Nudge and utopia

My RMIT colleagues Swee Hoon Chuah, Robert Hoffmann and Jason Potts have edited a special issue of the Journal of Behavioral Economics for Policy. The early views are here.

Chris Berg and I put in our 2c.

Libertarian paternalists have to guess at consumer preferences and opportunity costs and then make a value judgement as to desirability of those preferences and perhaps substitute different preferences. In doing so, they make two fundamental economic methodological errors in their argumentation. First the Demsetzian nirvana fallacy which specifies three specific problems planners make; they assume a free lunch, they assume the grass will be greener on the other side, and they assume people could be different. Second, libertarian paternalists assume they can observe the choice set that consumers face, and the subsequent opportunity costs of their decision making. Buchanan (1969), however, has argued that the choice set and opportunity costs of choice cannot be observed ex post.

To be fair, libertarian paternalists are not the only agents to imagine they can correctly resolve all these assumptions and arrive at the correct decision. Socialist planners attempting to direct entire economies thought they could allocate resources better than private decision makers. Economists resolving externality problems thought they could correctly specify the correcting subsidy or tax. Nudging is simply the latest theory to provide some intellectual credibility to second guessing private decisions. In contrast to the Marxian objective of changing the world, we argue that nudging theory falls foul of Hayek’s (1988) view –“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design”.

This entry was posted in Economics and economy. Bookmark the permalink.

27 Responses to Nudge and utopia

  1. RobK

    –“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design”.

    That should be the defining tenet.

  2. Tel

    It was bad that the nudge/knock mentality got sold under a “Libertarian” banner.

    The only definition of a “Libertarian paternalist” is someone who offers a lot to charity. If I’m using tricks like signing you up to things you never wanted, then it’s not exactly voluntary, smacks of disrespect, and breeds distrust.

  3. Libertarian paternalists have to guess at consumer preferences and opportunity costs and then make a value judgement as to desirability of those preferences and perhaps substitute different preferences. In doing so, they make two fundamental economic methodological errors in their argumentation.

    Vogon poetry, right?

  4. entropy

    Behavioural economists are exactly the type of slimy main chancers that encourage politicians to become slimy main chancers.
    The basic premise is “I am a smart shepherd and the people are dumb sheep”

  5. Driftforge

    And yet China grows at ~10% per year, and the West does not.

    Now there are inherently many reasons for this. But the notion that planning is an impenetrable problem seems to be rooted in some highly unstable ground.

    It might be better to ask what can be planned, and what is best solved by an appropriately arranged market, or even how you can plan an appropriately arranged market.

  6. HGS

    Paternalistic Libertarian = Socialist

  7. H B Bear

    More beige cardiganned self-described experts thinking they can run your life better than you can.

  8. Paul Farmer

    Drift forge – planning here needs to be read in terms of planning the means of production. Hayek’s thesis is that the government getting involved in these aspects of an economy to allocate resources and not relying on price signals that comes from the emergent forces of supply and demand along with entrepreneurs taking risks is indeed problematic and likely to give you sub optimal outcomes.

    Hayek’s thesis is not that that problem of planning was impenetrable ( and I am sure he would maintain the same view in this age of super computes) but government actors would always do a worse job of it, because there is no feedback mechanisms at work with socialist planning like in a capitalist economy through price signals. When the market economy gets it wrong. people go broke, lose their jobs, resources are redeployed. Trial , error and correction occurs , what Schumpeter called creative destruction. We also see it show up as innovation as entrepreneurs are driven on to experiment and take risks.

    This doesn’t happen when there is planning on some arbitrary basis , so you have no clue from prices and natural forces of supply and demand whether you got it right and no encouragement to experiment and innovate. Hayek also makes the point the about complexity and the impossibility of knowing everyone’s preferences if they are not expressed through market actions which is exhibited in prices, so the odds of you lucking it right as a genius planner are almost non existent.

    As for China it is lucky to make 7 % GDP growth now if you believe the official numbers. Per capita it is about $ 8,000 USD , compared to $ 58,000 USD for America and $ 50,000 USD for here. When the Chinese system eclipses our GDP per capita I will acknowledge they are onto something better in their approach.

    We also don’t know the counter factual. Who is to say where China would be today if it had more market orientated capitalism since 1949 with a lot less state planning ? My bet is it would be even further advanced then it is today in terms of GDP per capita although inequality would no doubt be worse which upsets the leftie luvvies, but that will always be the case in a system where you have the freedom to pursue your talents.

    You can also make a reasonable argument that the parts of China that are successful are the market driven ones, whereas the planned centrally controlled parts where corruption is endemic , are the parts holding it back.

