The uses — and the limits — of ‘nudge’ economics
The uses — and the limits — of ‘nudge’ economics

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Fifteen years ago, the British Conservative Party, then in opposition, saw behavioral economics as an attractive alternative to old-fashioned nanny meddling in people’s affairs.Bestsellers by Richard Thaler and Cass Sunstein nudge Included in Conservative MPs’ Summer 2008 reading list. When David Cameron came to power, he set up the Behavioral Insights Unit at the heart of the government.

Other governments have created their own “nudge units” that use Taylor and Sunstein’s “liberal paternalism” to steer citizens toward better choices in areas ranging from pension registration to organ donation. Not surprisingly, nudges have proven to be no panacea for thorny policy dilemmas. The Financial Times warned that nudges should not be confused with “coherent political philosophy”.

The reputation of behavioral science has been badly damaged recently. But the danger now is a different kind: Policymakers may forego the useful complement to traditional legislative and regulatory action, which still has much to do.

Concerns about the robustness of the behavioral sciences began to spread in the 2010s, as some striking findings proved difficult to replicate on a large scale. For example, later research has called into question studies that seem to show that taking “power poses” increases testosterone and lowers cortisol. Some effects of “priming” (that is, exposing someone to cues that subconsciously influence their behavior) have been suspected.

More recently, Francesca Gino, a well-known Harvard expert on dishonesty, faced fraud charges over a paper she co-authored. This month, Gino filed a defamation lawsuit against Harvard and the accusing blogger, saying: “I have never falsified data or engaged in any form of research misconduct.” Another star behavioral scientist, Dan Ariely Ariely is under investigation by his university, Duke University, over concerns about research into dishonesty. “What I am sure of is that I have never falsified data and never will,” he told the FT.

It is important to distinguish between fraudulent findings that require investigation and exposure, false positives that should eliminate duplication, and robust results that have been tested at scale. It doesn’t help to accuse behavioral science of being “physics envy,” as some critics do. Improving the quality of output is the responsibility of universities, academia and scientific journals. This could involve different measures, such as more pre-registering of hypotheses to discourage researchers from cherry-picking results, wider sharing of primary data, and limiting the academy’s “publish or perish” culture.

A further distinction needs to be made between behavioral science and behavioral economics. Economists take the discoveries of scientists and study their consequences, intended or not. Policymakers who apply these findings in the real world have a greater responsibility than academics (not to mention the media) to refrain from hyping exciting experimental results. But they also have the advantage of being able to test behavioral economic policies on a large scale, producing more reliable results than laboratory experiments.

It is important to understand the limitations of behavioral economic policies.in a recently published manifesto When it comes to applied behavioral science, the Bilateral Investment Treaty (BIT), now split from the UK government, urges humility. For example, it points out that even ostensibly common cognitive processes are shaped by their context. Despite these caveats, behavioral science broadens the scope of a discipline that once dangerously emphasized that humans are perfectly rational economic computers of risk and reward. It is only fitting that the field should now reveal some of the flaws in human nature. But that’s not a reason to ditch it entirely.

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