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.

Cosmo-Parochialism

I hate when people say they like to travel, for most people mean that they like consuming museums after taking a long plane flight.

As a professor, I have been to my share of museums during my opportunities to travel. I recall taking a group of students to Manchu Picchu. They couldn't really care less. Sure, there is a part of them which will look back on the group pictures that we made, or remember what it was like to stare down from the sides of the mountain to the river vanishing in the valley below, but really what they wanted were the props for visiting. The gift shop at Manchu Picchu gives a stamp for your passport, which is symbolic. It is just another item on the list.

Real travelling requires learning a language and staying in the homes of the people who are native to the country. Far fewer people do this. I wouldn't even know about this if I didn't do a study abroad where I lived in someone's house or if my wife's family were not so generous as to put us up when we visit Germany. I can't help but fret when I think of  too many of today's students that can't tell the difference between 1) wandering the streets of a foreign city and 2) actually becoming acquainted with a foreign culture. 

I find this to also be the case among so many people's political preferences as well. The cosmo-parochialists have a list of things that they have to have to consider themselves cosmopolitan. This list includes having a gay friend, traveling abroad, volunteering for a political campaign, and various other things. We all know the list of things we are "supposed to" do before we get old and set in our ways. But none of this is real because it lacks a fundamental element of reciprocity. This reciprocity requires submitting one's self to challenges to one's beliefs. 

The cosmo-parohialist consumes culture, s/he does not experience it. Living life with a check list of politically correct experiences does not get you down and dirty in another culture. It doesn't let you experience things that repulse you about other cultures that you learn to appreciate when you see it with a new set of eyes. One can have these experiences without leaving home. All that is needed is someone who is unrepentantly different than you. This comes from an openness of mind that demands engagement with others. Few have this trait, rather they quickly converge on the "right" answer. True cosmopolitans, rather, are stuck not knowing which hand to hold a fork or whether to use chop-sticks because they love both traditions so much it is hard to chose one. 

A cosmopolitan wants everyone else to remain different so that they can benefit from different customs and traditions, so that they can experience cultural exchange and learn new things. A cosmopolitan fears the convergence of cultures brought about by globalization because they will lose the very thing that defines them as cosmopolitans, a challenge to their own sacred beliefs. 

A cosmo-parochialist cannot get this while listening to an English language translation of a museum tour.  

Spontaneous Order vs. Dionysus vs. Rousseau

Ok, that is a strange combination. But I was thinking about different theories of the group. I have been obsessed with thinking about collective action since I first read Hayek who articulated the idea in a way I had not found in other places. Now I know that collective action problems are everywhere, but it really depends on how you look at them. So I want to break these down into categories:

The ancient Greek idea of Dionysus was of a harvest god, a god of excess. So what do you do when you have a harvest and much of it will cannot be stored for the long term? Well, you feast. The feast celebrating Dionysus must have been quite a few people's favorites, but over time the creation of myth about the god suggested something very interesting. Dionysus as a fetus was ripped apart on the order of a jealous goddess Hera because, as usual, Zeus had been fooling around and fathered Dionysus from a mortal woman. One way that the dismembered god could be re-united is when his worshipers all worked themselves up into a drunken frenzy. Dionysus here stands for the transcendental union of the mob in its most animal form. The individuals have to be reduced to a totally unconstrained state, like an orgy.

The French author Rousseau also talked about where political authority comes from. By trying to imagine a sovereign who most perfectly captured the majority of political will, Rousseau posited that the general will could be achieved in society in at least a relative degree. Rousseau did not have the benefit of social choice theory, nor the intervening scholars that have studied the issue, but he becomes an early expression of approximating a social choice solution at an aggregated level. Arrow would later call this solution a dictator.

Finally there is Hayek. The theory of spontaneous order deliberately rejects the solution of collective action through one mind (be that god or sovereign). In its place Hayek finds that the price mechanism help to communicate information so that totally isolated individuals could get what information they need to move resources in the right direction to everyone in society's benefit. Typhoons cause damage to catfish farms in Vietnam, no need to read the paper, the price rises and people start conserving catfish by eating other foods at the margin.

What is explicitly rejected in Hayek's theory then is that the aim of this process is deliberate. There is no god, no sovereign whose purpose this whole process serves. Looking at the three different cases we note the similarities. All have two levels: social order and individual action. The Dionysians debase the individual in order to celebrate their god, whatever happens happens. Rousseau ignores the minority, which causes some problems that even he would have to admit. Ultimately Rousseau's system is unstable because it is too bold with majority will. Hayek rejects the teleos, the goal of society that Rousseau would want, and the thing Dionysians couldn't care less about.

Hayek, to my mind is the one that cares the most about the individual. Some say to a fault. Perhaps Hayek's biggest challenge is to deal with a world where the minority gets some power or privilege by historical accident or evolutionary failure. Rousseau's majority would take care of this problem, but it would soon start looking like a Dionysian mob because, as far as I understand, Rousseau didn't have a solution for run away majority will (French Revolution). So the biggest question is, in avoiding the mob, are we doomed to have entrenched interests?