THE POLITICAL PHILOSOPHY OF NUDGE AND THE PARADIGMS OF PATERNALISM

Transcription

1 THE POLITICAL PHILOSOPHY OF NUDGE AND THE PARADIGMS OF PATERNALISM Leigh Hill Faculty of Social and Behavioural Sciences Flinders University, Adelaide, Australia Thesis submitted in partial fulfilment of the requirement for the Bachelor of Arts (Honours) 22 October 2015

2 ABSTRACT In 2012 the NSW Government created Australia s first behavioural insights policy unit. Instead of relying on rational incentives and punishments, the behavioural insights approach looks for more nuanced ways of changing human behaviour via evidence from behavioural research. This new approach has been spurred on by Richard Thaler and Cass Sunstein s influential book Nudge. Also known as libertarian paternalism, Nudge is a program that advocates for governments to change the environment in which people choose so as to intentionally steer people towards welfare-enhancing decisions, while respecting freedom of choice. Concerned that Nudge encourages governments to insidiously manipulate citizens, critics across the world have queued up to decry an expansion of state paternalism for various reasons. Lacking from the current literature is a systematic explanation of how the competing voices conceptualise paternalism. This thesis will fill such a gap, articulate how exactly Nudge may come to be paternalistic, and then argue that the existing paradigms used to discuss paternalism are misplaced. Current discussions of paternalism pay too little attention to the value judgements that underpin interference, as well as the social context that policies exist in. I will argue that a robust evaluation of behavioural based paternalism cannot occur without these themes. Tags: Nudge, Paternalism, Behavioural economics, Behavioural insights i

3 Contents INTRODUCTION... 1 CHAPTER 1 INTRODUCTION TO BEHAVIOURAL ECONOMICS AND NUDGE WHAT IS BEHAVIOURAL ECONOMICS? THE POTENTIAL OF BEHAVIOURAL ECONOMICS LIBERTARIAN PATERNALISM (AKA NUDGE) GOVERNMENT ADOPTION OF NUDGE ACADEMIC RECEPTION OF NUDGE CHAPTER 2 THE PARADIGMS OF PATERNALISM DEFINITION OF PATERNALISM PATERNALISM IN NUDGE WHAT EXACTLY IS A NUDGE? UNDERSTANDING INTERFERENCE WITH AUTONOMY: THE PARADIGMS OF PATERNALISM CHAPTER 3 CHALLENGING THE PARADIGMS ARE LP NUDGES PATERNALISTIC? NUDGE AND MANIPULATION NUDGE AND MEANS PATERNALISM NUDGE AND INTERFERENCE WITH NON-IDEAL DECISIONS VALUE SUBSTITUTION IS INHERENT IN ALL PATERNALISM CHAPTER 4 THE SOCIAL CONTEXT THE ROLE OF BENEVOLENT INTENTIONS BENEFITS FOR OTHERS INSULT AND RESPECT BACK TO NUDGE CONCLUSION BIBLIOGRAPHY ii

4 Introduction In November 2012 the New South Wales Department of Premier and Cabinet established Australia s first dedicated behavioural insights policy unit. 1 This unit was formed in close collaboration with the Behavioural Insights Team (BIT) from the United Kingdom, which was the first of its kind in the world. 2 Behavioural insights can be described as the purposeful effort to introduce a more realistic model of human behaviour to policy, drawing from ideas and evidence out of behavioural science, psychology and economics. 3 The roots of the BIT, and use of behavioural insights by the UK Government, can be traced back to That same year, the Nobel Prize for Economic Sciences was awarded to acclaimed psychologist Daniel Kahneman for having integrated insights from psychological research into economic science. 5 Kahneman, along with his deceased research partner Amos Tversky, are seen as pioneers in the emerging field of behavioural economics, which is closely aligned to the rise of behavioural insights. One of the more prominent themes to emerge from behavioural economics is the notion that individuals often act in ways which either do not benefit them or contradict their own interests. To this extent we are witnessing paternalistic policy prescriptions naturally emerge from behavioural economics in order to regulate and guide individual behaviour so as to make people 1 The Behavioural Insights Team and Premier & Cabinet Behavioural Insights Unit, "Understanding People, Better Outcomes: Behavioural Insights in NSW," New South Wales Government, Ibid.; The Behavioural Insights Team, "Who we are," 2015, 3 The Beahvioural Insights Team, The Behavioural Insights Team, "Who we are". 4 Holger Straßheim, Arlena Jung, and Rebecca-Lea Korinek, "Reframing Expertise: The Rise of Behavioral Insights and Interventions in Public Policy," in Moments of Valuation: Exploring Sites of Dissonance, ed. Ariane Berthoin Antal, Michael Hutter, and David Stark, Oxford University Press, Oxford, 2015, p Nobel Media AB, "The Prize in Economic Sciences Press Release," 9 October 2002, 1