    China is also not transparent. We only see the numbers the party central committee wants the world to see…………it’s a brave man who takes those numbers at face value. Right up to the moment the Soviet bloc collapsed, economists in the west including even famous ones like Samuelson were forecasting the Soviets were going to eclipse the US within a decade. With the benefit of hindsight that was one of the stupider economic forecasts of the last century . However unsurprising given his Keynesian mindset in that everything could be made better with a bit more “planning”. For mine Hayek won the battle with Keynes over government intervention and how far that should go but the economics profession has never really acknowledged it. Certainly not in most of our universities.

  9. Some History

    Behavioural economists are exactly the type of slimy main chancers that encourage politicians to become slimy main chancers.
    The basic premise is “I am a smart shepherd and the people are dumb sheep”


    Just consider the antismoking (prohibition) crusade directed by the unelected, unaccountable UN agency, the World Health Racket Organization. Most countries have signed up to the prohibition crusade with Australia a “star performer”.

    We’re not talking “nudge” here. We’re not even talking “shove”. We’re into the realm of bludgeoning into submission/conformity. Just recently, Craig Kelly honestly depicted what the antismoking crusade of the last 30 years has been about – “You’ve got to make lepers of those that smoke… make their lives horrible.” See comments here:

    The message is clear: Do as we say – quit smoking – or we will punish you in an increasing number of ways and extents. The power of government – from policy to law to tax – has been given over to making the lives of a significant minority horrible. This is occurring in a supposedly relatively free society and embraced by all major political parties. It’s an appalling state of affairs. The assault is incessant and with the ever-presence of malice and contempt. The punitive measures just keep mounting.

    The public has been fed loads of crap to give a semblance of justification to baseless restrictive, oppressive policies and laws. It’s a constant “lying for the cause”. The propagandists have cultivated an atmosphere where no-one should dare question “authority”. There has been so much crap fed to the public, typical of a prohibition crusade, that the last few generations have had their thinking on tobacco utterly addled. It would be a shock if there are all too many folk that have even one rational thought concerning tobacco. The underlying premise is that these self-installed “superiors” know better than everyone else, that their decision-making and benevolence is beyond question.

    Let’s look at the monumental mess that these narcissistic “superiors” have already caused. The constant fear and hate-mongering produces irrational fear and hate which in turn produces division, animosity, confrontation, agitation. It’s an assault on psychological and social health. Regressive tax on tobacco that has now reached eye-watering levels has made life more and more difficult for those of low economic means. They have also produced an entirely predictable flourishing contraband market. For the last 2 years (between tax rises 3 and 5 of 8), Craig Kelly has headed an enquiry into the contraband market. It’s not rocket science: Hike tax into unreasonable levels and it’s a red-carpet invitation to a contraband market. Yet these greedy, tosser politicians and their economic advisors seem bamboozled by the emergence of a contraband market. The cancer council, a loud advocate for massive taxes on tobacco, denies that there’s even any connection between soaring tobacco taxes on tobacco and a contraband market. There is no reasoning with these fools. They are dangerously stupid. The sanctimonious wankers that have produced this mess now want more funding for enforcement and bigger penalties for “transgressors”. They are pushing it into nastier and nastier levels where eventually ordinary citizens will be turned into criminals. This deterioration, too, is entirely predictable.

    There’s more that can be said on the damage wreaked by this prohibition crusade, but we get the general picture. It involves government, bureaucracy, unelected, unaccountable internationalist organizations, and a string of “public health” groups. Then there’s the fiasco of rising energy prices and possible blackouts due to poor decisions by government over the last number of years. And then there’s the dual-citizenship debacle where politicians can’t even get their own requirements for office sorted out. This is all current.

    Yet these same numbskulls would have us believe that they alone know “correct” decisions in any circumstance, particularly on how everyone should be living their lives. For heaven’s sake!

    Economists and the medically-aligned, as advisors to politicians and government bureaucracy, have again fallen into the blindness of not knowing the considerable limitations of their perspectives. They have no grasp of human nature at all. They do not grasp the dangers of frenzies, bandwagons, collective hysteria, and that when it’s government (through terrible advice) producing these mass delusions they are the biggest catastrophes.

    So, is government with it’s whole “advisory” industry capable of not only isolated but sustained bad, destructive policy/decisions? You betcha! It’s happening now. Nudge and utopia? Puh…puh….puhhhh…leeeeezzz!!

  10. Nathan

    Now there are inherently many reasons for this. But the notion that planning is an impenetrable problem seems to be rooted in some highly unstable ground.

    For a better analysis than looking at dubious government figures for a bogus measure (i.e. GDP), go to:

  11. Andreas Brown

    Libertarian paternalist is someone who needs to admit he is a communist in desguise.

  12. Defender of the faith

    As the humorous LBJ once told Galbraith:”yknow this economics is like pissin in your pants. Seems hot to you. But ain’t no one gonna notice.”

