Nudge Fads, Behavioural Econ & Paternalists
Tyler Cowen links to an interesting paper on economic research that relies on behavioural economics.
Behavioural Economics identifies psychological biases that lead to irrational decisionmaking, and frequently leads to suggestions of ‘nudge policy’, where policymakers use those biases to drive policy outcomes.
Only problem is, nudge approaches aren’t part of a transparent policy discussion, and they rely on policymakers being not only rational themselves, but right. They are the essence of paternalism.
As Niclas Berggren points out in his paper:
This study analyzes leading research in behavioral economics to see whether it
contains advocacy of paternalism and whether it addresses the potential cognitive
limitations and biases of the policymakers who are going to implement paternalist policies.
The findings reveal that 20.7% of the studied articles in behavioral economics propose
paternalist policy action and that 95.5% of these do not contain any analysis of the cognitive
ability of policymakers.
I have no trouble with the analysis behind behavioural economics; the more psychological reality in economics, the better.
Where the trouble lies is in its seductive appeal to those who view everyone else as a dronish member of the herd just waiting to be guided to a happier life by those clever few who know better.
The hubris, and the danger, is in that little section: “those clever few who know better”.
The “clever few” were a certain pathway to dictatorship in Plato’s Republic more than 2300 years ago, and with today’s behavioural economics they still are.
No wonder 20-something postgrads love the discipline. It reinforces everyone of those egotistical assumptions they carry round till the world knocks the edges off. Only problem is they can be making policy before that happens.
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At an even more basic level, they leave un-answered the question “what should be nudged” and “how far”. There is no nudge “price signal” embodying information about relative scarcity, and any estimate of cost and benefit is subject to myriad factors that are very difficult to measure at a given point in time, still less over time. We should stand in wonder more often at how well markets work, even if they’re not perfect.