5 better off. 6 Some of these policy prescriptions include asymmetric paternalism and coercive paternalism. 7 However, the most influential academic approach to using behavioural insights in public policy comes from Richard Thaler and Cass Sunstein and is known as Nudge, or libertarian paternalism. 8 Nudge is a program that advocates for governments to use behavioural insights to design choice settings in such a way that will steer people s choices in directions that will improve the choosers own welfare, while protecting freedom of choice. 9 The strong influence of Nudge amongst behavioural insights policy work has led to the BIT, and other associated policy teams, being described as nudge units. 10 Nudge has attracted a strong interest in both the public sector and academia, amassing a long list of critics, most of whom are fearful of governments using hidden tricks and techniques to manipulate citizens behaviour paternalistically. Paternalism involves interfering with someone s autonomy, without consent, based from benevolent intentions. 11 Due to the way paternalism interferes with autonomy there must be a heavy and clear burden of proof placed on the authorities to justify the use of paternalism. 12 Nudge claims to represent a new approach to paternalism by respecting freedom of choice and not using coercion, hence the seemingly contradictive, and certainly provocative, title of libertarian paternalism. 6 Gilles Saint-Paul, The Tyranny of Utility: Behavioral social science and the rise of paternalism, Princeton University Press, Princeton, 2011, p Colin Camerer et al., "Regulation for conservatives: behavioral economics and the case for "asymmetric paternalism"," University of Pennsylvania Law Review, vol. 151, no. 3, 2003; Sarah Conly, Against autonomy: justifying coercive paternalism, Cambridge University Press, Cambridge, Cass R. Sunstein and Richard H. Thaler, "Libertarian Paternalism Is Not an Oxymoron," The University of Chicago Law Review, vol. 70, no. 4, 2003; Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness, Revised & Expanded ed., Penguin Books, New York, Sunstein and Thaler, "Libertarian Paternalism Is Not an Oxymoron," p Stephen Easton, "When push comes to shove: inside the NSW nudge unit," The Mandarin, 22 July 2014, Straßheim, Jung, and Korinek, "Reframing Expertise," p Péter Cserne, Freedom of contract and paternalism: prospects and limits of an economic approach, Palgrave Macmillan, New York, NY, 2012, p Gerald Dworkin, "Paternalism," in Philosophy, politics, and society, fifth series: a collection, ed. Peter. Laslett and James S. Fishkin, Blackwell, Oxford, 1979, p

6 Considering these claims, it is important to thoroughly asses the form of paternalism contained in Nudge, and being used to drive policy in Australian governments. While much of the current literature attacks the provocative position that paternalism can be libertarian, there is a need to systematically explain the ways that paternalism is understood by the various voices within current debates. This is necessary due to: competing ideas about what autonomy is, and competing ideas about what is problematic with paternalism. Therefore, the aim of this thesis is to systematically lay out, and assess, the paradigms of paternalism used in discussions of Nudge, as well as to offer new insights into how paternalism can be conceptualised and which aspects we ought to focus on in order to best evaluate the work of nudge units. After providing a thorough background to Nudge, this thesis will establish the seven paradigms of paternalism: coercion, manipulation, means paternalism, ends paternalism, value/judgement substitution, interference with non-ideal decisions, and personal sovereignty. Once the definition of paternalism is clear I will argue that the style of nudge advocated by Thaler and Sunstein does not inherently lead to paternalism. This is an important point that is often missed in literature that is critical of the program. To this end, I argue that the work conducted in NSW to date is non-paternalistic since it does not manipulate citizens. However, it is also the case that some of the nudges advocated by Thaler and Sunstein can amount to manipulation and can be paternalistic. Focusing on the paradigms used by Thaler and Sunstein to defend their approach, I break these down in detail and argue that Nudge can only be viewed from the perspective of value substitution. That is, Nudge cannot claim to help people reach their own goals, or help them act in accordance with ideal decisions, since to do so necessarily requires 3

7 a value assumption to be made about the individuals being nudged, and paternalistic action to be based from those assumptions. Indeed, I break from the conventional ways paternalism is discussed and argue that all forms of paternalism are best viewed from the perspective of value substitution. I contend that most of the paradigms can be collapsed into one, and that value judgements should be the point of focus for discussion of paternalism. Acknowledging that value substitution is typically seen as the worst form of paternalism, and acknowledging that mild forms of paternalism are widely supported in modern liberal democracies, I set out how this new perspective can deal with the task of justifying those mild forms of paternalism. My argument here is that the social context is vitally important, and viewing paternalism from the view of an abstract individual is inadequate. To demonstrate the role of the social context I will focus on the function of intentions within the definition of paternalism to argue that intentions can become more coherent when placed in a social context. Secondly, I will argue that since paternalistic policies commonly have dual benefits, and those benefits can change depending on the behaviour of others, we need to focus on how the individual fits within a wider population. Finally, chapter 4 will explore the role of insult and respect in justifying paternalism - aspects that are also intricately linked with the social context. Since paternalism necessarily contains value substitution, we must look to value substitution and manipulation as the two paradigms that allow us to understand Nudge. Both of these paradigms are intertwined with the social context that policies exist in. This means we cannot adequately evaluate Nudge in an abstract sense free from that social context. We need a new way of discussing Nudge, and indeed a new way of discussing paternalism altogether: one that focuses on the values behind interference and the context in which the harmful behaviour takes 4

8 place, not simply abstract ideas. Thus, we need more policy specific discussion, not overarching analysis and blanket approval or condemnation. 5

