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A trendy area of economics is in a field called “behavioral economics.” In a nutshell, it is the study of individual irrationality and what “we” can do about it. So while most economists like myself believe that individuals tend to make decisions that generally benefit themselves, the folks studying behavioral economics believe that individuals systematically act in ways that are detrimental to their well-being – in other words, they are irrational.

For example, I eat too much salt because I focus on only the short-term benefits and costs to me. The yummy ballpark pretzel is so much better with salt than without it. And the pretzel only costs $2, so I eat the salt. However, since I am irrational and not bright enough to think about the future health consequences of eating too much salt today (e.g.high blood pressure), the behavioralists believe it is appropriate for government policy to “nudge” me in the “correct” direction. Why? Because in reality, I am better off NOT eating the salt, I just don’t know it – but the government officials surely know it better than I do.

I do not even wish to discuss here the general absurdity that is apparent with such an argument (I touch on it in this series of posts), but rather wish to address the consistency of the arguments that “nudgers” seem to make. When is it appropriate to nudge? Who is the appropriate target to nudge? What areas of our lives are appropriate to be nudged? And who is vested with the authority to nudge?

Once one ponders these questions, you realize that you fall into the deep end of the utilitarian sludge pool. Cannot virtually any outcome be improved upon? Even the most radical free-market types understand that choices are messy things. It would be insane to think that any one choice we make is the absolute best we can do. But inside, we each implicitly make the decision to stop searching for better options when the search costs get high enough. The best illustration of this is the marriage market. Is there a better match for everyone out there? Of course. I bet there is someone deep in inner-Mongolia that would be a better fit for you, but it probably would have been obscenely difficult for you to even know that person exists, much less to find him or her. Do you not acknowledge this limit? And once you recognize that life is characterized by tradeoffs like these, when do you think it is necessary for someone to step in and remedy what might be a second-best outcome for you? It doesn’t have to simply be the case that you are being irrational, the case for nudging rests on the fact that “we can do better.”

Are there certain classes of people that are ripe for nudging and others that do not require it? It would seem to have to be true, and that is because someone, some HUMAN BEING, has to be empowered to do the nudging. If I am not fit to act in my own interests, then collectively “everyone” has to act in my interest or a small group of elites has to act in my interest, or some other individual has to act in my interest, because I cannot. Take the first case. If everyone has to act in my interest, I would die – because it would be impossible to get agreement from 7 billion people about what is appropriate for me, so nothing could ever possibly be decided. So that regime must fall into one where a select group of people (representative of the collective) must make decisions in my interest.

How, then, are we to think about a small group of elites? Well, clearly then this represents a class of people that do not require nudging, and who are making decisions about me. How does one enter such a group? Does it mean you must get a degree from Amherst College to enter that elite? Does it mean you must pass a test? Win a race? Are they elected in? If so, how can such a group claim legitimacy when those doing the electing are in fact among those that need nudging – or are irrational? Or if you think entry and graduation from Amherst is good enough – who gets to decide who gets in and graduates? And how do they get into those positions? Once again, at some point those requiring nudging have to have been involved in the process, otherwise the accession to such positions of power in a “democracy” would be illegitimate. Not only is the legitimacy of the elites now brought into question, but you might wish to ask yourself – why would such people even have an interest in nudging me? Is it because my irrationality imposes costs on them? In virtually all cases, my eating of too much salt does not – unless they have managed to nationalize health care expenditures. But even then, having me die of a heart attack at age 60 is probably better for socialized health care systems than having me live to 85 and get all manner of chronic dieseases that are expensive to treate. Is it because they love me? Ask yourself if many strangers you are aware of actually display the kind of love for you that friends and family does? Exactly. And if these elites cannot possibly be doing this because you are imposing costs on them, and not because they love you, what other reasons for their existence can you find? I can think of one, I’ll let you ponder it.

The final option, if the masses cannot act on your behalf, and the elites cannot act on your behalf, is to have one other person who is NOT YOU, act on your behalf. They had a word for that back in the day – it was called slavery. Once again, ask how this person obtains the legitimacy of acting on your behalf? And once again ask whether this person is acting because your irrationality is imposing costs on them, or whether they are acting out of love for you. The answers to these questions should lead you well down the path to understanding that acceding to “nudging” is nothing less than relinquishing your much cherished freedom.

But there is more. Suppose you have no qualms with the legitimacy of those doing the nudging, and no qualms with the intentions of those doing the nudging and no qualms with the ridiculous knowledge problems that nudgers face (i.e. how can they possibly know what is in the best interest of millions of people when they are arguing that all people make mistakes, including themselves?). You still have a major quandary. What is the appropriate scope for nudging? If you grant that it is appropriate to be nudged in our health care decisions, our eating habits, our driving habits, etc. then why is it not appropriate for nudging to happen in our political lives too? If individual voters make decisions that are only in their nearsighted interest, and lose sight of whether or not it is in their long-term interest, should we not take measures to nudge them into making more appropriate decisions? Or if people are too irrational to make decisions about what to eat, who to have relationships with and so forth, how could it possibly be the case that they can make good decisions in their political lives? Or that when they enter the glorious political arena that they suddently are immune from these errors – absolved much like a Catholic leaving confession? In the former, shouldn’t it then be the case that elite economists craft policies that make voters do things that are in the interest of long-term economic development, that short-sighted irrational voters would never let fly. For example, many voters elect representatives that bring home the bacon, but do not realize the costs this imposes on the rest of the country – so perhaps we should put the names of non-porky candidates at the top of the ballot, or give then extra commercial time, just to “encourage” voters to select candidates that will act in the broader economic interest? Of perhaps voters elect representatives that are going to save their job at the tuna-chocolate lasagna plant – much to the detriment of workers at the yet to be created baloney balloon factory. Should we start “providing information” to consumers about the health risks of tuna-chocolate lasagna, and the benefits of baloney balloons, just so that voters do not continue voting for policies to keep the tuna-chocolate lasagna industry in place?

