Reactions to the Reactions: Nudging

Most people blur the lines between nudging, education, and media reporting. 

Proposed clarification: I argue that nudging is specifically changing formal institutional constraints to have a measurable impact on a particular outcome.  

By far the biggest criticism of the news story on "nudges" yesterday (where I was quoted) is that media is like a nudge as well. Sunstein and Thaler do little to create a distinction in their book.

"A nudge, as we will use the term, is any aspect of the choice architecture that alters people's behavior in a predictable way without forbidding any options or significantly changing their economic incentives. To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not mandates. Putting the fruit at eye level counts as a nudge. Banning junk food does not. [paragraph break] Many of the policies we recommend can and have been implemented by the private sector (with or without a nudge from the government." (P. 6)

There is a big difference between behavioral economics as descriptive science and its use as a prescriptive science. To jump too quickly between gathering information and recommending a course of action is to lose what John Neville Keynes called the "art of economics."

In research with Adam Hoffer and Bill Shughart, we suggest that a combination of choice and education is preferred to nudges, selective taxation, and prohibition. Some people want to call this a nudge as well, but there is a major distinction between educating the public and changing the institutional constraints that they face. Consider an example that Sunstein and Thaler make: planning the school lunch line. If you put french fries first, students fill their plate with them. If you put salad first, students fill their plate with that. A nudge policy would be to recognize this behavioral description and use it to achieve your normative aims. In this case, education is all that is needed. Telling the folks that arrange school lunches of this simple fact, ought to change the way the lunch line is laid out. We assume two things here in leaving this as a descriptive policy:

1. that the school officials care about the nutrition of their children; and 
2. that they think salad is more nutritious than are french fries. 

This is simple. A descriptive approach to the world provides insight into the way people work and allows the decision makers to act on the additional information. Having recently become a father, I can tell you that information about what to do is not a scarce good. It is sorting and using the information that is hard. We had a conversation with the director of the daycare where our daughter attends yesterday about the transition to formula. Given competing hypotheses the advice was to go with what suits you the best. There is no scientific consensus, nor can their be any on these matters. Can child care be really all that different from behavioral science in general (after all the term paternalism is derivative of this, right)?

When considering parenting or considering policy, there are benefits from each method (The costs are the foregone benefits of the alternative choice). The decision a person makes gives us insight into their preferences (who they are as a individual). This assumes quite a bit of rationality (of the Herbert Simon variety). I think that we need to take this seriously as we recover from the attack rationality has taken since the great recession. Of course, any rationality that assumes perfect information at low cost is bunk. But, that does not mean that people do not behave rational given their available information. Bryan Caplan has even started the discussion on behaving rational by failing to undermine your easily controverted beliefs. He calls this "rational irrationality."

First we must take education seriously. To understand the way that people process information, we have to understand more about education. The classic article on this is the one by Stigler and Becker, De Gustibus non et Disputandum. In the article we find that preferences are formed, so education matters.

The critique of nudging also assumed that media was nudge. This is a much more interesting argument. There is no classic paper, but I think Caplan's work is a way into this. People are drawn to groups with consensus opinions. Political decision making undermines the personal cost associated with holding irrational beliefs because your vote does not change the outcome of the election. The relevant cost of truth seeking is being socially admonished by holding an unpopular (but true) belief. The fastidiousness of genuine truth seeking is enough to make people rationally reject truth in favor of a fiction that allows for more friends. Media can help support this pathology, especially when media is politicized like it currently is in the US. With Viacom and NBC on one side and FOX on the other, the political divide creates clusters of consensus and not truth seekers. All of this is worthy of concern, but is not nudging the way I understand it.

If we are going to distinguish nudging from media and education, we need to have an operational definition. Douglass North uses Herbert Simon specifically in forming his notion of bounded rationality. Let's take this for granted and say that nudges are derivative of both of these ideas, institutions and bounded rationality. To operationalize the notion of nudging, therefore, it must have more to do with formal institutional change than informal (North's distinction). Nudging also takes for granted a type of rationality of the actor, and I see that as bounded rationality. Finally, the thing about making nudges a government policy is that it has to deliver measurable results to be warranted through utilitarian calculus (however flawed).

So, after this analysis, I end up with my definition:  Nudging is specifically changing formal institutional constraints to have a measurable impact on a particular outcome.