Wednesday, 30 July 2008

Review of Nudge

Well, I finished Nudge the other day and I have to say I'm fairly impressed by it as a book. I don't know if it's quite as revolutionary as is being made out, but it's a nice and straightforward primer on behavioural economics and some of its applications.

The first section sets the scene for why nudges - policy interventions that encourage rather than mandate certain types of behaviour - may be necessary. So it builds up the argument for why we aren't the rational self-maximizers that economics has tended to assume we are. This section includes a useful run-through of some of the key heuristics and biases that have been identified and what kind of outcomes they result in. This does provide a pretty good overview of some of the major factors like anchoring, availability, representativeness, loss aversion and so on. It also stresses the importance of the design of choice, or choice architecture, and that in many cases there is no option to be 'neutral' - some kind of structure of choices has to be offered.

The second section is about financial issues, so much of this is familiar ground if you know much about recent pension reform. Still the points are worth reiterating. If you auto-enrol people into a pension most tend not to opt-out. Whereas if you don't auto-enrol many don't join. This, combined with what non-savers say themselves, suggests that non-savers aren't making a rational choice not to save. People also adopt naive diversificaton strategies - the equity content of their asset allocation (if they have made an active choice) will be heavily influenced by the allocations of the funds on offer (and what stock are popular at the time) and what's more people don't tend to shift their initial allocation. Also it seems pretty clear less in more in fund choices - too many options puts us off choosing (no really).

The section on health has a bit of a US focus, but there is interesting stuff in there. The example of the Part D prescription drugs system is useful if only to demonstrate why a random choice for non-choosers (like the carousel option proposed by the ABI for Personal Accounts) is a bad idea. Also the section on organ donations is worth a read - I think I still favour the assumed consent approach, but the idea of mandatory choice (ie having to state your position on your driving liscence) is at least worth thinking about. Also in this section are some fairly interesting suggestions for nudging people to reduce energy consumption. These are definitely worth a look since they involve, for example, being able to make peer group comparisons. I think this would work on two levels - firstly simple self-interest, wouldn't you be annoyed to know you are spending more on energy than comparable households? Secondly I think it would give people smug points for being more energy efficient.

The fourth section I probably found the least interesting, as it deals with ideas I'm not that impressed by, such as school vouchers. Having said that the idea of privatising marriage is intriguing, if unlikely to happen. Basically they argue that the state should restrict itself to civil partnerships and the legal rights that flow from them, but that 'marriages' could be arranged by other groups. That way churches could choose whether or not they want to carry out same-sex marriages. Equally other organisations could carry them out anyway. That way, the authors argue, no-one's values get compromised but neither are anyone's rights denied.

The final section sketches out some further ideas for nudges, as well as combatting some of the counter arguments that have been put forward. This latter chapter is well worth a read as the authors do a pretty good job at arguing back at some of the half-decent arguments there are out there that challenge them. Some good pro-nudge points here include the one I've already mentioned that often there isn't a neutral option - so the absence of a nudge is a kind of nudge itself. Also it is important that nudges are made explicit, so there is no sense that Government (or whoever else is doing the nudging) is being underhand.

Thaler and Sunstein argue that their approach offers a real 'third way' since it seeks an alternative to both state mandated paths on the one hand and complete laissez-faire on the other. This they call Libertarian Paternalism. That's obviously an Americanism, since in the UK libertarianism of any stripe is not a strong theme in our political culture, and seems to be (on the Right at least) the preserve of people who think speed cameras are 'Orwellian' and tax morally comparable to robbery. As such I don't expect the label to catch on here. However overall the book does provide quite a few ideas for how we could achieve some beneficial behavioural changes without being too heavy-handed. As I've said before, I think it would be a big mistake for lefties to not engage with these ideas. And if you want to get into behavioural economics this probably isn't a bad place to start.

2 comments:

jaxtraw said...

Since you're so enamoured of "behavioural changes" and clearly like the idea of being nudged a lot (although I suspect that the arrogance of the left means that you see yourself as a very good person who won't need to be nudged, nudging being for the ignorant masses), I suggest you imagine sitting on a bus next to somebody who, every few seconds, nudges you, pokes you in the side, that kind of thing.

When you've visualised that sufficiently to realise just how incredibly annoying that would be, and how within a short time you would become very eager to somehow stop the unwanted nudging and poking, you may begin to understand why the rest of us are so sick to fucking death of you lot trying to make us what we neither are nor wish to be.

Tom P said...

Actually I'm the sort of person who does benefit from nudges. I was auto-enrolled into the first pension scheme I had at work, I doubt I would have bothered if I had to make the effort.

I'm not getting the idea that you're particularly interested in debating the right and wrongs of this type of approach though.