Why Rely on the Nudged to Nudge the Nudgers to Prevent Evil Nudging?

nudge-nudge-monty-python-105

Richard Thaler writes in the New York Times about the problem that nudges can be used for good or bad. He specifies three principles for nudging, and then writes:

As far as I know, the government teams in Britain and the United States that have focused on nudging have followed these guidelines scrupulously. But the private sector is another matter. In this domain, I see much more troubling behavior.

Later, Thaler warns against the lazy use of the presumption that markets are good and regulation is bad:

Some argue that phishing — or evil nudging — is more dangerous in government than in the private sector. The argument is that government is a monopoly with coercive power, while we have more choice in the private sector over which newspapers we read and which airlines we fly.

I think this distinction is overstated. In a democracy, if a government creates bad policies, it can be voted out of office. Competition in the private sector, however, can easily work to encourage phishing rather than stifle it.

Thaler’s identification of the problem seems correct, and further research would turn up many more examples of private sector nudging than a subscription to The Times of London and trip insurance on a United flight. The first couple articles in a series on arbitration clauses that the New York Times started on the same day Thaler’s article was published gives some sense of the relationship many companies have with their consumers and their sense of their corporate responsibilities. However, the fact that Thaler understands the problem makes his proposed solution particularly disappointing:

As customers, we can help one another by resisting these come-ons. The more we turn down questionable offers like trip insurance and scrutinize “one month” trials, the less incentive companies will have to use such schemes. Conversely, if customers reward firms that act in our best interests, more such outfits will survive and flourish, and the options available to us will improve.

Turning down questionable offers and scrutinizing one-month trials is good advice, but the whole concept of nudging is premised on the insight that consumers are not very good at following that sort of advice. If, like Thaler, we reject the premise that the government is more dangerous than the private sector, the implications of the social psychology studies that influenced Thaler and his co-author Cass Sunstein to develop libertarian paternalism might justify a more robust role for regulating companies that dominate so much of our lives. This is surely more urgent than applying some of the same strategies that the private sector has long been using for good nudging.

Thaler’s example of “evil nudging” that the market encourages rather than stifles is “the mortgage industry in the early 2000s”:

Borrowers were encouraged to take out loans that they could not repay when real estate prices fell. Competition did not eliminate this practice, because it was hard for anyone to make money selling the advice “Don’t take that loan.”

For Joseph Singer, the lesson of the subprime crisis is “No Freedom Without Regulation.” Singer’s book talk contains a brief summary, in which he emphasizes the dependence of the market upon regulation and the consequent incoherence of the claim to favor “free markets” while disliking market regulation. Once we abandon the “markets good/regulation bad” presumption (see p23 of Chen and Hanson’s “The Illusion of Law”), there is little reason for Thaler to insist on blending  paternalism with libertarianism, which leaves him relying on consumers to change the incentives for companies to manipulate them (the nudged nudging the nudgers), an implausibly small solution to a major problem.

A foundational premise of the Systemic Justice Project is that large commercial interests are advantaged in shaping our situations and manipulating consumers and citizens as well capturing institutions and systems.  For a sample of underlying theory and evidence for those problems of “market manipulation” and “deep capture,” see “Taking Behavioralism Seriously: Some Evidence of Market Manipulation,” “The Situation: An Introduction to the Situational Character, Critical Realism, Power Economics, and Deep Capture,” and “The Situational Character: A Critical Realist Perspective on the Human Animal.

Advertisements

One comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s