Wednesday 26 October 2016

Pushed or nudged - will we end up better and thinner?

Published 21/05/2015 | 02:30

I was once berated by an official in Toronto airport, who kept gesticulating at my glass of beer and a blue line painted on the lounge floor. I gathered eventually that it was forbidden to drink on the wrong side of the line.

  • Go To

Now that's what they call regulation. A blanket ban, no exceptions permitted, and a fine for disobeying - although in this case he let the hapless Irishman off with a glare.

Such regulation is a bit out of fashion, though. The modern method might involve charging extra to have a drink on the other side of the line; or making the seats more comfortable on the drinking side; or just putting up signs asking customers to drink on that side, and perhaps pointing out some good reasons why they should (although I could see none).

Such methods - market forces, persuasion or encouraging certain behaviours - are what has become known as "nudging". But one has to accept that not everyone will be nudged.

For whatever reasons, a certain number will be prepared to pay more, accept certain hardships or just be plain bloody-minded. Even regulation has its leakages: smoking is banned indoors but a whole outdoor infrastructure has been created for smokers and it is not clear whether there is much less smoking overall.

These dilemmas were on view after that remarkable report that we will be the fattest people in Europe by 2030. When it comes to publicity, the World Health Organisation authors knew something about nudging. Such a forecast is pretty conjectural and, a quick scan of the same list from different sources failed to find any common thread. But lists are irresistible to the media, especially if they involve body image. Nevertheless, it would be good if we were, on average, less hefty - certainly if we stopped getting even heftier. One challenge is how to persuade people to act more in their own interests - by eating better, for instance. But it may also be about how to get firms to stop selling things to people that are not good for them - like junk food. Or even making some products illegal. Nudging, or regulation?

This has become quite a hot topic in economics. As more evidence emerged that we are not the rational seekers of satisfaction assumed by classical theory, and as the mathematics of modelling irrationality got better, new approaches to policy have appeared.

Irish economists have been in the mix. At a conference 12 months ago, Pete Lunn of the ESRI reported on the influence of behavioural economics on policy in OECD countries. At their best, he said, behaviourally-informed policies tend to make more use of evidence and analysis than was generally the case. It has certainly not been the case in Ireland.

Such policies will also be a theme in another conference under the auspices of Prof Liam Delaney of Stirling University, to be held in Dublin in November. The arguments in favour were famously made in the book, 'Nudge' by Richard H Thaler and Cass R Sunstein It holds out the attractive idea that we can make better decisions while remaining free not to make them if we so choose.

But the case against centres on the blurb for the book itself. "We can design environments that make it easier for people to choose what is best for themselves, their families, and their society," it says. But who are the "we" who will do these wonderful things?

Democratic governments are the obvious choice - if sufficiently democratic ones can be found. Governments, whether regulating or nudging, appear ever more in thrall to financial institutions and companies. This is not necessarily simple corruption; more often it seems to be that politicians feel they live or die by economic growth and employment and are unwilling to jeopardise this by harming commercial interests.

In which case, nudging may be even more open to exploitation and deception than old-style command and control. A Harvard Law Review paper which examined financial regulation, fuel pollution and consumer credit regulation took this view. It argued for the more interventionist approach, saying those very limits to rational behaviour actually make citizens less likely to respond to behavioural policies to improve their welfare.

If companies are in on the process, citizens may even be nudged in directions everyone agrees are harmful, but which are often profitable. Prof Delaney cites four conditions which may cause things to go wrong - where firms oppose the measures, where these firms have access to the consumer, where consumers find the situation confusing, and where their preferences are uncertain. A common state of affairs, you may think.

In Ireland, we see constantly that apparently direct regulation is undermined by significant details which make it ineffective. At first glance, regulation of Irish utilities appears to similar to that in other countries. In fact, the details often oblige the regulator to put the interests of the utility - usually State-owned - before those of its customers. Politicians have lost the confidence - perhaps even the desire - of their predecessors to intervene directly to improve the lot of citizens. This is evident in the gradual dismantling of controls on alcohol and gambling, which were first regulated precisely because they can be so damaging.

Among the more certain long-term projections is that enormous health and social problems will arise as a result of present habits of drinking and gaming. These are both pastimes where a significant proportion of participants will become addicted.

The only way to deal with that is to reduce the participation. Jobs would be lost, profits would be cut, GDP would be reduced, tax revenues would fall. One hundred and 50 years ago, none of those would have weighed heavily with political leaders, but the obvious ills brought about by unregulated alcohol and gambling did.

What we get today is hypocrisy. In our own supposed crackdown on booze, the ban on below-cost selling excludes VAT and excise, which between them are the main cost of drink. The ban is therefore a nonsense.

In the UK there is resistance to the simple, effective plan to limit the fearsome slot machines which can absorb £100 every 20 seconds to collecting a still formidable £2 per 20 seconds. No nudging is going to work against that commercial attitude.

It is fair to ask who has the right to decide what is good for us and set about trying to make us be sensible, whether by force or clever persuasion. But it is an even fairer question to ask whether, in this day and age, anyone cares much at all about what is good for us.

Indo Business

Read More