"Nudge" -- basing economic policies on the premise that people are irrational

[Mark6]

http://www.time.com/time/magazine/article/0,9171,1889153,00.html

I find this fascinating. A year or two ago on a different board there was a short discussion about how people actions are often irrational, yet predictably irrational, and how government policies should take this into account. Someone wrote that basing public policy on the assumption that voters don't know where their interests lie, and must be manipulated into making right decisions, is impossible in practice. He thought that once existence of such policies became known, the backlash would be terrible -- "nobody likes to be thought of as an idiot". Yet such approach seems to work for Obama and Cass Sunstein (http://www.amazon.com/Nudge-Improving-Decisions-Health-Happiness/dp/014311526X/ref=sr_1_1?ie=UTF8&s=books&qid=1244222675&sr=8-1).

[GreyICE]

Obama is treating us like adults, and you've decided he's treating us like idiots.

I can understand why the right is so uncomfortable here, acting like an adult is something they haven't done for 20 years, and it's way outside most of their comfort zones.

[casebro]

The OP falls into my premise: The Democrats are the emotional party, the Republicans are the thinking party. They both lie, cheat, and steal. But it is the Dems that use the line "It's For the Children". If that isn't more emotional than rational, I don't know what is. Yes, I'm equating emotional with irrational. Don't you? Spock would agree with me, too.

[mazyloron]

Behavioral economics is a very interesting topic. Glad to see we're already into political finger pointing and name calling.

[Mark6]

Obama is treating us like adults, and you've decided he's treating us like idiots.

I can understand why the right is so uncomfortable here, acting like an adult is something they haven't done for 20 years, and it's way outside most of their comfort zones.

What made you think I am member of "the right"?

What made you think I am uncomfortable here?

And how on earth do you equate "nudging" people into making some decisions easier than others -- based on assumption of human irrationality, -- with "treating us like adults"? Two are mutually exclusive. Which does not make "nudging" a bad idea.

[Tsukasa Buddha]

OMG, they discovered the "bandwagon" advertising effect I only learned about years ago!!!

Behavioural Economics is interesting, for like five minutes, apparently Obama is still in love with it. It makes the shocking discovery that in the real world people don't follow the neo-classical assumption of "rational" behavior! You would have to be an economist to find that surprising :p .

[Mark6]

Behavioural Economics is interesting, for like five minutes, apparently Obama is still in love with it. It makes the shocking discovery that in the real world people don't follow the neo-classical assumption of "rational" behavior! You would have to be an economist to find that surprising :p .

I am not surprised at what bahevioural economics says -- if anything, it is very straightforward. I am surprised (and pleased) that someone in Washington is paying attention to it.

[theprestige]

So if people are irrational, and consistently make irrational decisions individually and collectively, how do we avoid the problem that a government composed of people will consistently make irrational policy decisions?

[Darat]

Use the magic-8-ball.

[Tsukasa Buddha]

So if people are irrational, and consistently make irrational decisions individually and collectively, how do we avoid the problem that a government composed of people will consistently make irrational policy decisions?

We turn control over to the computer overlords, of course.

[GreyICE]

What made you think I am member of "the right"?

What made you think I am uncomfortable here?

And how on earth do you equate "nudging" people into making some decisions easier than others -- based on assumption of human irrationality, -- with "treating us like adults"? Two are mutually exclusive. Which does not make "nudging" a bad idea.

I'll give you a hint: I read the article. It's an interesting strategy, I'd try it sometime if I were you.

Let me show you what you missed by not reading:

The first sign of the behavioralist takeover surfaced on April 1, when Americans began receiving $116 billion worth of payroll-tax cuts from the stimulus package. Obama isn't sending us one-time rebate checks. Reason: his goal is to jump-start consumer spending, and research has shown we're more likely to save money rather than spend it when we get it in a big chunk. Instead, Obama made sure the tax cuts will be paid out through decreased withholding, so our regular paychecks will grow a bit and we'll be less likely to notice the windfall. The idea, an aide explains, is to manipulate us into spending the extra cash.

But if you have a smidge of long-term memory, you'll remember that the Bush 1-time Rebate checks were criticized for only encouraging savings and not encouraging spending because rationally, people save 1-time economic windfalls rather than spend them. Economists recommended a small cut to encourage people to spend.

Bush handwaved them because he wanted to be the one to give people a large chunk of cash, and he didn't think 'people acted like economists think.'

But they do. Obama's 'nudge' is simply assuming people act rationally.


The first step is knowledge. Studies suggest that better information — from public-service announcements, appeals by respected figures, even serial dramas to help reduce teen pregnancy and other social ills in developing countries — can assist us in making better choices.

...



Nudge calls for aggressive rules for disclosure and clarity, to help us make more informed decisions about home loans, student loans, credit cards, health-care plans and retirement plans. Thaler points to an Executive Order, signed by Obama on his second day in office, that calls for new transparency through new technologies. "That's exactly what this is about," Thaler says. "If instead of the 30 pages of unintelligible crap that comes with a mortgage, you can upload it with one click to a website that will explain it and help you shop for alternatives, you make it as easy as shopping for a hotel."
Better information helps rational humans make better decisions. This is basic skepticism 101. More information = better. This is not really something that anyone could call 'irrational' except a spin doctor.



More along these lines is heading our way. The Administration hopes to harness our inertia with its automatic pension plan, a major step toward universal savings accounts, and by dramatically simplifying applications for federal tuition aid. Its push to computerize health-care records — another big-ticket stimulus item — could make generic drugs and cost-effective procedures our default treatments. And seniors who don't select health-care or drug plans could be automatically enrolled in low-cost options. "It would be nice if we all behaved like supercomputers, but that's not how we are," Orszag says.

So wait. The administration is cutting red tape, making sensible plans the default (but not locking you into them) and simplifying the arcane procedures the federal bureaucracy uses? And this is treating us as irrational, rather than humans with limited amounts of time on our hands who sometimes dislike navigating the 'intricacies' of our government?



Oh come on, this is your big 'Obama is treating us as irrational?'

Am I supposed to buy stock in this? Why would I? What makes this in any way plausible for me? Why would I think he's treating the public as irrational?

I want facts and figures, don't throw garbage speculation at me like it's some sort of holy bible.

[Dr Adequate]

The OP falls into my premise: The Democrats are the emotional party, the Republicans are the thinking party. Srsly, d00d, wtf?

Incidentally, did you read this thread (http://forums.randi.org/showthread.php?t=144848)?

They both lie, cheat, and steal. But it is the Dems that use the line "It's For the Children". No, I don't think that that's the Democrat's rationale for opposing gay marriage.

[mazyloron]

So if people are irrational, and consistently make irrational decisions individually and collectively, how do we avoid the problem that a government composed of people will consistently make irrational policy decisions?

Yeah, I'm gonna need some examples of this before I am willing to even entertain the idea that the government is anything but wise, just and rational.



...the beauty of the Internet is that you can't see how hard I'm laughing when I type stuff like that. ;)