Cognitive biases as public policy

The LA Times has an interesting article on whether the sorts of decision-making biases identified by behavioural economists should be used to promote public policy objectives.

The idea is based on the fact that we are more likely to choose certain options depending on how they’re presented. In fact, supermarkets take advantage of this in how they lay out their products to maximise the chances of us buying the premium brands.

The LA Times piece argues that this could be used for government objectives, such as increasing the number of people who take out pensions, while still maintaining the freedom to choose and without using explicit incentives.

The libertarian aspect of the approach lies in the straightforward insistence that, in general, people should be free to do what they like. They should be permitted to opt out of arrangements they dislike, and even make a mess of their lives if they want to. The paternalistic aspect acknowledges that it is legitimate for choice architects to try to influence people’s behavior in order to make their lives longer, healthier and better.

Private and public institutions have many opportunities to provide free choice while also taking real steps to improve people’s lives.

* If we want to increase savings by workers, we could ask employers to adopt this simple strategy: Instead of asking workers to elect to participate in a 401(k) plan, assume they want to participate and enroll them automatically unless they specifically choose otherwise.

The article gives several more examples and defends its use of the term ‘libertarian paternalism’ for the idea.

I’m left wondering whether governments shouldn’t be adopting exactly what the commercial sector have been doing for years, or whether we’re naive to think political choice engineering isn’t being used already.

Link to LA Times article ‘Designing better choices’.

2 Comments

  1. Kris Schultz
    Posted April 16, 2008 at 7:00 pm | Permalink

    I think it’s a great idea to provide automatic 401(k) enrollment, and it’s an idea that’s had backing in Congress, but has yet to pass http://www.house.gov/emanuel/savingsagenda.shtml
    Both progressive groups like AARP have supported it: http://www.aarp.org/research/work/benefits/enhancing_401k.html and conservative groups like Heritage Foundation: http://www.heritage.org/research/socialsecurity/wm1637.cfm
    I am not sure why it hasn’t passed yet. So long as folks can opt out, if they wish to, and have control of their investment choices, I think it’s a great idea!
    I wonder if there are other ways to promote this sort of approach. Maybe automatic organ donor registry with opt out? Or automatic voter registration? Hummm…..

  2. Posted April 17, 2008 at 12:59 am | Permalink

    Obviously, the LATIMES wouldn’t know a “libertarian” from a “libertine” or a “libation”. I’d expect better from MindHacks. The idea that a 401k choice, a Hobson’s choice construction of the “tax code”, could in ANY way be associated with the word “libertarian” is … is … as far fetched as ‘jumbo shrimp’, ‘honest politician’, or any other self-referential paradox. Libertarianism is the belief that all people are endowed by their Creator with the right to be free of force. Fraud is a form of force. Taxes are a fancy name for theft. Manipulating people into doing what the elite have decided is “best” for them is a fraud. It’s slavery without the chains. If a 401k choice is so great then how come it’s so hard to sell? Are people stupid? Or perhaps, remembering how the rules can change, like when the rules changed on the tax status of social security benefits, people do not want to buy into the gooferment’s propaganda. A libertarian would want to eliminate all taxes. No 401k needed. Isn’t it immoral to force people to pay for something, anything, that they did not specifically agree to in advance. Freely. Libertarians love free market choices; not forced or fraudulent choices!


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