Thursday, 26 August 2010

Nudge, nudge, wink, wink - behavioural economics as a tool of social control

The matter of behavioural economics came to the front of my mind with reading this excellent blog post – in a roundabout way a review of “Nudge. Now the term “behavioural economics” has always seemed to me an oddly oxymoronic description since, if it is concerned with anything, economics is concerned with individual behaviour.

So let’s start at the beginning:

“The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security is so powerful a principle that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often incumbers its operations; though the effect of these obstructions is always more or less either to encroach upon its freedom, or to diminish its security.” (‘Smith, An Enquiry into the Causes of the Wealth of Nations)

The core premise on which all economics is based rests on the view that – taken in the round – each individual seeks “to better his condition”. And this has been taken to mean that decisions taken by individuals are ‘rational’ – hence the idea of ‘economic man’. Yet Smith – nor the other classical economists – never said that every decision taken by an individual is rational given full information and knowledge. We need to consider that, in aggregate, the decisions of individuals tend to be rational (i.e. directed to the betterment of that individual’s condition) or have a rational intent.

Now, since classical economic models allow for the effect of decision-making in circumstances where an individual has incomplete information, we would be disposing of the child as well as the dirty water simply to dismiss classical models (or for that matter neo-classical models) because of bounded rationality, incomplete self-control and (alleged) lack of self-interest. What we need to appreciate is that our issue relates less to information than to perceptions of incentive. Hence ‘nudge’.

Which brings us to advertising – after all the persistence and success of advertising is living proof of the bounded nature of human decision-making. Advertising does not limit itself to putting across information about the product, where you can buy it and its price. The marketer seeks to appeal to heuristics, to create short-cuts and to reduce the decision-making process to a sub-pavlovian reflex when presented with a brand message.

All this is true but for one sneaking little problem – the advertiser has to live up to his brand promise. It really is that simple – businesses that do not do what they say in their advertising (and I’m talking about brand here not deliberate mis-selling) do not develop good brands. McDonalds presents an image of good fun, tasty food and good value – all things to which people aspire and the availability of which they consider betterment. And (for many people) the company lives up to its brand promise. A promise that does not extend to nutritional value, not being fat or even saving the planet.

We (says he trying to put himself into the mind of the health nudgers) want to believe that the McDonalds consumer is some kind of victim. And here the behavioural economists step away from the snug amoral world of economics and into moral judgment:

“Incomplete self-control refers to the tendency of economic agents to make decisions that are in conflict with their long-term interest. Self-control problems may lead to addictive behaviour, undersaving or procrastination. As opposed to the neo-classical view, restricting the choice set can be beneficial for an agent with bounded willpower.”(from Diamond & Vartianen, ‘Behavioural Economics & its applications’)

It is too short a step from noticing that some folk make stupid decisions to intervening to direct their decision-making in some way (i.e. altering the ‘choice architecture’). This is a moral judgement since in the aggregate (as ever ceteris paribus) the typical human decision is rational – it responds to incentives and is directed to betterment. It is as daft to run a model based on a pre-judged moral position as it is to say that every human makes a rational decision every time.

The problem – as our behavioural economists have found – is that those pesky humans just won’t co-operate. They carry on drinking, smoking, scoffing fatty, salt-laden goodies and indulging in a whole panoply of high risk activities. And the only response is – as we have seen, for example, with smoking and begin to seen with booze and food – ever more insistent ‘nudges’. And some of these nudges aren’t even that they’re outright bans, huge financial blunt weapons and armies of enforcers of the behaviouralists’ moral assumptions.

All economics is about behaviour but the economics that says behaviour can or should be controlled or directed is immoral, inconsistent, judgemental and wrong. We may wish to understand human behaviour better – that is a proper course of human enquiry. But only if this is done for reasons of understanding – sadly the behavioural economics we see too often is designed solely with the intention of control. We have returned to an age before the enlightenment that Locke, Hume, Smith and other brought. Back to the brutal, controlling leviathan and the moral control of the puritan.

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