  13. Some History

    Where is the transition from “nudge” to malicious coercion? Once embarked on the “nudge” pathway, is it possible to stop a destructive deterioration?

    The first demand for a smoking ban was in the late-1980s concerning short-haul flights of less than 2 hours. At the time the antismoking nut cases screeched, “What’s so unreasonable about that?” Yet, look at where we are now.
    Prohibition by “salami slices”. Here’s a brief history of the antismoking madness (Godber Blueprint) over the last few decades. It’s a slide down the slippery slope that antismoking fanatics claimed would never happen.
    The first demand for a smoking ban was in the late-1980s concerning short-haul flights in the USA of less than 2 hours. At the time, the antismokers were asked if this was a “slippery slope” – where would it end? They ridiculed anyone suggesting such because this ban was ALL that they were after.
    Then they ONLY wanted smoking bans on all flights.
    Then the antismokers ONLY wanted nonsmoking sections in restaurants, bars, etc., and ensuring that this was ALL they wanted.
    Then the antismokers ONLY wanted complete bans indoors. That was all they wanted. At the time, no-one was complaining about having to “endure” wisps of smoke outdoors.
    While they pursued indoor bans, the antismokers were happy for smokers to be exiled to the outdoors. Having bulldozed their way into indoor bans, the antismokers then went to work on the outdoors, now declaring that momentary exposure to remnants of smoke in doorways or a whiff outdoors was a “hazard”, more than poor, innocent nonsmokers should have to “endure”.
    Then they ONLY wanted bans within 10 feet of entrance ways.
    Then they ONLY wanted bans within 20 feet of entrance ways.
    Then they ONLY wanted bans in entire outdoor dining areas.
    Then they ONLY wanted bans for entire university and hospital campuses and parks and beaches.
    Then they ONLY wanted bans for apartment balconies.
    Then they ONLY wanted bans for entire apartment (including individual apartments) complexes.

    On top of all of this, there are now instances where smokers are denied employment, denied housing (even the elderly), and denied medical treatment. Smokers in the UK are denied fostering/adoption. Involuntary mental patients are restrained physically or chemically (sedation) rather than allow them to have a cigarette – even outside. In some countries there are also compounded extortionate taxes on tobacco (e.g., Australia).

  14. Some History

    County council will help fund no-smoking zones in Craven public places

    PUBLIC spaces in Craven and the rest of North Yorkhsire could be declared ‘no-smoking zones’.
    Organisations responsible for the upkeep of public areas are being encouraged to consider the move.
    And funding is being made available to help.
    North Yorkshire County Council is seeking to extend the number of public places where smoking is outlawed.
    Its public health team has launched a Smokefree Places Fund, with grants available to bodies permitted to impose the ban.
    Locations could include play areas or town or village squares.
    Council bosses say the measure could help smokers stub out the habit, as well as set an example for children and reduce cigarette litter.
    “Youngsters in particular consistently overestimate how many people smoke and therefore perceive it to be ‘normal’,” said County Councillor Caroline Dickinson, executive member for public health, prevention and supported housing.
    “By increasing the number of smokefree places, we hope that adults will be positive role models for children and young people.
    “A smokefree environment can also help to support those smokers who are trying to, or have recently, quit.”
    Applications to the fund close on December 1.


    Remember, it all began with – “we want a smoking ban on short-haul flights. What’s so unreasonable about that?”

  15. @Driftforge I keep this video on hand for the China explanation, which was on the cat at one point

    Short explanation is that it’s easy to initially centrally plan big infrastructure investments such as roads and railways, but as the economy grows and the required investments become more complex it becomes impossible because of the local information problems

    Note also that this does not account for Bastiat’s paradox in that the money coerced into big infrastructure projects… was it really and definitively the most productive way to have spent the money? Contrast the building of “infrastructure” with them now building “ghost cities.” Also note how many people starved to death during their iterations of central planning during the Great Leap Forward.

    The problem with statist, socialist and centrally planned principles is that they are myopic in nature. Sure your data fits when you choose a timescale but the planning model never fits the whole graph. That’s why redistribution in Venezuela seemed to increase prosperity initially. The collapse, as the seed capital that provides the foundation is eaten away, is sudden, when people realise that no one is able to resolve their debts.

  16. Herodotus

    At first they came to substitute our consumer preferences ….

  17. Tel

    And yet China grows at ~10% per year, and the West does not.

    It’s pretty easy to win the most improved award when you start so far behind.

    Back when Mao was alive (not so long ago) they were running what amounted to a Medieval peasant economy, they would beat you up for being educated, or even for wearing glasses or being able to play violin.

    After they started importing technology from the US and Japan mostly, and allowing people to learn something, get a job and earn money… they achieved economic growth. Gosh, must have taken some awesome central planner to figure that one out.