9 Chapter 1 Introduction to Behavioural Economics and Nudge What is Behavioural Economics? Mainstream economics is built on the view that people act rationally in the marketplace to seek out products and services which maximise their utility. Utility can be defined as the number of units of welfare or happiness that an individual gets as a result of (their) situation. 1 Consumers are assumed to be self-interested and able to use relevant information appropriately when weighing up purchasing decisions. 2 For example, if I prefer apples to oranges, and they both cost one dollar each, I will spend my dollar buying an apple since it will increase utility more than spending the dollar on an orange: a process known as the utility function. This generalised view of human behaviour is often referred to as homo economicus, or economic man, and can be traced back to the end of the nineteenth century. 3 Homo economicus strictly adheres to the utility function within the constraints (physical or legal for example) of the given situation. 4 Not all humans act this way all of the time, and such a view of human behaviour has never been regarded as perfect or infallible. Enlightenment philosophers such as David Hume and Adam Smith were writing about the impact of emotion and desire on human rationality in the eighteenth century. 5 The role of homo economicus is best understood as a coherent framework 1 Saint-Paul, The tyranny of utility, p Dennis C. Mueller, "Models of Man: Neoclassical, Behavioural, and Evolutionary," Politics, Philosophy & Economics, vol. 3, no. 1, 2004, p Joseph Persky, "Retrospectives: The Ethology of Homo Economicus," The Journal of Economic Perspectives, vol. 9, no. 2, Saint-Paul, The tyranny of utility, p Steven D. Levitt and John A. List, "Homo Economicus Evolves," Science, vol. 319, 2008, p. 909; Ian McAuley, "Behavioural Economics and Public Policy: Some insights," International Journal of Behavioural Accounting and Finance, vol. 4, no. 1, 2013, p

10 for modelling human behaviour. 6 The reliance on formalised mathematical modelling within economics is one reason why a rigid and simplified version of human behaviour has prevailed to this day. 7 Nonetheless, the central role of homo economicus is continually being challenged due to the growing empirical evidence that human behaviour systematically deviates from predictions of mainstream economic models. 8 A substantial shift away from homo economicus started to gain some traction in the middle of the twentieth century. In the 1950s economist Herbert Simon laid out the task of creating a model that draws from psychology and is more in line with the computational capacities that are actually possessed by humans. 9 Simon also coined the term bounded rationality which helps to explain such an approach. 10 While economists at the time recognised the empirical limits of the utility maximiser model, disagreement existed about the application of psychology to the development of a better model. 11 However, by the end of the twentieth century a new field had emerged: behavioural economics. The defining moment for the new discipline came in the 1970s with the work of psychologists Amos Tversky and Daniel Kahneman. 12 Critiques of homo economicus were also coming from prominent economists during the 1970s such as Amartya Sen and Harvey Leibenstein. 13 By the turn of the century the field was starting to take off, and in 2002 the Nobel Prize for Economic Sciences was 6 Levitt and List, "Homo Economicus Evolves," p John F. Tomer, "What is behavioral economics?," The Journal of Socio-Economics, vol. 36, 2007, p Cserne, Freedom of contract and paternalism, p Herbert A. Simon, "A Behavioral Model of Rational Choice," The Quarterly Journal of Economics, vol. 69, 1955, p Richard H. Thaler and Sendhil Mullainathan, "Behavioral Economics," The Concise Encyclopedia of Economics, Library of Economics and Liberty, 2008, 11 Will Leggett, "The politics of behaviour change: nudge, neoliberalism and the state," Policy & Politics, vol. 42, p Levitt and List, "Homo Economicus Evolves," p Harvey Leibenstein, Beyond Economic Man: A New Foundation for Microeconomics, Harvard University Press, Cambridge, Mass., 1976; Amartya K. Sen, "Rational Fools: A Critique of the Behavioral Foundations of Economic Theory," Philosophy & Public Affairs, vol. 6,

11 awarded to Daniel Kahneman for having integrated insights from psychological research into economic science. 14 Behavioural economics, however, has not produced a coherent framework of human behaviour that can wholly replace homo economicus. The discipline is still relatively new and has not produced a standard set of terminology or classifications. 15 Behavioural economics is built upon a rejection of homo economicus combined with a desire to understand the psychological complexity and fallibility of individuals who are influenced by their operating environment. 16 To demonstrate how behavioural economics differs from mainstream economics we can look to a hypothetical example created by Michael Munger. 17 Imagine you are interested in going to a concert with a friend, so you line up to get tickets on the day they are released, but tickets sell out before you get to the front of the line. As you leave you notice people selling tickets unofficially around the corner for a heavily marked up price of $300 each. You consider paying that price, but after some thought, decide the price is too high and head home, only to stumble across two tickets in a discarded envelope on the ground. Presuming you have tried, unsuccessfully, to locate the owner of the missing tickets, and it is fair to suggest they are now yours, what should you do with the tickets? Munger asked this question to his economics students and found that a number of them got it wrong by suggesting that going to the concert with the tickets is the best thing to do. 18 From the traditional economist s perspective, when you make the decision not to buy the tickets at 14 Nobel Media AB, "The Prize in Economic Sciences Press Release". 15 Ian McAuley, "You can see a lot by just looking: Understanding human judgement in financial decisionmaking," Centre for Policy Development, Leggett, "The politics of behaviour change," p Russ Roberts and Michael Munger, Ticket Scalping and Opportunity Cost, podcast, EconTalk, 10 April Ibid. 8

