February 19th, 2009 at 11:21 pm David Frum | No Comments |

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Cass Sunstein’s and Richard Thaler’s Nudge has deservedly won praise as one of the most important public policy books of the year.

Nudge builds on insights from the new school of behavioral economics, of which Richard Thaler is a leading light. Thaler and others in the school have conducted a series of vivid and often very amusing psychological experiments that show that even highly economically sophisticated people will behave in certain predictably irrational ways.

In one experiment, Thaler brought to class two boxes of equally priced University of Chicago trinkets: coffee mugs and pens, if I remember right. (I gave away my copy of the book to a colleague who wanted to read it, so I’m relying on memory here.)

In round 1 of the experiment Thaler gave students the mugs as a souvenir. Then he sent testers to invite those students to swap their mugs for pens. Almost all refused.

Then in round 2, he reversed the swap: He gave another group of students the pens, and then sent out testers with mugs. Again, no deal.

If one item were invisibly superior to the other, you would expect to see the same preference show itself whether the guinea pigs were “buying” or “selling” mugs or pens. Instead, the students clung to the item they were originally given, whatever it was.

This predictable irrationality has real-world consequences. We save too little for the future, eat too much, fail to wear seatbelts, and otherwise act in foolish, self-destructive ways.

So Sunstein & Thaler propose that public policy should apply a gentle “nudge” – not to compel anyone to do anything, but to encourage people to make decisions that will make people better off. Sunstein and Thaler stress that they are not mandarins who wish to impose their own preferences on others. They are not trying to turn football fans into opera buffs (or vice versa). The nudge would only encourage people to do things that they themselves would want to do if undistracted by human error.

The best and clearest example of the policy they have in mind comes from the area of pensions.

Many American companies offer to match dollar for dollar everything their employees put into a 401(k) retirement plan up to a certain level. The rational thing to do when offered free money is to take it. But these schemes typically require employees to do something to accept. The human instinct for procrastination kicks in, and the employees never bother, often with calamitous consequences for their retirement plans.

But what if the 401(k) plan assumed the employee was opted in unless the employee said otherwise, rather than assuming the employee was opted out? The human instinct for procrastination would then work to the good, not to the bad.

That seems like an uncontroversially good idea, as do their proposals for a “save more tomorrow” plan, by which future pay raises are automatically diverted to savings before employees can spend them.

Indeed, Nudge bristles with useful ideas, all offered in a cheerful, engaging style guaranteed to win the attention even of people whose stomachs sink at the phrase, “public policy book.”

But the book also raises some troubling unintended questions and poses some odd nonsequitors.

Nudge is not subtitled: “Helpful suggestions for improving the design of pension plans.” It is subtitled: “Improving Decisions About Health, Wealth, and Happiness.”

In the concept of a gentle nudge, as opposed to an overbearing hand of command, the authors plainly seem to think that they have found a new theoretic role for the state, a new future for modern liberalism.

Are they right? Let’s apply a practical test:

Nudge ends with a grab bag of suggestions that seem to have been left over after the rest of the book was assembled. One of them is a suggestion that marriage be entirely privatized, that the state cease to have any role in marriage beyond certifying contracts negotiated by the parties themselves. This idea has floated around libertarian circles for years. Whatever its merits, though, it seems the very opposite of the “nudge” philosophy.Considerable social science evidence confirms that married couples are (to borrow Nudge’s subtitle) healthier, wealthier, and happier than singles or unmarried couples. Given the insights into human psychology collected in Nudge – how people procrastinate, how they prefer the status quo to change, how they are paralyzed into passivity when confronted with too many choices – you’d suppose that the authors would urge governments to “nudge” couples into choosing marriage.

But no. Why not?

I’d venture this guess: The dividing line between a gentle and permissible “nudge” and an over-emphatic “shove” is not nearly so clear as the author’s easy style would lead us to believe. In areas where the authors greatly value autonomy, ie in sexuality and marriage, even the gentlest guidance seems intolerably pressing. In areas where they value autonomy somewhat less, they tolerate a firmer hand.

That’s not a criticism! It makes perfect sense … providing one shares the authors’ priorities.

I was in New York City recently [not so recently as of time of this posting!], stopped into a Starbucks, and noticed that the various baked goods on offer had their calorie counts advertised beneath their price. That’s a new mandate by the city, and it seems to me a very reasonable one. No “fat tax,” no zoning bans on junk food in certain neighborhoods (as Los Angeles has recently and surely unconstitutionally attempted) – just a factual announcement that the carrot muffin is not as healthy as you might wish it were.

A nudge, right? No coercion, just a gentle reminder. Yet Reason contributor Jacob Sullum complains

What about the consumer’s right not to know? The same research that supporters of menu mandates like to cite indicates that most consumers prefer to avoid calorie counts, enjoying their food in blissful ignorance. There’s a difference between informing people and nagging them.

It’s not impossible to imagine that there may exist people for whom eating is as vital to self-government and personal autonomy as sexuality is to the authors of Nudge. The authors of Nudge may not take this desire to remain uninformed very seriously. (I find it difficult myself.) But it’s hard to explain exactly why not. Which warnings are too trivial to be taken seriously – and which warnings meet an emerging need – will always be a rather arbitrary judgment call.

The authors of Nudge offer this principle for nudging: we should nudge when we can make people better off by their own lights without compromising any important liberty. The list of important liberties as compiled by Jacob Sullum may look very different from the list favored by the authors of Nudge.Their neutral principle, like so many neutral principles, turns out not to be so neutral after all. It seems there’s no removing the politics from political theory.

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