From a Nudge to a Shove? Will Behavioral Economics Become a New Form of Coercion?

Over at Neuroworld, Reason contributor Ryan Sager looks at two examples of applying behavioral economics to public policy. Here, he quotes from a Guardian piece by George Osborne and Richard Thaler (the latter is the co-author with Obama regulation czar Cass Sunstein of Nudge):

In Sacramento, an energy company has harnessed the insights of behavioural science, and prints information on energy bills that allows households to compare their energy use with similar homes. This simple change led to a fall in overall energy consumption as homes using more energy than their neighbours quickly adjusted their behaviour to fit in with the norm.

OK, that doesn't seem too bad, right? So here's another suggestion from Osborne and Thaler:

We are working together to formulate a series of public policies on issues ranging from the environment to financial regulation. Because the academic literature shows the importance of a way a decision is framed, the Conservative party is working with councils to replace Labour's bin taxes with schemes that pay the public to recycle. In Windsor and Maidenhead our pilot scheme has already increased recycling rates by 30%.

OK, that doesn't seem too coercive, does it? Though it may well be an incredible waste of money depending on how much it costs to pay people to increase recycling rates by 30 percent. The authors don't mention that tidbit in their col, alas, so any sort of cost-benefit analysis is impossible.

But then Sager notes what else our dynamic duo is up to:

The piece also recommends a seven-day cooling-off period for store credit cards, so that people don't wrack up huge debts in the heat of the moment at the checkout counter. They call this less intrusive than banning the cards or instituting a new tax — though, it still sounds pretty intrusive to these American ears (errr… eyes).

Read Sager's post here.

Yes, I'd say that's intrusive. And might well have all sorts of effects on business, when you can officially bring back any credit card purchase after a week. It's worth noting that many cards and stores have return policies already. Why not allow the private sector to work it out? Because, I assume, that wouldn't be as much fun for paternalists.

Comments

[John]

Even when they call themselves "economists" or "free market believers" or sometimes even "libertarians", smart people with lots of credentials just cannot help themselves and always end up wanting to control how everyone else lives. It just takes some of them longer than others to get there.

[brotherben]

John, sometimes it's just good clean fun. Like standing in line with hundreds of locals on election day. Listening to the conversations about Obama and McCain. Gently suggesting that Obama/Biden was the Christian, brotherly, racially unbiased choice. Watching all the sensitive white baptists and methodists start to fidget and question their motives. Good times man.

[John]

That is ok. It is not like anyone ever listens to you.

Like standing in line with hundreds of locals on election day. Listening to the conversations about Obama and McCain. Gently suggesting that McCain/Palin was the deadbeat, social woodtick's choice.

[brotherben]

John, dang man. That made me laugh like crazy. Thanks : )

[John]

I aim to please.

[mr simple]

Evidence from behavioural economics and social psychology can't only help us meet our goals more effectively, it can also help us to achieve them more cheaply, and without intrusive and burdensome regulations. This is therefore a fundamentally conservative approach, which can help us to reduce government spending and get the deficit down, while at the same time building a more responsible society where people are in control.

This is the problem. They are trying to build society in their perfect vision.

[John]

Exactly. They know better and how everyone should live. And we can either go along easy or go along hard.

[MP]

"when you can officially bring back any credit card purchase after a week"

Wha? I believe you totally mis-read that. The idea is that when you sign up for a store credit card, you can't use it for seven days. This would prevent someone from making a charge on a newly opened account, thus tempering impulse buys.

Not that I approve of this micro-management mind you. But it appears you've completely misinterpreted the proposal.

[sage]

It's you who is mistaken. The Jacket does not mis-anything anything.

[Nick]

I think you misinterpreted his statement. He's saying impulse purchases can be returned so the harm of impulse buys are mitigated by the existing return policies of most stores.

[MP]

What is he basing that statement on?

[Nick]

Oh, I don't know, perhaps he's basing it on the common knowledge that most stores let you return any purchase within 30, 60, or 90 days with a receipt. If you buy something impulsively, you can return it once you've calmed down and realized you didn't need it or want it as badly as you thought when you were in the store.

What don't you get?

[TrickyVic]

Often for store credit only.

[next topic, mancrushes]

Men discussing shopping. Where is Suki when I need her?

[Nick]

If people are that impulsive so as to inconvenience a store into repaying full value, I have no problem in them requiring that annoying customer to at least use the repayment in their store. Otherwise it's just money laundering.

If there is a defect in the product, cash or a return of money to the credit card used is standard practice.

[TrickyVic]

Refund for a product you don't want = money laundering. No.

I don't have a problem with store credit either. But it usurps the idea that you get your money back if you were impulsive.

I'm pretty sure we both agree that if you can't control your spending, too bad. Businesses shouldn't have to accomodate other peoples bad decisions.

[bubba]

You're shopping at the wrong stores.