12 $300 each, you calculate that the opportunity cost is too high. This refers to the opportunities (other activities or items) you would have to miss out on if you go to the concert in other words, you thought of other ways that $300 could bring you more utility than going to the concert. So when you stumble upon the lost tickets, following your utility function, as homo economicus does, would lead you to sell those tickets at the market price of $300 each and then spend the money on activities that, moments earlier, you decided would bring greater utility than going to the concert. 19 Upon learning that a number of people would choose to go to the concert in such a situation, behavioural economists would be interested in learning why people acted irrationally by traditional standards. One reason might be that we value the same item differently depending on whether we are about to obtain it or depart with it. This phenomenon is known as loss aversion and describes how the disutility of giving up an item is greater than the utility associated with acquiring it. 20 A strong focus of behavioural economics is detailing these types of phenomena, often referred to as cognitive biases and heuristics. A heuristic is a simple procedure that helps find adequate answers to difficult questions. 21 Below is a summary of some of the key biases and heuristics that have been discovered through behavioural research. Cognitive dissonance it has been observed that people often process information so as to validate their past choices, despite receiving new information that shows those past choices to be erroneous. 22 In a similar vein, the availability heuristic refers to the tendency to place excessive weight on events and situations that can be easily recalled 19 Ibid. 20 Daniel Kahneman, Jack L. Knetsch, and Richard H. Thaler, "Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias," The Journal of Economic Perspectives, vol. 5, no. 1, 1991, p Daniel Kahneman, Thinking, Fast and Slow, Penguin Group (Australia), Melbourne, 2012, p Saint-Paul, The tyranny of utility, p

13 to memory when considering probability or risk, resulting in systematic errors. 23 For example, we may spend too much insuring against events with high visibility leaving ourselves exposed to less vivid risks. 24 Anchoring effect anchoring refers to the power of an initial figure or value (the anchor) that is presented before somebody makes their own estimation, judgement or decision. The anchor need not be related to the figure or value being estimated either, with numbers from a wheel of fortune board in one experiment having an effect on people s estimation of the percentage of African countries in the United Nations. 25 Hyperbolic discounting If asked to select from one of two options; receiving $95 today or $100 in six months, the first option is often deemed the most attractive. In this example, the $100 may be discounted to be worth less than $95 due to the delay before getting it, thus making $95 today seem more attractive. The way people discount future gains has been found to be dynamically inconsistent, or hyperbolic, as opposed to exponential; This discount structure sets up a conflict between today s preferences, and the preferences that will be held in the future For example, this year I may desire to start an aggressive savings plan next year, but when next year actually rolls around, my taste at that time will be to postpone any sacrifices another year. 26 Framing effects When a risky decision is presented to people, for example choosing between solutions in a disease outbreak, research has shown that presenting the same options positively (referring to expected number of lives to be saved) yields different decisions from participants compared to presenting options negatively (number of 23 Amos Tversky and Daniel Kahneman, "Judgment under Uncertainty: Heuristics and Biases," Science, vol. 185, no. 4157, 1974, pp McAuley, "You can see a lot by just looking," Tversky and Kahneman, "Judgment under Uncertainty," p David I. Laibson, "Golden Eggs and Hyperbolic Discounting," Quarterly Jounral of Economics, vol. 112, no. 2, 1997, pp

14 lives expected to be lost). 27 This is just one of several different types of framing effects. 28 In general terms, framing refers to the influence that the context of information, and how it is presented, has on what decisions people make. Each of these biases and heuristics have many examples and studies behind them, in a field which exhibits a level of robustness not often found in the social sciences. 29 Behavioural economics also looks to social psychology to understand how people behave differently in various social settings, such as examining the power of norms and altruism. 30 A lot of the findings from behavioural economics are based around the dichotomy of System 1 and System 2, which refer to two separate cognitive systems: known as dual-process theory. 31 System 1 is shared between humans and animals and includes instinctive behaviours that are innately programmed and typically operate both quickly and automatically. 32 This is often referred to as intuition, habit, impulse, emotion, or reflex for example. System 2 is believed to be uniquely human and involves slower thinking, allowing for abstract thought and rational contemplation. 33 Ideas about a duality of an emotional self in conflict with a rational self go back a long way, however, there is now a strong body of evidence pertaining to the science behind the model Amos Tversky and Daniel Kahneman, "The framing of decisions and the psychology of choice," Science, vol. 211, Irwin P. Levin, Sandra L. Schneider, and Gary J. Gaeth, "All Frames Are Not Created Equal: A Typology and Critical Analysis of Framing Effects," Organizational Behavior and Human Decision Processes, vol. 76, no. 2, Amitai Etzioni, "Treating Rationality as a Continuous Variable," Society, vol. 51, 2014, p For a comprehensive overview of the literature on behavioural economics, see Kahneman, Thinking, Fast and Slow. 31 Jonathan Evans, "In two minds: dual-process accounts of reasoning," Trends in cognitive sciences, vol. 7, no. 10, Ibid., p Ibid. 34 Jonathan Evans, "Dual-process theories of reasoning: Contemporary issues and developmental applications," Developmental Review, vol. 31, no. 2 3, 2011, p

