Nudging for freedom

“Nudges” change the decision environment so that people make “better” decisions, while retaining freedom of choice. Fitting within what Cass Sunstein and Richard Thaler call “libertarian paternalism”, nudges are often framed as alternatives to coercive measures. If you can nudge most people toward the “right” decision through the way you frame the choice, the coercive measure is not required.

A recent example is the introduction of default retirement savings in Illinois. A default three per cent of income will be directed to a retirement savings account, with freedom to opt out or increase the contribution. Another is where the Australian Financial System Inquiry recommended offering a default retirement income product (with certain income and risk management characteristics) to people when they retire, with people otherwise free to choose another product or blow their retirement savings on a sports car.

Of course, plenty of coercive measures get branded as nudges, such as proposed bans on large sugary drinks. And after extolling the benefits of retaining choice, choice restricting measures are often praised (such as in this speech by Andrew Leigh, where he praises compulsory superannuation and then defends behavioural economics against claims it is paternalistic).

But, to the point of this post – Are there are any examples of coercive government requirements being wound back explicitly because a nudge was considered effective? Has anyone stated “We have some coercive measures in place, but we have realised that by framing decision in the right way, most of you will make a good decision. Let’s remove these coercive requirements and replace them with a nudge.”?

For example, have there been any compulsory savings programs replaced by default programs on the basis that the default program could be just as effective? (In fact, a default program with a higher contribution rate could result in more savings than a compulsory program.)

If you know of any examples, please help me out. At the moment, my example basket is empty.

*Bryan Caplan has previously proposed some measures of this nature, none of which have been adopted.

3 comments

  1. I don’t know of any examples either, but I’ll briefly comment on Caplan’s proposals: My naive intuition is that replacing coercive measures with nudges wouldn’t tend to work in cases where people opting out would impose clear negative externalities on others, or in situations where one person has clear economic incentives to persuade others to opt out, and the people involved aren’t the relatively economically equal and equally well-informed market participants that libertarian theory seems to assume.

    For example, my understanding is that Social Security in the US isn’t really a savings program, it’s a welfare program disguised as a savings program to make it politically acceptable. If you allowed people to opt out it would potentially threaten the ability of the system to pay promised benefits to current recipients.

    As another example, I can see it being in an unscrupulous employer’s or vendor’s interest to have their employees or customers opt out of relevant workplace or consumer protections, especially in cases of extreme economic inequality and information asymmetry where it would be easy to find desperate and uninformed people to take advantage of.

  2. I must admit I had to think. Well there are a few cases I can name where compulsory labelling (of food products, of energy efficiency in domestic appliances*) has been used where I believe a ban of some kind might well have been imposed otherwise. So a partial success there. But a case where a pre-existing ban has been rescinded – nope, still drawing a blank.

    Car seatbelt legislation came in before most cars were clever enough to beep at you when you did not fasten your seatbelt. It should be perfectly possible to get rid of seatbelt laws (except for children, perhaps) and replace them with design standards for cars and their beeps. But I can’t see this happening. Partly because there isn’t ever much pressure to kill laws.

    The labelling requirement of an A-E rating on washing machines, dishwashers and driers according to their energy efficiency was an astonishing success. It did influence consumers, but influenced major retailers even more: two or three of the major UK white goods retailers simply said to the major manufacturers that, a year out, they would not stock anything below a “B” because it made them look crap (or words to that effect). Pretty rapidly the manufacturers stopped making less efficient appliances. The cynic in me suspects they may have shipped remaining stock to less fastidious countries, but you would find it hard pressed to buy a C-rated fridge or drier in the UK now.

    1. I’d love to run the seatbelt experiment – as per your review of Complexity and the Art of Public Policy. Can you change a social norm by a temporary period of legislation?

      On nudging, I sense we’re dealing with two things – a massive status quo bias that the behavioural economists are playing around the edges of, and most behavioural economists working in the government space aren’t that libertarian.

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