[Jennifer]

I'm of two minds about the credit-card thing, though; I don't support the idea of any law to "protect people from their own worst impulses." However, I AM opposed to the modern identity-theft status quo; when I am told "protect yourself from identity theft!" what that REALLY means is "protect the assets of any bank or lending institution dumbshit enough to loan money to any stranger who says 'Hi, I'm Jennifer and I want to take out thousands of dollars' worth of high-interest unsecured debt" without checking to ensure it is actually ME borrowing that money.

A couple of years ago I did a story on that topic; I called various banks and other people, and basically asked, "If you claim I owe you craploads of money, why is the onus on ME to prove I don't, rather than YOU to prove I do?" And the answer I got was that if credit-card companies had to REALLY make sure it was ME borrowing the money before saddling my credit record with the obligation to pay it, that would make instant on-the-spot credit impossible.

If they changed the laws away from the current, odious "You must prove your innocence" status quo, the card companies themselves would realize on-the-spot credit is a bad idea.

[T]

Hmm. I wonder if one could sue for libel if companies posted false information to your credit report.

[Jennifer]

No, you cannot. That was also addressed in my story; I pointed out that if I, as a private citizen, make an honest mistake that causes you to be unjustly denied a loan, or even turned down for a job based on your credit score, you can sue the SHIT out of me in civil court, but if you suffer the same consequence because a lending company or credit-reporting company made the same mistake, you have ZERO legal recourse at all.

Identity theft would hardly be a problem at all if we just reversed the evidence requirements; if I'm a credit company who walks up to you and says "You owe me $20,000 in credit-card debt," the onus should be on ME to prove you owe me, not on YOU to prove you don't.

But the CC companies figure writing off the bad fraudulent loans is cheaper that verifying identities before loaning money, and thus losing the lucrative "impulse purchase made on instant credit" market.

[Aresen]

There is no intent to defame, so I think that the CC companies can get off the hook on that. And there is no way - outside of universal DNA records - that they could absolutely ensure that they were dealing with the real "Jennifer".\; all they can do is take steps to be reasonably certain that they are.

But I think if they were made responsible for ALL of the costs of correcting false information, they would change their practices very quickly.

[John]

How is it that they "really make sure it is [you] borrowing the money"? I have gotten lots of credit cards and all I ever did was sign a form that required my date of birth and SS# and mailed it in.

[TrickyVic]

Be careful. Next they will want a national ID biometric attached to credit cards.

[Jennifer]

How is it that they "really make sure it is [you] borrowing the money"?

They don't. That's the point. The catalyst for me to write that story was, some dumbshit who worked for the state revenue department thought it would be a good idea to put the names and SSNs of 106,000 state taxpayers onto a laptop computer, which he then carried out of the office and lost, and yours truly received one of the resulting 106,000 "Oops our bad" form letters.

Despite this, credit card companies continue to operate according to the fiction that of all the people on God's earth, *I* am the only one who could POSSIBLY know what my birth date and social security number is. Bullshit. There are hundreds, possibly thousands, of people, many of whom I've never met, who are privy to this information, starting with every member of every HR department for every company I've ever worked for, and every employee of every city, state or federal-level tax office I've had to shell out money to. But the CC companies still pretend that merely knowing my social security number is a goof-proof method of making sure someone who claims to be me really is.

[Jennifer]

Forgot to mention: those 106,000 taxpayers were from a state whose total population -- including little kids still many years away from their first paycheck and resulting need to file a state income-tax form -- was only three million. That 106,000 made a very large chunk of the state's total taxpaying population.

[Nick]

I'm surprised their aren't more dead behavioral economists.

[adam]

What is needed are some behavioral economics studies of policymakers who use behavioral economics to make policy. Then we could design a system of policy-making that leads them to stop trying to control our lives.

[Aresen]

The French did.

It was called the guillotine.

[Soonerliberty]

What about Gulags for politicians only...if you have the urge to legislate, off to the fields. How long would it take politicians to break such a nasty habit under such conditions?

[Kroneborge]

I kind of like the nudge idea as long as it's just that, AND proper cost benefit analysis has been done.

It preserves the essence of choice, while making people more informed about the true costs of an action.

For example, if food prices reflected the probable healthcare costs associated with them, eating healthy would be cheap, and eating unhealthy would be expensive.

[T]

How would you get the producers and sellers to jack up the cost of the food to meet your current perceived probable health care cost? I can't think of a way that doesn't involve some outrageous interference in pricing mechanisms. Plus, the opportunities for regulatory capture are endless. Lard will still be a buck a pound because the Pork Board and ADM got the regs rewritten to favor them.

[Brett L]

Yeah. IF the information was objectively credible and not the crap that passes for social science studies.

[R C Dean]

I kind of like the nudge idea

Whereas I kind of like being left the fuck alone.

[T]

The nudge is for your own good, RC. Surely you understand we only want things to be better for you.

[Kroneborge]

But the problem is we have to many things like Medicare/Medicaid. Since those programs will NEVER disapear (let's stay in reality please) then we should do our best to minimize their costs.