15 Overall, the body of literature captured by behavioural economics has catalogued a wide range of instances where the majority of people exert bounded will-power and bounded rationality in a way that is predictable and leads to sub-optimal decisions in terms of people s welfare, thus deviating away from the predicted outcomes of homo economicus. This emerging field calls for a change in the way governments go about influencing behaviour, which could have a powerful effect on the way public policy is designed. 35 This includes a stronger rationale for governments to consider using paternalistic policies to influence people towards welfareenhancing behaviour. 1.2 The potential of behavioural economics Understanding more about human behaviour, and developing better methods of prediction, can assist communities to tackle large social problems and help governments instigate behavioural change strategies. Behavioural economics details human behaviour in many different aspects of our lives, however, we only need to look at a couple of specific issues to see the potential difference that the new field can have. For example, climate change is one of the most pressing and difficult problems currently facing the world, and it is becoming increasingly clear that trying to address the problem by using traditional economic approaches based on rational self-interest will not suffice. 36 The very nature of climate change makes it an issue prone to cognitive biases and heuristics. For example: the availability heuristic interferes with people s ability to comprehend long term 35 On Amir and Orly Lobel, "Stumble, Predict, Nudge: How Behavioral Economics Informs Law and Policy," Columbia Law Review, vol. 108, 2008, p John M. Gowdy, "Behavioral economics and climate change policy," Journal of Economic Behavior & Organization, vol. 68, no. 3 4,

16 modelling and trends, getting people to act now to prevent negative outcomes in the distant future is difficult, ideological and social allegiances guide how people interpret the problem, and, the way average people often misunderstand risk and probability places a key constraint on policy makers. 37 There are some simple, yet exciting, examples where behavioural approaches are yielding results in energy reduction. By taking advantage of the concern people often have for social norms, one experiment witnessed reductions in energy use by negatively alerting heavy users of electricity to social norms, and positively encouraging light users of electricity to remain leaders, prompting less overall use. 38 Another example shows that in home indicators of real time electricity use can help bring salience to what is typically a use-now-and-pay-later consumption habit, leading to energy reductions. 39 These approaches are contrasted against the assumptions of homo economicus that price increases will suffice to minimise usage. Climate change has been described as a wicked policy problem due to its complex nature, multiple causes, range of varying responses and other problems as mentioned above. 40 Approaching the problem with new insights about human behaviour can provide unique ways to think about tackling the problem. 37 Anthony Giddens, The Politics of Climate Change, Polity, Cambridge, 2009; Matthew C. Nisbet, "Communicating Climate Change: Why Frames Matter for Public Engagement," Environment: Science and Policy for Sustainable Development, vol. 51, no. 2, 2009; The World Bank, "World Development Report 2015: Mind, Society, and Behaviour," World Bank Group, 2015; Emma L. Tompkins and W. Neil Adger, "Defining response capacity to enhance climate change policy," Environmental Science & Policy, vol. 8, no. 6, 2005, p Hunt Allcott, "Social norms and energy conservation," Journal of Public Economics, vol. 95, no. 9 10, Ahmad Faruqui, Sanem Sergici, and Ahmed Sharif, "The impact of informational feedback on energy consumption A survey of the experimental evidence," Energy, vol. 35, no. 4, Australian Public Service Commission, "Tackling Wicked Problems: A Public Policy Perspective," Commonwealth of Australia,

17 Another wicked policy problem is obesity. 41 According to the Australian Bureau of Statistics in close to two thirds of Australian adults were overweight or obese, and only 5.5 per cent had an adequate usual daily intake of fruit and vegetables. 42 Obesity, and a lack of physical activity, are among some of the causes of non-communicable diseases (such as cardiovascular disease, cancers and diabetes) which represented 68 per cent of all deaths globally in Non-communicable diseases are on the rise in every part of the globe. 44 While obesity is often thought of in terms of individual choice, it is widely recognized that increasing obesity rates are the inevitable consequence of changes in the social, economic and physical environment. 45 Behavioural economics allows us to see that individual preferences are not stable, and are largely influenced by the contextual and social environment in which people choose. 46 Things such as portion and plate sizes, as well as how overweight our social connections are, can have an impact on what, and how much, we eat. 47 Considering large corporations are aggressively trying to change people s behaviour to eat more and more processed high-energy foods, policy makers concerned with public health measures, and tackling the rise in obesity, can certainly 41 Ibid. 42 Australian Bureau of Statistics, "Australian Health Survey: updated results, ," Commonwealth of Australia, World Health Organization, "Global status report on noncommunicable diseases 2014," Ibid., p Sarah MacKay, "Legislative solutions to unhealthy eating and obesity in Australia," Public Health, vol. 125, no. 12, 2011, p Cserne, Freedom of contract and paternalism, pp ; Ernst Fehr and Karla Hoff, "Introduction: Tastes, Castes and Culture: the Influence of Society on Preferences," The Economic Journal, vol. 121, no. 556, 2011; Jayson L. Lusk, "Are you smart enough to know what to eat? A critique of behavioural economics as justification for regulation," European Review of Agricultural Economics, vol. 41, 2014, p. 358; Mueller, "Models of Man," p. 66; Sunstein and Thaler, "Libertarian Paternalism Is Not an Oxymoron," p Nicholas A. Christakis and James H. Fowler, "The Spread of Obesity in a Large Social Network over 32 Years," New England Journal of Medicine, vol. 357, no. 4, 2007; Brian Wansink, "From mindless eating to mindlessly eating better," Physiology & Behavior, vol. 100, no. 5,

