship. (Much more broadly I'm also wondering whether 'ownership' as a concept in relation to shareholding itself needs a serious rethink, but that's another story).


John Gray said...

Hi Tom
David is from Aberdeen and my Dad was born there – so there may be a geographical connection for the shared interest in the Labour Party and finance! (BTW - I do have a picture of Aberdeen on flag day – Scottish in joke)

Tom P said...

how did the RSA thing go by the way? and did you get my email reply?

Rowland said...

Good point about Myners - I was thinking the same thing.

What do you mean by a rethink of ownership?

DPW prefers "shareowner" to "shareholder": this gets the sense of the rights and responsibilities, he thinks.

Tom P said...

I don't know if the concept of 'ownership' really captures the shareholder-company relationship, and I wonder a bit whether trying to see it in this way doesn't lead us a bit astray sometimes. I've not thought it through properly but it's something lurking in the back of my mind somewhere!

John Gray said...

Hi Tom
I thought it went really well. Restored my faith in the Great British public – I'm running a bit behind on posts, but will do something soon.