I was in Philadelphia last weekend, and happened to catch this article about Cass Sunstein’s new book, Nudge: Improving Decisions About Health, Wealth, and Happiness:
So what is a nudge? The book’s path to explaining that simple term passes through some clunkier ones: behavioral economics, choice architecture and (deep breath) libertarian paternalism. Behavioral economics, which Thaler helped shape, hinges on the belated (for the dismal science) recognition that human beings often resemble Homer Simpson more than they do Mr. Spock.
Psychologists have shown that we humans harbor many quirks that don’t resemble the hyperrational Economic Man of free-market theory. We’re experts at inertia (those lingering magazine subscriptions). We’re overconfident, sure that we invest our money better than the average bear, that our marriages (unlike half of everyone else’s) won’t end in divorce. We’re impulsive, suggestible, and slaves to peer pressure.
So, the authors argue, "choice architecture" - the way choices are presented and explained - inevitably sways the decisions we make. Given that, they say, shouldn’t government and institutions set up choices to nudge people toward the most beneficial decision?
That’s an improvement upon the simple support for entitlement, as it is a step toward the "tough love" approach to hand-outs. On the other hand, I suspect that Sunstein et al. don’t apply the same principle to the government itself. (And when hand-outs go to most of the country in one way or another, it can be hard to reconcile with basic liberty). Should we not apply the same principle to the atministrative state? What is checks and balances if not a means of structuring incentives? Unfortunately, modern regularory bureaucracy tends to collapse executive, legislative, and judicial power in one place.