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A new challenge for behavioural economics

Can behavioural economics play a role in the process of policy-making, as well as in its implementation?

Many of the best known examples of everyday Behavioural Economics are about health, wealth and wellbeing. Not surprisingly, these three central aspects of our life feature in the subtitle of Thaler and Sunstein’s popular book on the discipline, Nudge.

As they explain, we have many conflicting aspirations, and we’re not very good at weighing them up. We want to lose weight, but we also prefer snacking on a chocolate bar or crisps, rather than on a banana. We want to keep fit, but we also like to lie in in the morning rather than to go jogging. We look forward to a comfortable retirement and know we should save for it, but we also like spending money here and now.

A rational person would simply attribute weights to these conflicting options, and work out what, on the whole, is the optimum combination. Thaler and Sunstein call such a mythical person an ‘econ’, short for “homo economicus”. But we are not econs — we are humans, subject to all kinds of biases and temptations that trip us up and make us regret our choices, over and over again.

Thankfully, behavioural economics offers an arsenal of tricks to help us to make better choices. Nudges can make the option we think we ought to take easier than the tempting alternatives.

But it is important to realize that this is not about one choice winning and the other losing. It is not because we save more for our retirement that we stop spending money today on things we like. Neither do we give up chocolate altogether because we start eating more fruit. Behavioural Economics is not about replacing surrender to immediate temptation by surrender to austerity. It helps us find a compromise between the tempting and the reasonable that is good enough.

It is almost as if deep inside there are two separate single-minded, simplistic entities with opposing aims. Each has complete disregard for their counterpart: “I like chocolate!” versus “I want to be healthy and fit!”. And behavioural economics speaks to a third, impartial entity. This kind of inner benevolent dictator uses tricks like putting an apple on the counter the night before to reduce the temptation to grab a bar of chocolate for our lunch bag. This seems to model how we function much better than Thaler and Sunstein’s mythical econ, in which everything is integrated in one, rational entity.

A larger scale

So we appear to be capable of recognizing the conflict between two aspirations within ourselves, and use behavioural economics to help us take a more beneficial course of action. Can this be done on a larger scale?

Setting and implementing public policy shows some interesting parallels. In public life it’s not various aspects of a single individual that needs to be reconciled, but the diverse demands and expectations of a single population. Policy related to the regulation of road traffic is a good example. None other than Cass Sunstein wrote a Bloomberg view column this week with the provocative title “No One Needs to Die on America’s Highways”. And a last week a member of the Green Party in Belgium wrote an opinion piece (in Dutch — Google Translate) pleading for cities that make it possible for young children safely to cycle to school.

Both articles take a one-sided view in which road traffic safety dominates. Such single-minded views are characteristic for campaigners, who, pretty much by definition, don’t have to worry about ‘the other hand’.

This crumple zone comes with a price tag (photo: Pixel-Mixer)

But of course there are other hands. Not only are there the petrolheads who would resist, out of principle, lowering the speed limits or indeed imposing any speed limits at all. There is also the economic reality of the burden of regulation. The safety-related features of our cars, from seat belts and crumple zones to anti-lock brakes and air bags, cost a lot of money. So does building bridges and underpasses to reduce the chance of collisions at junctions, and so on. And of course reducing the speed limit means it takes longer to get from A to B — and that too has an economic cost.

There is nothing wrong with campaigning in a single-minded way. Just like it’s fine for part of us to insist on having more chocolate, so it is fine for people to argue in favour of taking road space away from cars and giving it to cycle lanes. That is, as long as there is a mechanism to balance these one-sided demands with the ones with which they are in conflict.

The checks and balances of policy-making usually work well in modern western society. Policy is generally developed through debate, often involves the input of impartial experts, and eventually ends up being a compromise that is ‘good enough’ for almost all parties.

But what if it isn’t? What if single-minded campaigners actually gain the power to push through their single-minded cause, disregarding opposite views? Or what if a binary vote, like in a referendum, becomes the dictatorship of a slim numerical majority?

Such situations may have seemed a remote, perhaps only theoretical, possibility just a year ago. But now, there is much evidence that the checks and balances that are intended to protect liberal democracy are under pressure. We see an authoritarian president with a rather cavalier attitude towards his country’s constitution and to the separation of powers. In the British parliament, we see the most ineffective opposition for generations, and a depressing abdication of its scrutinizing role, thus bolstering the unchecked power of the government.

Behavioural economics is being used in public life. More and more governments are setting up teams to use behavioural insights to support the implementation of policies and to influencing the behaviour of their citizens.

But perhaps a much bigger public life challenge for behavioural economics is the safeguarding of a liberal democracy from domination by single-minded views, and that ensures a sensible compromise between the conflicting demands of the population. When it concerns nudging us individuals into healthier, greener or safer behaviours, behavioural economics can appeal to our inner benevolent dictator. Unfortunately, in the domain of policy-making and government there is no such benevolent dictator.

I am not normally attracted by campaigning, precisely because of its single-minded nature. It is hard not to invoke the ‘other hand’ as soon as I see even a hint of a campaign. But a campaign to encourage behavioural economics practitioners to find ways to curb authoritarian policy-making certainly has some appeal.

That’s the kind of campaign that I can wholeheartedly get behind.

Originally published at koenfucius.wordpress.com on February 24, 2017.

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