Governing through other means: behavioral economics and choice architecture

Cass Sunstein’s essay in the New York Review of Books about Sarah Conly’s new book  “Against Autonomy: Justifying Coercive Paternalism” has generated a wide public debate on the pros and cons of behavioral economics, choice architecture and so-called expert or liberal paternalism.

In the meantime, several new papers have been published this month that deepen our understanding of alternative means of regulating behavior, including the value of behavioral economics to governance.

In a recent University of Washington School of Law research paper,  Ryan Calo compares three methods that have “captured the imagination of scholars and officials”:

“The first alternative method, known colloquially as architecture or “code,” occurs where regulators change a physical or digital environment to make undesirable conduct difficult. Speed bumps provide a classic example. The second method, libertarian paternalism or “nudging,” refers to leveraging human bias to guide us toward better policy outcomes. For instance, the state might attempt to increase organ donation by moving to an opt-out system because people disproportionally favor the status quo. Finally, mandatory disclosure or “notice” works by requiring organizations to provide individuals with information about their practices or products. Examples include everything from product warnings to privacy policies”. 

Throughout the essay, Calo argues that “regulators should choose “facilitation” over “friction” where possible, especially in the absence of the usual safeguards that accompany law”.

The (forthcoming) Oxford Handbook of Behavioral Economics and the Law (edited by Eyal Zamir and Doron Teichman) contains a chapter by Cass Sunstein that focuses on Nudges.gov: Behavioral Economics and Regulation.

In the chapter, Harvard Law Prof. Sunstein discussed the theory and application of so-called “choice architecture — including default rules, simplification, norms, and disclosure — ” that “can affect outcomes even if material incentives are not involved”.  A general conclusion of Sunstein’s article involves that:

“While material incentives (including price and anticipated health effects) greatly matter, outcomes are independently influenced by choice architecture, including (1) the social environment and (2) prevailing social norms. When some people,  cities, and nations do well and others less so, it is often because the former, and not the latter, are able to benefit from aspects of the environment, and from prevailing norms, that enable them to take for granted, and perhaps not even to think much about, a set of practices that serve them well. And as we have seen, some behaviorally informed tools, such as automatic enrollment, can have very large effects – larger, in fact, than significant economic incentives.”

Finally, a paper by Thomas Price in the Annual Review of Public Health (Volume 34) focuses on “The Behavioral Economics of Health and Health Care”. According to Price:

“People often make decisions in health care that are not in their best interest, ranging from failing to enroll in health insurance to which they are entitled, to engaging in extremely harmful behaviors. Traditional economic theory provides a limited tool kit for improving behavior because it assumes that people make decisions in a rational way, have the mental capacity to deal with huge amounts of information and choice, and have tastes endemic to them and not open to manipulation. Melding economics with psychology, behavioral economics acknowledges that people often do not act rationally in the economic sense. It therefore offers a potentially richer set of tools than provided by traditional economic theory to understand and influence behaviors.”