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How would you like the government telling you what you can and cannot eat? Generally speaking, we tend to be uncomfortable with governments acting as our parents, telling us what to do or trying to use the coercive arm of the state to influence our behaviour. However Richard Thaler, of recent Nobel Prize fame, argues that people should not be hostile to ‘nudges’ by the government that will change people’s decision making processes without restricting choice. This is known as ‘Nudge theory,’ whereby healthier choices are positively reinforced and promoted indirectly. Is such an enterprise, what Thaler terms ‘libertarian paternalism’, even possible?

‘Nudge theory,’ whereby healthier choices are positively reinforced and promoted indirectly

Thaler’s specialism is in behavioural economics – the study of how emotional, psychological and social factors inform the process by which humans make economic decisions. The field of economics is saturated with works that assume ‘rational choice theory’ is correct, but behavioural economics posits that human beings will often make economically irrational decisions thanks to overriding emotional factors. These irrational decisions can often cause negative side-effects or externalities for others, as well as being bad for the decision makers themselves. Often these decisions may very well go against stated preferences. To use a student example, my stated preference that I want to eat a healthy diet is revealed to be false when people see me in Mega Kebab every night.

In Thaler’s magnum opus; ‘Nudge: Improving Decisions About Health, Wealth, and Happiness’ (2008) he and Cass Sunstein set out how governments and private businesses can use behavioural economics to ‘nudge’ choice agents into making more beneficial decisions, closing the gap between revealed and stated preferences.

As already mentioned, one example of irrational choices that nearly everyone makes can be found in our diets. We even have a word for the emotional factor that determines our food choices; it’s called ‘comfort eating’. Mental disorders can also play a role in preventing healthy eating. Most peoples’ stated preferences are probably genuine but for cognitive or emotional reasons their revealed preferences are different to their stated preferences.

This gap is not only bad for us, but in some cases can be bad for the wider economy

This gap is not only bad for us, but in some cases can be bad for the wider economy. In the case of unhealthy eating the negative externality would be in terms of the burden on public health. Most will be familiar with the ‘hard paternalist’ response to our vices, which include taxes, regulations, outright prohibition and advertising restrictions, the latter of course aimed at changing our cognitive processes by drowning out voices that will tempt us.

Thaler’s ‘libertarian paternalism’ would argue it is the role of ‘choice architects’ (in this example, people who sell food) to ‘nudge’ customers to eat healthier. Thaler’s libertarian paternalism is restricted to helping people fulfil their own stated preferences, not, as is the case with some hard paternalists, telling them what their aims should be, and in a way that does not restrict choice. Nudges are policies which will help us actualise our stated preferences without restricting choice. One such ‘nudge’ could be putting healthy food under brighter lights, in a more optimal shelf location, or in a nicely coloured case.

One such ‘nudge’ could be putting healthy food under brighter lights

Choice architects are already nudging us in several ways, for example by laying out supermarkets so that we spend more time in there, putting products commonly bought together in the same place, putting special offers in the front of the store and by playing pleasant music that makes us willing to stay in the shop. Why not use these tricks which are currently orientated towards maximising profits, to make people eat healthier?

Here we see some of the limitations of libertarian paternalism. With regards to the healthy eating example, Thaler’s proposal can only be accepted if supermarkets do this voluntarily, which is unlikely given the low profitability in healthy foods compared to unhealthy foods. Hard paternalists may argue that supermarkets should be forced to nudge people, but while this would not restrict choice for the consumers this would restrict choice for the choice architects themselves, whom, in Thaler’s formulation, should be just as ‘free to choose’ as consumers. And of course, nudging can only goes so far. Despite the many advertising campaigns and promotions supermarkets may do on vegetables, we will instinctively head for the hidden sweets and crisps aisle for those revision cravings. No matter how hidden in a shop alcohol and cigarettes may be, we will actively hunt such vices out. This is where hard paternalism will more likely come in with more authoritarian solutions, taxes, plain packaging (which is not a ‘nudge’ since it impinges on the choice architect’s freedom of speech), serving restrictions on sugary drinks, minimum unit pricing and much more. Taxes are also disqualified as a nudge for Thaler, since by definition they restrict the choice of those not able to afford as much of the product after taxes. Thus libertarian paternalism is seen as not going far enough for hard paternalists who think that negative externalities cannot be closed by nudges alone and thus require non-libertarian interventions to eliminate.

The role the government has to play for the ‘libertarian paternalists’ may be more controversial for purist libertarians. After all, in 2010, Thaler was instrumental in establishing the ‘Behavioral Insights Team’ which provided advice to the British government on how they could successfully use ‘Nudges’ to help people make government more efficient. One example of Thaler’s ideas in practice was when those who owed fines to UK Courts were sent a text message 10 days before bailiffs were due to be sent. This reportedly saved the UK Courts system £30 million a year in bailiff charges. Thaler’s misfortune is that ‘Nudge’ has often been invoked to justify UK government policy proposals incompatible with libertarian paternalism, such as bans on junk food advertising and minimum unit pricing on alcohol.

Thaler was instrumental in establishing the ‘Behavioral Insights Team’

What can still be controversial for purist libertarians who have actually read Thaler is whether it is the role of the government to choose which stated preferences are worth fulfilling and which are not. In this sense, to use a libertarian analogy, government is still a player and not a referee. Can we really trust the government to have the best intentions of their citizenry at heart when nudging individuals? Especially given that governments are made up of people who are no less fallible than us? Recent history is filled with examples of governments backing trends that turned out to be negligible or actively harmful to health and the environment, two recent examples being low-fat high carb diets and diesel cars.

Recent history is filled with examples of governments backing trends that turned out to be negligible or actively harmful to health and the environment

However these concerns are trivial when we consider that a nanny state run only on the basis of nudges would probably be the most libertarian in Europe. Gone would be taxes, duties, plain packaging, advertising regulations, size restrictions and other regulations that burden us today. While it may be disturbing to some that Thaler gives governments a role at all in determining our preference and lifestyles for us in the name of ‘wealth’ ‘health’, ‘happiness’ or ‘rationality’, the kind of policies he is advocating do not seriously impact on our freedom, however you choose to define the word. In any case, the various ‘nudge solutions’ outlined in Thaler’s book could be a compromise towards the majority of people uncomfortable with ‘hard paternalism’ but who still think that government has a role to play in improving the lives of their citizens.

 

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