Nudging all those people that are putting costs on other people seems like the most libertarian fix to a bad problem (that would ever happen)

[ManikMonkee]

That's kinda cool to see Thaler working with the Tories

The fact of the matter is even if it isn't libertarianism,

libertarian paternalism is a feck of a lot to the right of New Labour nanny state quango shite

If Cameron and Osborne are doing the libertarian paternalism thing at home and Hannan is doing paleo conservatism with a Libertarian streak in Europe

the Tories are looking like a pretty good option

Might actually vote for them in May
of course wouldn't admit that in public,

like as the Smiths sang

"We won't vote conservative, because we never have

everyone lies, everyone lies"

[alan]

But would you not agree that Osborne, Thaler, and Sunstein would be much more productive as citizens if they peddled their butts on the street instead of leeching off the public trough as consultants, and in CS case, a regulator? Why encourage their current bad behavior by taking the unproductive rolls they have turned in to an unsustainable lifestyle (without massive infusion of public monies) seriously when we should be nudging them to make better use of their time?

[Eric the .5b]

libertarian paternalism is a feck of a lot to the right of New Labour nanny state quango shite

Fixed that for you. It's not a damn bit libertarian.

[Rich]

The piece also recommends a seven-day cooling-off period for store credit cards, so that people don't wrack up huge debts in the heat of the moment at the checkout counter.

How about a seven-*month* cooling off period for newly enacted legislation?

Especially considering the recent remarks by Dionne and Axelrod about how Americans can find out about HCR *after* it's passed.

[P Brooks]

homes using more energy than their neighbours quickly adjusted their behaviour to fit in with the norm.

Well done, Citizens!

The nail that sticks up must be pounded down.

Next up: brightly colored clothing, and counterrevolutionary music.

[TrickyVic]

They are hoping to aquire data down to the appliance level. That way, the power company can demand that you comply with the soon to be new laws regarding the efficiency of your refridgerator. Or whatever.

At the very least, they will changer pricing structure, the current price will be for non-peak use, they will apply a service charge or higher rate for peak use.

[Kroneborge]

Nothing wrong with adjusting prices to reflect actual supply and demand is there?

[plutosdad]

I guess it's not so bad as long as it's average and anonymous, and they don't give out actual neighbor's information.

This reminds me of the people who want to print calorie counts at fast food chains. Instead of printing calorie counts, maybe print the current average calories bought by other consumers. Then people might think "holy cow i just ordered twice as much food as everyone else, maybe I'll get the diet coke".

[next topic, mancrushes]

only fast people drink diet coke.

[Nick]

The customer who just paid for $15 worth of McDonald's for one person can't really be reasoned with...and probably already orders the diet coke with his two Super Sized Extra Value Meals. At the drive thru window. Can you imagine if McD's delivered? There would be shows on Discovery Health about it.

[P Brooks]

if food prices reflected the probable healthcare costs associated with them,

heart surgeons would be handing out free bacon, and unfiltered Pall Malls, on street corners.

[hmm]

Economists tend to get lost in the aggregate and forget the individual, which can obviously be a dangerous thing. They all do it, some factions are worse than others. Personally I think it's the greatest hazard of needing a lot of data to draw valid statistical conclusions. Once you start thinking of all cost-benefit in the aggregate it's easy to justify screwing over Bob Individual and trampling his rights. Especially with all the math, science, and pretty graphs backing you up. (well easy for some)

Being part redneck I boil everything down to the bar room brawl. If Bob is justified in putting a boot in someones ass for trampling his rights, the cost-benefit may be moot on the basis of individual rights. Of course, this is a giant scale and not an absolute. Bob may be justified in laying the smack down, but chooses not to. And that is the creeping game played when engineering society. How far can the ruling party incrementally usurp Bob's rights until Bob flips the fuck out. (I have to go put my tinfoil hat on now)

On the math and science note, Rothbard on Hayek's Nobel over at Mises.

[Ballroom Brawl]

"Being part redneck" WTH, does that mean? Do you serve road kill hors d'ouvres on a saltine with a bottle of Penfolds Grange Hermitage?

[hmm]

No it's caviar with moonshine. (okay it's really just trout eggs from the bait shop)

[Joshua]

"OK, that doesn't seem too coercive, does it? Though it may well be an incredible waste of money depending on how much it costs to pay people to increase recycling rates by 30 percent. "

You neglected to point out that recycling produces a net cost to the recycler, so increased recycling = increased cost no matter how much they bribe the people to green up.

[IceTrey]

Why would a company that makes it's money selling energy try to get it's customers to use less energy? If I was a stockholder in that company I'd be a might pissed.

[Monica Hamburg]

Generally, I agree with nudges - and to some extent the "paternalists" - because in many cases they do know better than the average person.

And I'm surprised by how many are incensed by measures like this that protect people from themselves, but are quite comfortable with drug laws which often punish people who are doing harm to no one *but* themselves.

The credit card cooling off period seems no different to me than the law that allows you (typically) 24 hours to change your mind on a contract you signed. People make some poor decisions - and so certain policies are instituted to give them a fighting chance against their own vulnerability - and those who make a business of using those weaknesses to their advantage.

That said, yes, I think this store credit "shove" is a bit extreme. Perhaps we should spend more of our energy educating people about avoiding impulse decisions and managing money and credit better. But since that ain't going to happen...