Is it worth noting that one cannot simply “opt out” of Thaler and Sunstein’s endorsed retirement programs (see endnote 15, chapter 6 of Nudge)? If employers wish not to participate in auto-enrollment, then they are exposed to costly legal liability and must expend costly effort filling out forms to attenuate this liability. If employees wish not to participate in retirement plans like a 401k, they are exposed to a tax penalty. So, even as the authors might prefer to see things, this intervention does indeed reduce the decision space of market actors.
November 4, 2009
November 1, 2009
Nudge and the Subjectivity of Ends
I wanted to expand on one of the criticisms of Nudge that I made below. Namely, I criticize Thaler and Sunstein’s inability to dispense with the fundamental fact of subjective human preferences.
The authors refer to their preferred program as “libertarian paternalism”. I suspect this term is insincere, (perhaps merely an attempt to woo libertarians into more state-friendly territory?) since Thaler, for example, seems quite willing to endorse clearly non-libertarian paternalism. But for argument’s sake I’ll use their nomenclature. After all, the authors’ inability to stand by their professed principles is not a rebuttal of those principles per se (though it does undermine their pat dismissal of slippery-slope arguments).
Facially, libertarian paternalism attempts to account for subjective preferences in its definition. Paternalism, Thaler and Sunstein say, “tries to influence choices in a way that will make choosers better off, as judged by themselves” (page 5). This neat trick hangs subjective consumer preferences as the goal-point of all rigid government interventions. But it gets us nowhere.
Any of the chapters could be used to demonstrate the inability of libertarian paternalism to choose a “correct” direction in which to point consumers. But the discussion of retirement planning (Chapter 6 – “Save More Tomorrow”) struck me as the most obviously futile.
October 21, 2009
In Defense of Nudge
A friend writes in response to my criticism of Nudge:
To the first point, I think the issue is that in any setting, it is impossible to avoid constructing some choice architecture. I actually think the recognition of this should reduce special interest control, since the government will be able to employ people who think about the implications of the choice architecture, rather than letting special interests set it.
Further, a nudge is not the same thing as an intervention. It is important that Libertarian Paternalism does not imply an expansion of interventions–just smarter construction of existing interventions.
To the second, a defining characteristic of Libertarian Paternalism is that the decision space is not changed in any way. Consumers/citizens can choose the exact same set of goods under a different choice architecture. (Ideally there are no costs to doing this, but I think this probably plays out differently depending on the specific example.)
In the policy areas they make recommendations on, the broad finding is that a majority of people don’t care or are not expert enough to figure out what is best for them. I see no problem with attempting to help those people make smarter decisions, as long as they are nudges and not shoves.
Given this, it seems that your problem is not with Nudge, but with the government. In my reading, the authors are agnostic about the appropriate level of intervention. If your complaint is against the government manipulation of markets, your fight should not be against efforts to make that manipulation smarter, but against the manipulation itself.
More to come.
October 19, 2009
Against Nudge
Some preliminary arguments against Nudge, adapted from some of my correspondence with a friend:
I had a couple of problems with [Nudge].
The first – an objection I’ve seen made elsewhere – is that Sunstein and Thaler don’t take public choice problems seriously. Government interventions tend to favor special interests and especially incumbents because these interests derive known and concentrated benefits from certain laws. [Special interests] are better able to organize political and lobbying power to capture their desired interventions than the general public, whose interests are diffuse and often unknown. A common example is agricultural subsidies. By advocating the expansion of interventions, Sunstein and Thaler are inevitably enabling special interests power to capture government regulation.
The most direct response I can find in Nudge to this objection is on p. 243 where they say, “But if private-sector interests are just following the invisible hand in furthering the interests of their customers, what’s the problem?”
I can’t tell if that response is intended to be a serious or just a humorous rebuttal. Obviously, private lobbying for government mandates is not a market interaction, and no economist would expect it to serve the “public interest”. So either they don’t really understand public choice problems, or they aren’t interested in addressing them.
[ed: In retrospect, I've decided the latter is true]
The second, and more fundamental, for me, objection is that Sunstein and Thaler don’t take seriously the ultimate subjectivity of ends. Throughout the book we hear them complain that consumers haven’t “rationally” shifted their behavior to the ends that government thinks they should [have] (investing for retirement, buying certain types of health insurance, donating their organs). Obviously the authors want very much for their interesting psychological and economic findings to be relevant and prescriptive. But science can never be anything more than descriptive.
The problem is not that consumers have failed to respond to government manipulations of retirement markets, health care, etc. The problem is that government has, in the first place, arbitrarily privileged decisions to save for retirement, buy health insurance, and donate organs. These decisions don’t make consumers “better off” in some objective sense. They simply further some government official’s preconceived notion of how other people should spend their money.
I’ve been meaning to write at length about the second part on my blog. I’ll let you know if/when I do.
I should note that I don’t find the private sector nudging at all controversial. And of course, part of the problem with government nudges is that they can supersede the market equilibrium [in nudges]. As Sowell says of markets, “The degree of rationality in the process is by no means limited to the degree of rationality of the individuals”. The reverse is true of government.
More to come.
