You are Being Delphied!-Followup A Classic Delphi Technique

See here to find out what being Delphied is: https://tjcoop30.wordpress.com/2008/07/09/are-you-being-delphied/

August 2, 2008

This is a nudge in the wrong direction

It doesn’t matter whether it tries to guide us or force us, government doesn’t know best

Jamie Whyte

A few hippies aside, everyone agrees that paternalism is a good thing when practised by parents. Children do not know what is good for them. Left to their own devices they would make many bad decisions. Caring parents will threaten, bribe, cajole, trick or otherwise manipulate their foolish offspring into doing the right things.

When practised by governments, however, paternalism is more controversial. The idea that adults do not know what is best for them, and that the government should manipulate them into doing the right thing, strikes libertarians as outrageous.

Yet most politicians find the idea irresistible. The present Government aims to make us change our behaviour in all sorts of ways that libertarians would think none of its business. Among other things, they want to make us smoke less, drink less, eat less, take fewer drugs, exercise more, save more and spend more time with our families. So do David Cameron’s new Conservatives.

Treating adults like children is an idea that needs some justification, especially when it is espoused by a political party that until recently claimed to champion the individual against the State.

So you can imagine the delight with which these nannies have received Nudge, a book by the Chicago University professors Richard Thaler and Cass Sustein that claims to provide a new justification for paternalism and new ways of manipulating people that are compatible with libertarianism.

The justification for paternalism is that, like children, adults are too foolish to know what is best for them. This may not strike you as a new idea. Most of us think that other people are fools. What’s new, however, is scientific support for this common presumption.

Over the past few decades, “behavioural economists” have been studying how actual human decision making deviates from the perfectly rational ideal assumed in classical economics. Their sad, if unsurprising, conclusion is that we are systematically irrational.

We are apathetic, favouring options that require no action or that preserve the status quo. We are herd followers, doing things that are bad for us simply because others do them. We are hopeless at statistics, buying insurance and lottery tickets even when the odds make them a bad deal. And these are only a few of many irrational biases. It is no wonder that we do all those things that the Government and Mr Cameron wish we would not.

But behavioural economics does not only show that we need external guidance. It also shows how we can be guided. Our irrationality can be exploited to nudge us in the right directions. For example, we can be made to save more if joining a pension plan is the default option when we get a new job – that is, if our employers structure our choices so that we must actively opt out of the plan rather than actively opt in. The right “decision architecture”, as Thaler and Sustein call it, can use our apathy to benefit us.

Or we can be made to file our tax returns on time if the Government publishes statistics about how many of our fellow citizens have already filed theirs. Our herd mentality can be turned to serve our own good.

But here is a simple question. If the Government knows what’s best for us, why only nudge us in that direction? Why not give us a mighty shove – as the Australian Government has – by making saving compulsory? Sustein and Thaler reply that nudging is consistent with libertarianism, but shoving is not. And they are libertarians. They advocate what they call “libertarian paternalism”.

Alas, this is as incoherent as its name suggests. Libertarianism is motivated by the idea that a government cannot know what is best for individuals. That is why it is likely to harm us when it attempts to influence our behaviour. Those who favour governmental nudging must think the “central nudger” knows what is good for us. But then they have no reason to be libertarians.

Nor does behavioural economics justify paternalism, because it does not show that the Government knows better than we do what is good for us. The advantage that individuals have over central nudgers in deciding what we should do was never our perfect rationality. It is our superior knowledge of our own preferences and circumstances.

Take a simple example. Should you save more, as our would-be nudgers suggest? The answer depends on your present and likely future incomes, on how much you can expect to inherit, on how long you are likely to live and on your preferences regarding consumption now versus consumption in the future. The Government may know that you are foolish. But it cannot possibly have better information than you on all these matters.

Knowing that someone is irrational does not tell you what they should do, nor that they are at present doing the wrong things. Our would-be nudgers are like doctors who think that they can prescribe the right medicine simply because they know you are a hypochondriac.

Jamie Whyte is the author of Bad Thoughts: A Guide to Clear Thinking

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Published in: on August 4, 2008 at 8:12 pm  Leave a Comment  

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