The Manipulation of Choice

Ethics and Libertarian Paternalism

M. White

• Éditeur: Palgrave Macmillan
• Année: 2013
• ISBN:
  9781137313577
• Sujet: Economía
• Sous-sujet: Política económica

This timely book makes a forceful argument that the analyses from behavioral economists are incomplete, the policies advocated by libertarian paternalists are misguided and unethical, and both actually reinforce the cognitive biases and dysfunctions that motivate 'nudges' in the first place.In a lighthearted manner, the author points out critical flaws in the way economists model decision-making, how behavioral economics failed to correct them, and how they led to the problems with libertarian paternalism and nudges. Sprinkled throughout with anecdotes, examples, and references to a wide range of scholarly literature, this new volume argues against the use of paternalistic nudges by the government and makes a positive case for individual choice and autonomy. This book is part of White's triptych on individualism and society, which includes The Illusion of Well-Being and The Decline of the Individual.

Chapter 1

The Problems with Traditional Economic Models of Choice

Most economists understand choice to be a matter of picking the best option available to a person, such as filling your shopping cart with great bargains or selecting an automobile based on getting the best options for a good price. Sounds reasonable, right? Sure, but once we tease out the meanings of “best” and “available”—as well as other terms that economists use when they discuss choice, such as “preferences” and “well-being”—we see that the standard economic model of choice is anything but reasonable. When you get down to it, it doesn’t involve any actual choosing or deciding: you see, and you want, so you get. This might be fine to describe your dog’s “choices,” but not yours or mine—we deserve a better model, and economists need one.

This chapter highlights three of the most serious problems with standard economic models of choice. First, they have far too narrow an idea of what we are choosing from. We don’t merely choose goods and services based on what they can do for us or how happy they make us. For instance, many people buy fair-trade coffee or environmentally safe laundry detergent, despite the higher price, because they believe it’s right to do so. In general, we make choices based on principles, ideals, and values as well as desires and preferences, all of which make up our interests. Second, our decision-making processes are much more elaborate than economists think. We don’t just choose the shiniest car we can afford; we make judgments based on the wide range of considerations identified above, weighing some factors more heavily than others, or considering some before we even think about others. Finally, we have to follow through with our choices, using resolve or willpower, with or without external help (friends, support groups, and so forth). We can choose to make New Year’s resolutions, but we all know how difficult it is to maintain them (assuming we even start them)!

Including these three factors in economic models of choice would complicate them, of course, but these additional details are necessary to understand choice well enough to explain it and make predictions based on it—not to mention use it to make judgments and policy decisions. Once we’ve described the problems with traditional economic model of choice, we will have laid the foundation for our critique of behavioral economics, libertarian paternalism, and nudges.

* * *

Like many of us at one time or another, Chris and Pat have found themselves in a need of a new car. They agree on the basics—what size car they want, what features they consider essential, and what price they’re willing and able to pay—but they don’t have much time to look for the best deal. They’ve checked out the new and used car ads in the newspaper and online, they’ve called a few local dealers to check on availability, and they’re planning to spend the next day driving around to various dealers to see what they have to offer, test-drive a few cars, and then haggle with the salespeople. At the end of the day, they hope to have settled on a car and a price with a dealer. (Wish them luck!)

Human behavior is complex, and this includes “economic” behavior such as shopping for a car. To study economic behavior, economists (like all social scientists) need to simplify it to get to the core of what leads us to make certain choices, in the hope of explaining our past choices and predicting our future ones. To do this, they have developed a simple model called constrained preference satisfaction, which essentially has three parts. The model starts with preferences, which represent what we want or need, and take the form of rankings of which things we like better than which other things. Chris and Pat have preferences about the size and features of their ideal car and alternatives, and they place values on each of these options. For instance, they may greatly prefer a midsize sedan to a compact car, but have a very weak preference for a sedan over a small SUV. They’d rather have blue exterior than red, but this preference over color is much less important to them than size is, and so forth.

But although our wants and needs may be unlimited, and we’d like to satisfy as many preferences as we can, the resources we have to do this are limited. Chris and Pat would love their car to be loaded with all the bells and whistles, but they can’t (or won’t) spend that kind of money. They’d also love to spend weeks researching all the various models and visiting all the dealers in their area, but they can’t devote that much time to this one task. Money, time, energy—they’re all limited, or as economists say, scarce. It is this scarcity that requires us to make tough choices about how to use our limited resources to achieve our most important wants and needs, which also serves as a common definition to economics. Chris and Pat may very well have the money and time to find the perfect car for themselves, but it is not worth using it to find the perfect car because they have other things they need to spend their money and time on also. (More on this point soon.)

