Rationality, Nudges and Slippery Slopes
So far as I know, neither Cass Sunstein nor Richard Thaler ever read either of the books in which I made that argument. But their recent book Nudges offers a rebuttal. Using evidence from behavioral economics, they argue that irrational action is not merely random error. There are patterns to it, predictable ways in which individuals act that are inconsistent with the economist's assumption of rationality. Thaler and Sunstein propose that those setting up alternatives for someone else to choose among—"choice architects" in their terminology—can and should take advantage of those patterns to nudge the chooser into making the choice they think he ought to make, the choice he would make if he were fully rational. This is the approach that I described in an earlier post as "soft paternalism" and that has been described elsewhere as "libertarian paternalism." It is paternalism because it is getting people to act as someone else thinks they ought, libertarian because it leaves the individual free to act in a different way if he wants to—a nudge, not a compulsion.
The argument as stated is persuasive and interesting. As the authors point out, any time you are offering someone else choices—whether "you" are a government agency, an employer, or a firm selling something—you are necessarily deciding in what form to make the offer, hence engaging in choice architecture. If you are going to do it, you ought to know what you are doing and do it in a way designed to produce the result you want to produce—in their case, choices that result in the chooser better achieving his own goals.
The libertarian part of the proposal depends on leaving the individual free, at no significant cost, to make the choice you don't want him to make. But if you don't want him to make that choice, it will be tempting to make it more and more difficult—to require him to fill out forms, file them in the right place, perhaps even to neglect to tell him that forms exist to be filled out, that the alternatives you don't want him to choose are available. There is thus a serious slippery slope problem, making it possible for libertarian paternalism to be used as the justification for government actions that end up as paternalism, or compulsion for other purposes, that is far from libertarian. The point occurred to me when I read the book. It was reinforced by a real world experience at about the same time.
It was the beginning of my daughter's first year at college and the college sent us a bill, a list of charges and a total we were to pay. One of the items in the list, included without explanation, was ten dollars for the "Green Edge Fund." Being curious, I did an online search to find out what it was. It turned out that it was a fund to subsidize environmental projects by students. It had been voted in the previous year—as an optional ten dollar per pupil payment.
"Optional" means that you don't have to pay. We sent in our check minus the ten dollars and I sent an email to the president of the College, pointing out that he was billing parents for money they did not owe. I received back an apologetic email from an administrator, explaining that the program was a new one and they had not yet gotten everything set up properly.
A month or so later I received a bill from the College for ten dollars. I wrote back to the office that sent the bill, pointing out that they had billed me, and all other parents, for ten dollars we didn't owe, that rather than my owing them money they owed money to all of the parents who had paid the ten dollars. I also sent an email to the administrator. A few weeks later, I received second bill for ten dollars—shortly followed by an email from the administrator telling me that the matter had been taken care of and I could ignore the bill.
Recently we got our bill for the second semester. It included a form for our daughter to sign and hand in during the first two weeks of the semester requesting a waiver of the charge for the Green Edge fund. The form contained a description of the fund—put in terms of how the money would be used, not how they hoped it would be used—that I suspect most students and faculty at the college would regard as fraudulent advertising if it were the product of, say, the phone company.
The bill did not include any mention of the fact that the College had, in the previous semester, charged parents for some tens of thousands of dollars that they did not owe, nor any offer of a refund to any parent who wanted it.
As it happened, my wife went to the same college thirty-some years earlier—and had had a similar experience. In her day it was a one dollar per student charge to support one of Ralph Nader's PIRGs. A student could get out of it by going to the right office on the right day and telling them he didn't want to pay it. On further enquiry, we discovered that the one dollar per student "donation" was still there, although there did not seem to be any effort to inform parents or students that they had the option of not paying it.
An optional charge where the default choice is to pay it is the sort of thing Sunstein and Thaler propose, a nudge in the direction of doing what those responsible believe, possibly correctly, that most of those nudged would want to do if they took the time to think about it. But the people constructing the choice architecture know what result they want to get, they believe they are doing good and so not constrained by what they themselves would consider proper principles of morality and honesty in a commercial context, so it is very easy to make the "wrong" choice more and more difficult and obscure until what is optional in theory becomes mandatory in practice.