Behavioural economics and the libertarian paternalists of 'Nudge'

July 2009

Stuart Derbyshire introduces this discussion, asking if economics and democracy should really be heading in this direction

About Nudge the book:
Nudge is one of a series of influential books on behavioural economics. Behavioural economics rests on the assumption that we can only understand important economic events when we confront the fact that their causes are largely mental in nature. What this means in practice is that behavioural economists focus on the behaviours and motivations of individual consumers, financiers and capitalists rather than on ‘laws’ associated directly with interest rates, inflation, unemployment, labour value and so forth.

Because it is people who save, spend and take on debt understanding people will mean understanding why we often fail to save, buy things we don’t need and take on inappropriate debt. If we had better controlled these behaviours, claim the behavioural economists, the current economic crisis would be less serious. And if more people understand it now, we’ll recover a lot quicker.

In Nudge, Thaler and Sunstein also argue that by better understanding how people make choices the world can be organised so as to encourage better choices. Supermarkets, for example, can organise their product placement so as to encourage people to buy more fruit and vegetables and less sugar, fat and salt. Hotels can post notes in each room explaining that their guests regularly reuse their towels to discourage unnecessary laundry. Companies can provide information in such a way that services can be directly compared and unnecessary costs eliminated. And so on. They call this effort to create better choices libertarian paternalism. Libertarian because no choice is actually mandated but paternalism because there is the effort to influence people’s behaviour so as to make their lives longer, healthier and better.

Questions to consider

• How does the economic man described by behavioural economists differ from the rational economic man of classical economics?
• What is rationality?
• Can better understanding of how consumers, financiers and capitalists behave prevent recessions and create recovery?
• Is it a good idea to organise choices to encourage better choices? Should we support libertarian paternalism?

   

Further Readings to consider

Goldstein NJ, Martin SJ, Cialdini RB. Yes!: 50 Scientifically Proven Ways to Be Persuasive

Akerlof GA, Shiller RJ. Animal Spirits: How human psychology drives the economy and why it matters for global capitalism.

Behaviour versus Structure: an exchange of views on how to understand the economy and its current crisis http://www.uel.ac.uk/risingeast/current/

A typical article from Leigh Caldwell’s Blog: Behavioural economics versus "real" economics?

Brain dysfunction did not cause the recession http://www.spiked-online.com/index.php?/site/article/6638/

Shopping and the Stone Age brain http://www.spiked-online.com/index.php?/site/article/6417/