Finally, how well we use our scarce resources to satisfy our preferences depends on the information we have, which is never complete and never perfectly accurate, but doesn’t have to be. Chris and Pat are not automotive engineers, but they know what they want in a car. What they don’t know—but would like to—is what models and options the various dealers in their area are offering and at what prices. But they can’t just “know” this; they have to spend resources getting this information. In general, we need some degree of information to know how to use our resources to fulfill our wants and needs. The more information we have, and the better information we have, the more effective we’ll be at solving this basic economic problem of choice, but how much information we want to get is a choice problem in itself!¹

The most basic economic activity that most of us engage in—shopping, whether for cars, groceries, clothes, or plastic surgery—fits within this framework rather well. Consumers have a certain amount of money to spend on various items that they need or want, and they have to decide which are worth their cost, given the limited amount of the money (or credit) they have to spend. Although money seems like the most important constraint when it comes to shopping, time can be a limiting factor as well—especially when it comes to last-minute Christmas shopping! Time constraints have been loosened tremendously by online shopping, but ironically, the easy, 24/7 availability of a wider array of goods and services than ever only makes our limited money seem even more scarce!

But economists don’t see cost merely in terms of dollars and cents, or even hours and minutes, but rather what you can do with that money or time. For example, we could buy a more expensive variety of cereal (to satisfy a higher preference), but this will come at the cost of buying something else, such as bananas. We could watch the new Adam Sandler movie in the theater rather than wait to get the DVD, but this will mean we can’t spend that two hours (and ten bucks) doing something else. Chris and Pat can spend an extra day visiting car dealers, but that would be a day they can’t spend doing other things together. Economists call this sacrifice the opportunity cost of a choice, and it exists whenever a decision has to be made: if you choose to buy the premium cereal, you have to give up the bananas, and if you watch the Adam Sandler movie, you can’t do something that’s actually worth the time and money (such as buying a baseball bat and whacking yourself over the head with it). In other words, you made a trade-off, and economists are trained to analyze trade-offs like these to see when a certain trade-off will increase the person’s level of preference-satisfaction and when it won’t.

Preferences can cover more than just consumer goods, though. They can be defined over anything a person may devote his or her resources to, all of which will generate trade-offs when the person’s resources have to be devoted to one thing or another. For example, this model is often applied to labor supply decisions, in which a person chooses how many of his or her waking hours to devote to labor or leisure. Each of these “activities” satisfies different preferences: time spent at work generates money that can be used to purchase goods the person wants or needs, and time spent relaxing provides obvious benefits—most important, enjoying the fruits of the person’s labor! Each person has to find his or her own personal “best” trade-off between labor and leisure, which comes down to a number of factors, including the wage or salary the person earns at work, his or her need for money (which depends on family, mortgage, debts, and so on), and the strength of his or her preference for time off from work (within the limits provided by his or her job). This way of analyzing individual decisions has a great deal of influence on business and policymakers concerned with workplace issues such as taxes, vacation, family and sick leave, and flextime scheduling.

The same model can also be used to study the effort put into getting information. We already saw this in terms of Chris and Pat’s search for information about the makes, options, and prices of cars, but it can apply to any search for information—including looking for the “best” person to form a romantic relationship with. When dating, in hopes of finding that special someone, a person needs to balance his or her picture of an ideal mate with the time and money spent looking for him or her. Some people place a high value on their time compared to finding the ideal mate—in other words, they have a high opportunity cost of search—so they settle down early but with a person who may not be as good a match as they could have found if they had been willing to spend more time looking. Others place a higher value on finding the “right one,” and those people spend more time and money looking for that person (because they perceive a lower opportunity cost, and higher benefit, to more time spent searching), and on the average will likely find better matches. This model is used to study dating patterns and relationship patterns in areas that differ in terms of income, as well as other implications of the model.

Also, preferences don’t have to be just about what a person needs or wants for himself or herself. Self-interest is a convenient assumption for economists because it is to a large extent reliable—at the most basic level, everyone needs to look after himself or herself—and it is the one motivation that, to some degree, we all share. But not all of our preferences have to be in our self-interest, because economists understand preferences in a very formal way: a ranking of alternative uses of resources. This can include a preference for premium cereal over bananas or working overtime over having a free Saturday, but can also include preferences for buying a birthday gift for your best friend, spending time helping a cousin move, or donating time or money to a local food shelter, over spending that time and money on yourself. These are all examples of benevolent or altruistic preferences, but a person can also have malevolent or anti-social preferences, such as donating to a hate group or spending time ruining a rival’s marriage. (Don’t judge me—he never deserved her!) Generally, we call these other-regarding preferences, because they’re based on other people’s well-being rather than our own. Just like self-regarding preferences, however, they generate trade-offs: if you donate an extra hour to the food shelter, it comes at the expense of an hour spent doing something else, whatever that may be. (Even watching half an Adam Sandler movie.)