  18. value

    Some History – good work. Thank you for the insights (or is it Thomas Sowell who has posted?). The facts do indeed belie the rhetoric. Just think Machiavelli – if one just assumes “lying for the cause” is their stock in trade, as well as the notion that they assume the moral high ground, one is not too far from knowing that this social, self-styled elite are modern Pharisees, whose goal is salvation via legislation.

    Behaviourism is just another attempt at objectifying value, if not in principle, in practice. This is intellectual effort attributed to an already mined-out ore body! This debate was one by the marginalists and Austrians; Ricardo, to his discredit, led to Marx, and the labour theory of value was overturned by Menger and his proginy.

    Sinclair and Berg are correct – one cannot capture choice. The best the entrepreneur and businessman can do is to use past behaviour as a guide for customer action. At worst it is used for bad policy. Laissez-faire!

  19. struth

    China grows due to the Slave labour of millions who are still in destitute poverty, and the ease of which it has been able to deal with the outside world, as the U.N is full of socialist intent on ruining the west with restrictions on production and trade.
    The world has been giving China a free ride for many years.
    Unshackle the west, they’d have serious problems.

  20. Procrustes

    Driftforge, China’s success is due to the move away from central planning. Think how much more it would have grown if they weren’t also weighed down by bankrupt state owned enterprises.

    Sinc, in my humble view the conclusion of your paper is spot on.

  21. struth

    China is Mandarin for “sweat shop”.

    It’s corruption by means of communism/ socialism (the same thing) means an unshackled west would kick it’s arse unless it decentralised even more and became a more free society.

    The best thing we can do for China, now that millions have been pulled out of abject poverty there, and have a taste of the west, is to make them compete with an unshackled west.
    They won’t go back to riding pushies everywhere now.
    Their government has let a bit of light into the darkness and the dumb commies think they can keep control of it.
    In their obedient culture that may be the case, but there are also a lot of rich Chinese now, and the corruption isn’t all on one side of the street.
    I think the commos have stuffed up big time.
    Competing with an unshackled west is the best thing we could do for the odd billion or so Chinese.

  22. Rabz

    There is only one rule:

    “These people are too stupid to tell us how to live our lives.”

  23. Some History

    Pope Francis bans sale of cigarettes at the Vatican on health grounds

    The Pope cites the WHO as “authority” for the move. The coalescing of wankers continues.

  24. Tim Neilson

    The coalescing of wankers continues.

    Also known as “Blair’s Law”.

  25. max

    ‘Libertarian Paternalism’ Like school vouchers, it’s another name for socialism.

    For the past several years, some libertarians have promoted both minor and major reforms of socialist programs in the name of libertarianism. Why would it surprise us that people would naturally conclude that libertarianism is a hybrid of freedom and collectivism and that libertarians stand for “libertarian paternalism” or even “libertarian socialism”?
    Consider, for example, school vouchers, which some libertarians have advanced as a libertarian proposal, employing such libertarian rhetoric as “choice” or “free-market education.”
    Yet, what really is a system of school vouchers? It is nothing more than a reform of the socialist government-school system. Yes, it might improve the state’s educational system and, yes, it might provide parents with more options within that educational system. Nonetheless, it is not libertarian in the least. It is simply a reform of a socialist program.
    Socialism involves the state’s forcible taking of one person’s money and giving it to another person. Isn’t that what school vouchers do? They involve the state’s taking one person’s money — a person who might not even have children — and giving it to another person in order to help him educate his children.
    In principle, school vouchers are no different from, say, food stamps, a socialist welfare program that libertarians (and conservatives) have long condemned. Food stamps involve a process by which the state taxes some people in order to provide food assistance to other people. School vouchers involve a process by which the state taxes some people in order to provide educational assistance to other people.
    As libertarians, all of us would agree that people should be free to advance any program they wish. But the problem is that when such reform programs are promoted as libertarian proposals, people get the impression that this is what libertarianism is all about — using the state to take one person’s money in order to give more “choice” or more “freedom” to another person. Couldn’t it be said that food stamps also give people more “choice” and more “freedom”?
    Therefore, wouldn’t it be better, from the standpoint of libertarianism, if libertarians who advocated such welfare-state reform plans described them for what they actually are — conservative reforms of socialist programs? After all, it’s not a coincidence that the Heritage Foundation, the premier conservative organization in the country, has long supported school vouchers, given that conservatives long ago abandoned any commitment to genuine free-market principles. But what is the average person to conclude when libertarians also support school vouchers and describe them as a libertarian solution to the government-school crisis?

  26. Shine a Light

    Although to many it might go unnoticed, ten of thousands of workers work in the sevice sector in cleaning, security and basic health and safety.

    General houswork hasn’t been automated yet either.
    Anyway, should anyone need protest flags.there is an opporrunity to use thise in Manus Island.

Comments are closed.