18 benefit from the findings of behavioural economics. 48 Behavioural economics will not inherently provide the ultimate solution to these significant problems, however, it will help policy makers to understand complex decision-making processes and potentially devise better strategies for influencing behavioural change. 49 Further, behavioural economics allows the design of policies that go with the grain of people s psychology which could prove much more effective than a traditional approach based on incentives and punishments Libertarian Paternalism (aka Nudge) Behavioural economics does not naturally provide a guide to redesigning public policy, it instead offers insights and reliable predictions into how humans deviate from the model of homo economicus in a variety of market conditions. Therefore, an important role exists in trying to translate the findings of behavioural economics into a specific policy approach or philosophy. The most popular project to date that takes on this task is called libertarian paternalism, or Nudge. 51 The program was developed by economist Richard Thaler and legal scholar Cass Sunstein, spanning multiple books and journal articles over the past 12 years. 52 Libertarianism typically refers to the view that government interference should be kept to a minimum, and that the government should respect the voluntary associations between 48 Rob Moodie et al., "Profits and pandemics: prevention of harmful effects of tobacco, alcohol, and ultraprocessed food and drink industries," The Lancet, vol. 381, no. 9867; Robert A. Skipper, "Obesity: Towards a System of Libertarian Paternalistic Public Health Interventions," Public Health Ethics, vol. 5, no. 2, Dongjae Jung and Wooseong Jeong, "Nudge: A Tool for Better Policy Impacts and Its Limitations under Various Policy Contexts," Public Administration Review, vol. 71, 2011, p T. M. Wilkinson, "Nudging and Manipulation," Political Studies, vol. 61, no. 2, 2013, p The authors prefer the title of Libertarian Paternalism, however, Nudge was chosen to suit publisher demands for a more marketable book title, see Cass Sunstein, CATO Institute, Nudge: Improving Decisions about Health, Wealth, and Happiness, podcast, video, 1 May Cass R. Sunstein, Why Nudge?: The Politics of Libertarian Paternalism, Yale University Press, New Haven, 2014; Sunstein and Thaler, "Libertarian Paternalism Is Not an Oxymoron."; Richard H. Thaler and Cass R. Sunstein, "Libertarian paternalism," American Economic Review, vol. 93, no. 2, 2003; Thaler and Sunstein, Nudge. 15

19 individuals. 53 Thus, libertarians strongly support free markets and individual liberty in the negative sense of non-interference and complete freedom of choice. Paternalism stands in stark contrast with libertarianism since it involves interference with an individual s autonomy, without their consent, conducted with the intention of doing what is considered to be in that individual s best interests. 54 Paternalism can take the form of laws that prohibit specific behaviour deemed dangerous to individuals, such as using drugs or riding a bicycle without a helmet. Thaler and Sunstein have chosen the title libertarian paternalism to be provocative, since the two terms are typically incompatible. They are in essence making a claim that behavioural economics changes the way we ought to think about those two approaches to government. The basic argument of Nudge is that governments, as well as private actors, should take steps to alter the context in which people make choices, based on findings from behavioural research, in a way that predictably leads them to make welfare enhancing decisions, while also supporting freedom of choice. Here I will briefly lay out the fundamental principles of their new proposal, leaving critiques for the following chapters. Two core arguments underpin Thaler and Sunstein s thesis. The first idea, which draws heavily from behavioural economics, is the; possibility that in some cases individuals make inferior decisions in terms of their own welfare decisions that they would change if they had complete information, unlimited cognitive abilities, and no lack of self-control Vipin P. Veetil, "Libertarian paternalism is an oxymoron: an essay in defence of liberty," European Journal of Law and Economics, vol. 31, 2010, p. 322; Jonathan Wolff, "Libertarianism," in Routledge Encyclopedia of Philosophy, ed. Craig Edward, Routledge, London & New York, Cserne, Freedom of contract and paternalism, p Sunstein and Thaler, "Libertarian Paternalism Is Not an Oxymoron," p

20 This opens up the prospect that some policy could make them better off by improving their decisions. 56 Such a possibility might appear to be a relatively straight forward and uncontroversial statement, however, an important reason the pair go to lengths to iterate the truth of this claim is to rebut the classical liberal position, dating back to John Stuart Mill, that individuals are always best placed to know their own preferences and make choices which advance those preferences. 57 The view held by Mill is not compatible with the findings of behavioural economics. 58 The second core premise of Nudge is that what people choose is strongly influenced by details of the context in which they make their choice, a realm described as the choice architecture. 59 This perspective is informed by a wide range of findings from behavioural economics, such as framing and default rules, which, when put together, infer that choice architecture and its effects cannot be avoided. 60 Choice architecture is the result of work done by choice architects, such as those who: design food labelling, determine the pricing scheme of insurance policies, and, create smartphone applications, to name but a few. 61 The importance of choice architecture comes from the reality that there is no neutral architecture any way a choice is presented will influence how the decision-maker chooses Ibid., p Bill New, "Paternalism and Public Policy," Economics and Philosophy, vol. 15, 1999, p. 75; Sunstein, Why Nudge?, pp. 7, Sunstein, Why Nudge?, pp Sunstein and Thaler, "Libertarian Paternalism Is Not an Oxymoron," p Thaler and Sunstein, Nudge, p Serge Egelman, Adrienne Porter Felt, and David Wagner, "Choice Architecture and Smartphone Privacy: There s a Price for That," in The Economics of Information Security and Privacy, ed. Rainer Böhme, Springer, Berlin, 2013; Anne N. Thorndike et al., "A 2-Phase Labeling and Choice Architecture Intervention to Improve Healthy Food and Beverage Choices," American Journal of Public Health, vol. 102, no. 3, 2012; Jennifer B Wriggins, "Automobile Injuries as Injuries with Remedies: Driving, Insurance, Torts, and Changing the Choice Architecture of Auto Insurance Pricing," Loyola of Los Angeles Law Review, vol. 44, no. 69, Eric J. Johnson et al., "Beyond nudges: Tools of a choice architecture," Marketing Letters, vol. 23, no. 2, 2012, p