The modeling framework of constrained preference-satisfaction has proven very useful for economics, helping it earn the title of “queen of the social sciences.” This model and its depiction of rational decision-making—symbolized by homo economicus—has allowed the economic approach to spread to other fields, such as sociology, political science, and law. (Detractors call this “economic imperialism,” but economists call it “more jobs.”) This model is not perfect, and no responsible economist would claim that it is. After all, it’s just a model, an abstraction, a simplification of reality, which is not meant to be perfect or complete. But any model that successfully explains and predicts behavior should capture the most important aspects of decision-making for most people in most situations, and this is where constrained preference-satisfaction falls short. There are important elements of choice that this model leaves out—and these same elements are ignored by behavioral economists, despite the various improvements they’ve made to mainstream economists’ model of choice. (We’ll discuss them in the next chapter.) Without these additional, crucial elements, economists’ model of choice is overly simplistic, more appropriate to choices made by animals and computers than human beings, and we’ll spend the rest of this chapter seeing why.

Choice Is More Than Preferences

As useful as the concepts of preferences, constraints, and trade-offs are, they don’t cover everything that enters into our decision-making processes. There are some factors that contribute to choices that are difficult to describe in terms of preferences, are not subject to trade-offs in the same way, and often have more in common with constraints. For instance, Chris and Pat may refuse to buy cars made by a certain company because of business or labor practices they find despicable, or will not buy from a certain dealer who made racist comments in the press. No matter how low a price or how option-packed a car they can get from that car manufacturer or dealer, no matter how many preferences could be satisfied or how many resources could be freed up for other purposes, they simply will not buy from these companies. We’ll call these factors principles, referring to something that can’t be measured, such as the moral principles of honesty and courage (although not all such principles need be moral in nature). Principles are elements in decision-making that are not easily traded off against preferences and are not as responsive to opportunity cost as are preferences. Obviously, this makes the traditional economist’s focus on trade-offs difficult, which in turn represents a problem for the economic model of choice to the extent that principles are an important and pervasive element of choice.

Here’s another example. Jodi normally gives $100 each month to her local animal shelter out of her love and sympathy for abandoned pets. If this choice were based on a preference, we would say that she chose to donate the $100 because the value of that donation to her is greater than its opportunity cost (the value of whatever else she would do with the money). If Jodi’s circumstances changed and she wants (or needs) to use the money for something else—or simply has less to give—that trade-off may no longer be attractive to her. She might give only $75 to the shelter next month, because she now has more pressing uses for the other $25. Of course, the opposite may also happen instead, where she has less need for her last bit of money (or more money to use to satisfy her preferences), and so she might increase her donation to $150. As the opportunity cost of her donation changes, so does the best trade-off she can make, and her donation would change with it.

But now let’s say Jodi promised to give $100 to the animal shelter each month. Her promise is a commitment, which is supported by a principle—specifically, a moral principle—to honor commitments, and possibly also by a principle that motivated the promise in the first place.² In this case, when Jodi’s circumstances change, she will be less likely to lower her donation. To maintain her commitment, she will try to find other ways to meet her changing wants or needs without compromising her promise to the shelter. Her promised donation, which she knows the shelter counts on each month, is not something she is willing to adjust slightly in response to an increase in the opportunity cost of giving. Her promise, and the commitment behind it, takes this aspect of choice to a different level. This is not to say that there is no circumstance that would lead Jodi to break or compromise her promise: she might lose her job, for instance, or find another cause that she feels serves abandoned animals better. Commitments are not absolute, but neither are they subject to the small changes and adjustments that preferences are, wherein we devote a few more resources to this and a few less to that when our circumstances change. It will take more than a slight change in the opportunity cost of giving to make Jodi break her promise to the shelter, just as it would take a lot to make most of us break promises—that’s what makes them promises.

In fact, many principles have this property of limiting our discretion to make different trade-offs among preferences when circumstances changes. (Some principles play a more positive role, guiding us to devote our resources to certain purpose: Jodi’s preference for supporting animal shelters may be based on the principle that every animal deserves care.) Jodi’s promise of a $100 donation every month limits her ability to give less money to the shelter and use it to satisfy another preference. In the same fashion, maintaining a principle of not lying prevents you from fudging the truth on a job application to increase your chances of landing a great position, and a principle of fairness keeps you from cutting in line at the taxi stand so you can get home from the airport a few minutes earlier. And as we saw before, principles can also enter into our consumer behavior, such as Chr...

Table des matières

• Cover
• Title Page
• Copyright Page
• Contents
• Acknowledgments
• Introduction: We Start with a Donut . . . 
• Chapter 1   The Problems with Traditional Economic Models of Choice
• Chapter 2   How Behavioral Economics Makes the Same Mistakes
• Chapter 3   How Behavioral Economics Met Law and Economics and Begat Nudge
• Chapter 4   Why Nudges Can’t Do What They Promise
• Chapter 5   Why Nudges Are Unethical
• Chapter 6   All Nudges Are Not Created Equal
• Chapter 7   Why Choice Matters So Much—and What Can Be Done to Preserve It
• Notes
• Further Reading
• Index