Finally, think about paying your taxes in light of the nudger argument. I pay taxes because the government has a gun to my head. I do not want to pay them. I do not get nearly as much in benefits in terms of government provided public goods that it costs me to secure them. By every measure, it is irrational for me to pay taxes – because they make me considerably worse off than a world where I voluntarily contributed to producers of public goods that I preferred to purchase. If, collectively, all of the folks that felt like me acted upon our impulse, it would be impossible for the collective to kill or imprison all of us. So, if the nudgers were consistent, would they not also recommend that an educational and informational program talking about the reasons not to pay taxes, and educating people on ways to avoid paying taxes, be appropriate? And if not, why not?

5 Responses to “Nudge Me … off the Freedom Platform”

  1. Michael says:

    As you may remember, I’ve read the book myself. The book opens with a couple of cheap shots at our rationality that I thought were bad examples. if you recall the pictures of the “coffee tables,” they ask which one is longer, only to show they were the same on the next page (with the legs removed). I still maintain that it is not true, because they took a 3-D object and compared lenght and width in 2-D space. This would be akin to saying a telephone pole is much longer than a road in a picture because the telephone pole extend beyond the horizon where the road stops.
    I could go on where they basically use the efficiancy of the price system argument in reverse; they state something to the effect that because we are one person stacked against the knowledge of millions of others, someone must be able to make a better decision than us in a specific area, like the existence master chess player assisting our own game. But to go on further, I might as well write my own blog.

  2. Sanket says:

    I guess you would not be a proponent of technical analysis, a trading system whose ideological basis is behavioral finance. There could definitely be error and irrationality in the financial markets. The CDS market and the market for CDOs, MBS, and other asset backed securities grew insanely large during the subprime bubble. One can attribute the massive buying and selling of these securities as irrational, since the origins of these mortgages were unknown. Companies did not care to know what they were buying and selling, and AIG did not seem to integrate risk of default into its models when issuing a large number of credit-default swaps. Wasn’t that irrational?

    Tim Hartford, author of the Undercover Economist, mentions in his book how fund managers follow the crowd like “herds of sheep”. This may imply some irrational behavior. He mentions how even though someone may be correct about the market in the long run, market psychology and thinking that a stock is valuable will bring its price up. A popular fund manager was right to avoid internet and technology stocks in the 1990s, fearing their eventual bust, but he was fired for not making money in the 90s. Unlike him, many fund managers invested heavily as more tech and internet companies went public. As the world saw the collapse of the tech-bubble in 2000, the fired fund manager was right, but fired, whilst the “sheep” fund managers saw their investments crumble.

  3. Daniel Estrada says:

    how you can possibly compare political affiliation and its effects on economy, society, patriotism; or the tax system that you have likely benefited from (have you or your son ever gone to public school? Have you ever enjoyed the beauty of scenic routes? do you feel safe in your community due to police presence?) to something as simple as salt consumption and its detrimental effects on health? these analogies serve as completely unrelated arguments.

    it’s no secret that Americans are gluttonous, obese fools that act on flawed materialistic ideology… did you know that 9/10 of the heaviest people in the world reside in the United States? obviously, something is going on here that needs to be fixed.

    by being caught up in the “don’t tell me what to do, i’m a free man” philosophy, you blatantly ignore the benefits of accounting for psychologically-understandable-economically-irrational rationale that is behavioral economics.

  4. wintercow20 says:

    Mr. Estrada,

    I encourage you to address the questions in the middle of the post, as that was the point. Nothing in there denies the fact that people often make decisions that seem to fly in the face of traditional cost-benefit decisions. But the existence of such mistakes by no means opens the door for someone to do something about them – particularly since that “someone” must also be susceptible to the problems that us mere mortals are.
    The last point you make is not empirically borne out – particularly since 99.9% of economic actions appear to be done “rationally.” For the sake of disclosure – I have probably consumed fewer government services than just about anyone in this country. No public schools, no social programs, etc – only those that there is a gun forcing me to consume.
    As for the rest of your comment, I encourage you to read this blog in detail, no point in hashing it out here in the comments. Needless to say, I also feel LESS safe due to the existence of government police and I enjoy fewer scenic views because of government land and road policy. The tax system and political system are morally bankrupt institutions that serve to benefit a few privileged few at the expense of the many. It is sad that the elitists among the collectivists have managed to convince a large population of Americans that it is anything other than that. I encourage you to read the site regularly, as we address the issues you bring up fairly regularly – in fact, it is a major reason the site exists.

  5. Harry says:

    Geez, Wintercow, I understand your frustration when they try to change the subject, which was how the nudger gets picked, and who the hell is he to tell me what to do with my property and my life?

    The only person in the world who should have absolute authority (The Great Nudger) is a hole captain for a USGA-sponsored golf tournament, period. Otherwise, natural law prevails. Do any of the above economic theorists have a better idea how to manage seventy complaisant volunteers who are offered a free lunch? How would they manage seventy million? Have they ever managed three, on their own dime?

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