21 Once it is understood that the way choices are presented will end up influencing how people choose, and that it is possible for outsiders to help people make better decisions in line with their own interests, the key question Thaler and Sunstein invite readers to ponder is; what should be done with this knowledge? Thaler and Sunstein use a hypothetical example of someone who decides how to arrange food in a school cafeteria display cabinet. 63 Once the cafeteria worker knows that how they arrange the food will impact what people buy, there are a range of approaches they can take. Some of the possible options include: choosing the order of food at random, attempting to maximise profits, or trying to select the order the customers expect. 64 Thaler and Sunstein conclude that paternalistically arranging the food in a way that makes the students best off, all things considered is the least negative alternative. 65 Thus, if the cafeteria employee were to lay out the healthy food in a manner they believed would lead to more people buying that healthy food, and increasing their welfare, we would be witnessing a nudge. For Thaler and Sunstein a nudge is paternalistic if it attempts to influence the choices of affected parties in a way that will make choosers better off. 66 Considering the core elements of Nudge as laid out above, Thaler and Sunstein believe it is legitimate for choice architects to act paternalistically. 67 The caveat, which brings in the libertarian part of the title, is the insistence that freedom of choice should be preserved. 68 In the case of the cafeteria display, Thaler and Sunstein would argue against the employee removing all unhealthy items and 63 Thaler and Sunstein, Nudge, p While acknowledging that the option to maximise profits may sometimes be desirable, Thaler and Sunstein argue that in this situation, involving school students and their decisions about eating healthily or not, maximising profits is not an ideal option, ibid., p Ibid., p Sunstein and Thaler, "Libertarian Paternalism Is Not an Oxymoron," p Thaler and Sunstein, Nudge, p Sunstein and Thaler, "Libertarian Paternalism Is Not an Oxymoron," p

22 heavily restricting choice. However, a clear distinction between libertarian paternalism and non-libertarian paternalism does not exist, with the duo acknowledging that the costs associated with exercising choice occur along a continuum. 69 For example, from the minimal cognitive cost of searching a bit harder to locate the unhealthy food in the display window to the economic cost of a tax increase on cigarettes. Therefore, the libertarian aspect applies as a general rule - nudges should be easy to avoid if people so choose Government adoption of Nudge While the general ideas behind behavioural economics have been used to design government policy for some time, Nudge has led to a surge in popularity of applied behavioural economics by governments all over the world. 71 In 2008 while in the United Kingdom (UK) to promote Nudge, Richard Thaler met with David Cameron, then opposition leader, to discuss his ideas. 72 A connection was formed and Thaler went on to become an unpaid adviser to Cameron, who, within months of becoming Prime Minister in 2010, set up the world s first nudge unit, formally known as the Behavioural Insights Team (BIT). 73 Thaler has also advised policy makers in Denmark and France, meanwhile Sunstein has worked for the White House in the United States. 74 Further, both Thaler and Sunstein appeared at the world s first global behavioural insights conference in Sydney in 2014, aimed at bringing experts, academics and 69 Ibid., p Ibid., p For example, compulsory superannuation draws from ideas about retreiment savings behaviour and was introduced in Australia in 1992, Andrew Leigh, "Applying behavioural economics in policymaking," The Mandarin, 16 October 2014, 72 McSmith, 2010, cited in Rhys Jones, Jessica Pykett, and Mark Whitehead, Changing Behaviours: On the Rise of the Psychological State, Edward Elgar, Cheltenham, 2013, p Ibid.; Straßheim, Jung, and Korinek, "Reframing Expertise," p "Nudge nudge, think think," The Economist Newspaper Limited, 24 March, 19

23 practitioners together to discuss behavioural innovations shaping the policy landscape. 75 As The Economist put it, Nudge has got the policy wonks excited. 76 Australia officially joined the momentum in 2012, with the New South Wales Government teaming up with the BIT in the UK to create the Behavioural Insights Unit, a first of its kind in the nation. 77 The BIT has worked with VicHealth to look at ways of using behavioural research to improve health outcomes, as well as providing advice and consultation to other state governments for various projects. 78 However, outside of these examples there has not been any concentrated and sustained activity in Australia with regards to incorporating behavioural economics into policy. Although, there have been a few sporadic reports which note the potential of using behavioural insights from: the Australian Public Service Commission, the Productivity Commission, the Department of Finance and Deregulation, and, the CSIRO. 79 The NSW Behavioural Insights Unit released an outcomes report in 2014, boasting success with some trial programs looking into: reducing late payments of fines and taxes, increasing the use of private health insurance in emergency departments, and helping injured staff return to work sooner. 80 These trials were heavily supported by the BIT, who have undertaken similar 75 "Behavioural Exchange 2014," The United States Studies Center, 2015, 76 "Nudge nudge, think think". 77 Department of Premier and Cabinet, "Annual Report ," New South Wales Government, The Behavioural Insights Team, "Update report ," Australian Public Service Commission, "Changing Behaviour: A Public Policy Perspective," Commonwealth of Australia, 2007; Office of Best Practice Regulation, "Influencing Consumer Behaviour: Improving Regulatory Design," Commonwealth of Australia, 2012; Productivity Commission, "Behavioural Economics and Public Policy: Rountable Proceedings," Commonwealth of Australia, 2008; Andrew Reeson and Simon Dunstall, "Behavioural Economics and Complex Decision-Making: Implications for the Australian Tax and Transfer System," CSIRO, The Behavioural Insights Team and Premier & Cabinet Behavioural Insights Unit, "Understanding People, Better Outcomes,"

