Friday, July 16, 2010

Behavioral economics as a palliative cop-out

Loewenstein and Ubel make some very simple and compelling points in their article on the use of behavioral economics to guide public policy and nudge people's behavior in desired directions. They note that behavioral economics is being used as a political expedient, allowing policymakers to avoid painful but more effective solutions rooted in traditional economics:

Take, for example, our nation’s obesity epidemic. The fashionable response, based on the belief that better information can lead to better behavior, is to influence consumers through things like calorie labeling — for instance, there’s a mandate in the health care reform act requiring restaurant chains to post the number of calories in their dishes...But studies of New York City’s attempt at calorie posting have found that it has had little impact on dieters’ choices...Obesity isn’t a result of a lack of information; instead, economists argue that rising levels of obesity can be traced to falling food prices, especially for unhealthy processed foods...To combat the epidemic effectively, then, we need to change the relative price of healthful and unhealthful food — for example, we need to stop subsidizing corn, thereby raising the price of high fructose corn syrup used in sodas, and we also need to consider taxes on unhealthful foods. But because we lack the political will to change the price of junk food, we focus on consumer behavior.

A “gallons-per-mile” bill recently passed by the New York State Senate is intended to help drivers think more clearly about the fuel consumption of the vehicles they purchase; research has shown that gallons-per-mile is a more effective means of getting drivers to appreciate the realities of fuel consumption than the traditional miles-per-gallon...But more and better information fails to get at the core of the problem: people drive large, energy-inefficient cars because gas is still relatively cheap. An increase in the gas tax that made the price of gas reflect its true costs would be a far more effective — though much more politically painful — way to reduce fuel consumption.


Anonymous said...

Seems to me the problem is not behavioural economics, which is rooted in empirical/experimental methods. The problem is the appropriation of the rhetoric of behavioural economics without assessing the efficacy of the solution.

Ergo Ratio said...

Indeed, I thought behavioral economics was about shaping policy around how people actually behave, not trying to nudge them toward certain behaviors.

Deric said...

I should have emphasized that I wasn't taking issue with behavioral economics per se, the comments are just on its inappropriate or palliative use.

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