Saturday, October 20, 2012

"Nudge" and "Libertarian Paternalism"

I'm currently reading the popular book Nudge, by Thaler and Sunstein. The general point: people make lots of bad decisions due to cognitive errors. Some wise person should help design systems to make us less vulnerable to those errors.

The book contains an exhaustive selection of topics. In the "Saving the Planet" chapter, they had some interesting suggestions for energy conservation:
Wouldn't you like to be able to flip one switch as you walk out the door that would turn off all the lights but not all the clocks? (p. 195)
Nice idea. Nothing really stops this from being implemented now, except the cost and headache for the electrician who implements it. But, this brings to mind two problems, in my opinion.

(1) How do we know the energy savings would actually make an idea like this cost-effective? It seems they assume lots of resources are wasted because people fail to turn off the lights, but those costs are already internalized via the electricity bill, and high-efficiency lightbulbs are making big advances too. Maybe the electrician's time is simply more valuable than the wasted energy.

(2) This quickly moves from the supposedly harmless and mild "libertarian paternalism" that Thaler and Sunstein advocate, and into the realm of old-fashion, blunt paternalism which we are all far too familiar with already. I can hear the reasoning already: "The universal light switch is such a brilliant idea, but people are just too foolish to get it in their houses. Now if only we could pass a law...."

In my mind, this is the largest failure of "Nudge." It starts with a catalog of cognitive biases, then goes on to list nearly every problem the first world experiences... Not all of which are the result of cognitive bias, and not all of which can be solved with just a nudge. The request that credit card companies send a full list of all charges during the year to their customers, for example. What could make this happen except some more bloated "buyer protection" law from Congress?

Basically, Thaler and Sunstein are selling the sizzle, not the steak. They use the label "libertarian paternalism" when, in large part, what they imply is necessary is just plain old paternalism. The result is convincing in the same way that political stump speeches are; if you take it at face value, you'll end up getting far from what you expected.