24 trials in the UK, and also produced a framework for how to apply behavioural insights to policy, which was utilised by the NSW team. 81 Different countries and governments have adopted Nudge in unique ways. While cases in the UK, Australia and the United States show Nudge used in a top down approach via policy makers, other countries are seeing the promotion of applied behavioural economics from outside government in more of a bottom up fashion. Such as Denmark and Norway, where organisations outside of government are the ones lobbying for behavioural based policy changes. 82 Further, the culture of a specific governed region, and their view of the role of science and experts in the policy making process, can have an impact on how receptive a society is to behavioural based interventions. 83 Thus, it is important to consider not only the theory behind nudge, but the precise application of it in different cases and different societies. 1.5 Academic reception of Nudge While several governments across the world have been enthusiastically looking at the ideas behind Nudge to inform policy, the academic response has generally not been as open and welcoming. In this section I provide an overview of the various lines of criticism that exist within the academic literature, concluding with what I believe are the most important critiques worthy of deeper exploration. 81 Ibid. 82 Peter D. Lunn, Regulatory Policy and Behavioural Economics, OECD Publishing, Paris, 2014, p Straßheim, Jung, and Korinek, "Reframing Expertise." 21

25 Comments on the behavioural research Since Nudge is based on a continually evolving body of psychological research, it is natural to find critiques that have arisen in regards to the application of those research findings into policy prescriptions. The literature contains varying lines of discussion around this topic. Concerns are raised with studies using samples that do not represent the real world, and rely too heavily on university students for participants. 84 Further critiques are levelled at the lack of attention paid to the differences that might arise when applying the findings to populations with varying cultural and geographical backgrounds. 85 Plus, there is the more general claim that the findings cannot simply be universally applied by governments with ease. 86 The general view to emerge from such evaluations is that governments need to be cautious and realistic when applying behavioural insights to specific populations. The possibility of sustained change Another area of critique is with regards to what Nudge can actually achieve. Some argue that Nudge simply will not bring about meaningful long term behavioural change and can only achieve superficial short term change. 87 Further, a recurring criticism is that when the government steps in to stop or minimise people making mistakes, it reduces the capacity for people to develop their sense of personal responsibility. 88 This could remove incentives for people to alter their behaviour, and change the way we think about judging poor decisions Lusk, "Are you smart enough to know what to eat?," pp Evan Selinger and Kyle Whyte, "Is there a right way to nudge? The practice and ethics of choice architecture," Sociology Compass, vol. 5, no. 10, Etzioni, "Treating Rationality as a Continuous Variable." 87 Alberto Salazar, "Libertarian paternalism and the dangers of nudging consumers," King's Law Journal, vol. 23, 2012; Tom Goodwin, "Why We Should Reject Nudge," Politics, vol. 32, no. 2, 2012; Theresa M Marteau et al., "Judging nudging: can nudging improve population health?," BMJ, vol. 342, Frank Furedi, "Defending moral autonomy against an army of nudgers," Spiked, 20 January 2011, Daniel M. Hausman and Brynn Welch, "Debate: To Nudge or Not to Nudge," Journal of Political Philosophy, vol. 18, no. 1, 2010; Veetil, "Libertarian paternalism is an oxymoron." 89 Lusk, "Are you smart enough to know what to eat?," p

26 Mark White argues that the application of Nudge to policy could create a self-fulfilling prophecy. The diminished capacity of people to learn from their mistakes and make better decisions can lead to more people making poor decisions, which then provides further rationale to intervene with even more nudges. 90 However, it is worth noting the argument about diminished personal responsibility as a result of paternalistic interference fits with a libertarian critique of paternalism in general, and is not unique to Nudge. 91 Interference with autonomy, liberty and values Thinking about the application of Nudge to policy brings into focus the role of the state with regards to how it ought to treat individuals. In this regard a core line of criticism found in the literature is concerned with how Nudge can be reconciled with core liberal principles. Transparency is seen as one core liberal principle which Nudge simply cannot respect, since nudges work best when those they are targeted at are unaware of the nudge. 92 Nudge has also been criticised for not showing enough respect for the rational capacities of citizens, and looking to other means beside rational deliberation in order to influence behavioural change. 93 Therefore, Nudge is seen to disrespect the core liberal principle of treating citizens as rational people who can direct their own lives autonomously Mark D. White, The Manipulation of Choice, Palgrave Macmillan, New York, 2013, pp Riccardo Rebonato, Taking liberties: a critical examination of libertarian paternalism, Palgrave Macmillan, Basingstoke, UK, 2012, p Till Grüne-Yanoff, "Old wine in new casks: libertarian paternalism still violates liberal principles," Social Choice and Welfare, vol. 38, 2012, pp ; Riccardo Rebonato, "A critical assessment of libertarian paternalism," Journal of consumer policy, vol. 37, 2014, p Conly, Against autonomy, p. 30; Tony Fitzpatrick, "Social paternalism and basic income," Policy & Politics, vol. 39, no. 1, 2011; Hausman and Welch, "Debate: To Nudge or Not to Nudge," pp Conly, Against autonomy, p