“The Appeal Of A Behavioural Approach Is Not That It Is More Effective But That It Is Less Unpopular”

In a new Financial Times article, Tim Harford looks at all angles of behavioral economics, which has reached its ascendancy in the years since Daniel Kahneman’s Nobel Prize win in 2002. In Kahneman’s hands, the discipline seems to have a lot of merit, but all too often with others its feels like shaky narratives supplanting other shaky narratives. There are so many variables in the world that easy answers can obscure complex situations. Did the Broken Windows Theory really lead to a reduction in crime in NYC when other cities that didn’t implement it experienced similar decreases? Is the answer more complicated? Is it not completely knowable? Does just replacing shattered glass make it easier to not address why we’re producing criminals? From Harford:

“In 2010, behavioural economists George Loewenstein and Peter Ubel wrote in The New York Times that ‘behavioural economics is being used as a political expedient, allowing policy makers to avoid painful but more effective solutions rooted in traditional economics.’

For example, in May 2010, just before David Cameron came to power, he sang the praises of behavioural economics in a TED talk. ‘The best way to get someone to cut their electricity bill,’ he said, ‘is to show them their own spending, to show them what their neighbours are spending, and then show what an energy-conscious neighbour is spending.’

But Cameron was mistaken. The single best way to promote energy efficiency is, almost certainly, to raise the price of energy. A carbon tax would be even better, because it not only encourages people to save energy but to switch to lower-carbon sources of energy. The appeal of a behavioural approach is not that it is more effective but that it is less unpopular.

Thaler points to the experience of Cass Sunstein, his Nudge co-author, who spent four years as regulatory tsar in the Obama White House. ‘Cass wanted a tax on petrol but he couldn’t get one, so he pushed for higher fuel economy standards. We all know that’s not as efficient as raising the tax on petrol – but that would be lucky to get a single positive vote in Congress.’

Should we be trying for something more ambitious than behavioural economics?”

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