Comments on: More Misbehavioral Economics

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For virtually a year now, the UN is asking Fidelity 401k the world powers to give the United Nations-African Union Mission in Darfur with six attack

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By: The Irrationality of Payday Lending Regulation | Buckeye Institute

The Irrationality of Payday Lending Regulation | Buckeye Institute — Mon, 17 Mar 2008 13:25:37 +0000

[...] article reminds me of something I read on Will Wilkinson’s blog. He discusses irrationality in economics and has this gem: I say, again and again, that it is an [...]

By: links for 2008-03-10 at Matthew Henty

links for 2008-03-10 at Matthew Henty — Mon, 10 Mar 2008 06:22:15 +0000

[...] Will Wilkinson / The Fly Bottle » Blog Archive » More Misbehavioral Economics Questioning the assumption that if people are “irrational” the Government is right/entitled/should intervene and make people do something different. i.e opt-in/opt-out of pensions savings. (tags: paternalism economics psychology rationality) [...]

By: ad

ad — Fri, 07 Mar 2008 19:54:12 +0000

Perhaps the greatest challenge facing behavioral economics is demonstrating its applicability in the real world.

I suspect the major application is generating justifications for additional government control of something or other.

I have hardly ever seen it used for any other reason.

By: Rabbit’s blog :: Irracionalidade Como Argumento Parternalista

Rabbit’s blog :: Irracionalidade Como Argumento Parternalista — Thu, 06 Mar 2008 19:39:57 +0000

[...] Will Wilkinson (via overcoming bias) [...]

By: James

James — Wed, 05 Mar 2008 20:57:21 +0000

Let’s just allow the irrationality to exist even if it harms the market. Just accept it.

By: ed

ed — Tue, 04 Mar 2008 06:56:54 +0000

I think Will is pretty much right here. But I also think libertarians should be pretty happy about this new “soft” paternalism. It seems to me that the more time we spend arguing about exactly how and which way we should “nudge” behavior, the less time will be spent writing the typical types of regulations that DON’T have an opt-out feature.

By: Hunter V. Pittsburgh

Hunter V. Pittsburgh — Sun, 02 Mar 2008 20:49:20 +0000

I wrote a long-winded reply to this, although Scott Wood captures a good deal of what I went for. Behavioral economics has very foreboding implications for the desirability of regulation by democratically accountable actors. Establishing that voters are rubes doesn’t exactly commend the prospect of letting their representatives run wild.

By: Brian Moore

Brian Moore — Fri, 29 Feb 2008 22:45:07 +0000

What Ezra’s example conceals is that even allowing opt-outs is quite a concession from the government on most issues! Sure, for 401k’s default-and-optout is a move in his direction, but for quite a few other things its a move in our direction. Think how many other things we are forced not to do at all, for our own good — no opt-outs allowed. I’d be fine with Ezra’s policy if we could apply it to drugs, prostitution, safety-belts, helmets and everything else that comes under the category of “most likely bad for us” but “some people want it anyway.”

So all I have to do to participate in these things is carry a form around with me that says “I’ve opted out of the default legal restrictions.”

The cops are gonna love this.

By: Christopher Monnier

Christopher Monnier — Fri, 29 Feb 2008 19:07:40 +0000

>There is no way to wriggle out of the fact that people who win elections are just like the rest of us.

I tend to agree with this statement, but there’s no a priori reason for it to be true. To play devil’s advocate, why isn’t it reasonable that the people that win elections might be, on balance, slightly more rational than the average American? Especially if the average voter is more rational than the average American? To put it another way, what if only people deemed sufficiently rational were allowed to vote? Or what if only people deemed sufficiently rational were allowed to serve? In such a situation, surely it’s possible (probable?) that the dicta of a so-called “rational class” may serve the average American better than their own ill-informed decisions.

By: Eric H

Eric H — Fri, 29 Feb 2008 00:36:37 +0000

Yes, it’s all too easy to apply the 3-step “enlightened” theory of patronomics:

1) identify institutional failure
2) identify policy to correct failure
3) declare victory

Rodrik was calling this Second Best Economics a while back. I have been calling it vulgar second best theory for a while longer. Why? Because there is no rigor; all they have to do is identify any failure in step 1, including the asymmetric information or imperfect information, the tied-for-second-to-last refuges of scoundrels. Okay, door opened, move on to 2, where the same level of scrutiny is not performed on the policy. Institutional failure and bias in government? Move on, nothing to see here. Or perhaps it’s time that Mr. Klein pick up a copy of _Narcissistic Process and Corporate Decay_ or any of Niskanen’s work on bureaucracy.

What exactly is it that makes 401(k) plans so awesome that everyone must be forced into them? Might it not be the case that some people would derive greater benefit from higher take-home pay and more liquidity? But no, we must treat everyone as a child who ***must*** place the maximum amount in the private mutual fund offered to them.

By the way, isn’t this prescription (privately managed mutual funds) being offered by the same people who vehemently denied that similar levels of choice in the Social Security program would have results no less dire than the opening of the 5th or 6th Seal just prior to the Apocalypse? I may be exaggerating; they certainly were. And I’m not even in favor of that policy change.

By: Gil

Gil — Thu, 28 Feb 2008 22:38:00 +0000

The company I work for defaults new employees into the 401(K) program, even though they match part of this contribution. No coercion needed.

It’s funny to see how surprised some people are that companies actually want to make their compensation packages attractive over time.

If there’s a sensible policy that’s good for employees, companies that are competing for labor will tend to use it when it seems to make sense, and reject it when it doesn’t (e.g. industry specifics differ, alternatives change, etc.).

This isn’t perfect, but it’s much more reliable than government policies adapting appropriately.

By: Scott Wood

Scott Wood — Thu, 28 Feb 2008 20:45:47 +0000

It’s worth noting that Thaler and Sunstein have used very clearly defined examples with strict perimeters. How many of those are out there? Once the policy becomes “the government gets to try to nudge people into making the ‘right’ decision”, does the content of “the right decision” become a fight between insurance companies that want to sell additional psychiatric care insurance and drug companies who think that you’d you really benefit from more Prozac if only you’d give it a chance? Or more St John’s Wort?

Dismiss this as a violation of the original scientific motivations behind libertarian paternalism all you want. Do you really think that clever attorneys and marketeers won’t be able to find a way to fit whatever they’re selling into the “ignorance” and “inability to rationally process future effects” piece of consumer irrationality? Do you really think that the populace is going to be able to monitor the lobbyists pushing their own product? By definition the populace is already incapable of doing that even if they knew exactly what was going on, right?