In his new book Simpler
Cass Sunstein looks back over his 3 years as Head of the Office of
Information and Regulatory Affairs (2009-2012).
President
Reagan gave OIRA the role of overseeing federal regulation in 1981, legislation
for which Sunstein was actually involved in drafting. Reagan also issued an
executive order stating that “regulatory action shall not be undertaken unless
the potential benefits to society …outweigh the potential costs.” President
Obama built on this in 2011 with Executive Order
13563 stating that “[The regulatory system] must take
into account benefits and costs. It must ensure that regulations are
accessible, consistent, written in plain language, and easy to understand. It
must measure, and seek to improve, the actual results of regulatory
requirements.”
In addition to the
broad policy goals in Figure 1, Sunstein was powerfully motivated by
a desire to simplify many regulations, citing inspiration from the
user-friendliness of modern tablets such as the iPad. This desire was not
manifested in across the board slashings of regulations – rather Sunstein notes
the need for context sensitive administration. While teachers, hospitals and
schools may be burdened by overly detailed rules crowding out their ability to
use their own judgment, private sector industries, wary of legal recriminations,
often prefer to know exactly where the line is so that they can stay on just
the right side of it.
Sunstein quotes a 2012 OIRA Report
showing the savings made under the Obama administration, which I have adapted
in Figure 2. These savings were
achieved by (among other initiatives) fuel economy and energy efficiency rules,
deregulation of business and clean air and road safety rules saving thousands
of lives and preventing illness. A practical example is a 2010 rule
from the FDA which prevents up to 79,000 annual illnesses from salmonella. This
is all part of the ‘Regulatory Moneyball’ approach of dispassionate
cost:benefit analysis that Sunstein and President Obama are such forceful
advocates of. See this paper
by Sunstein for more fascinating examples of the application of cost:benefit
analysis in government.
Sunstein reviews the
literature on System 1&2 thinking, hyperbolic discounting, mental
accounting, heuristics, the power of defaults and so on, citing the examples of
automatic enrollment (see Nudge #4)
and age-progressed renderings as means to encourage saving (Nudge #45).
As an example of the
need for simplification and a general organizing principle, Sunstein contrasts
the USDA’s unintelligible old ‘Food Pyramid' (take a moment to examine it and
reflect on just how unbelievably uninformative it is) with the new ‘Food Plate’
(Figure 3). Along with the image,
the Food Plate’s website also has clear guidelines concerning healthy eating with recommendations
like “drink water instead of sugary drinks”.
This change is part of
Sunstein’s broader goal of nudging people towards better choices with smart
disclosure of the most relevant information in a given domain. You might think
of this as the Amazonification of regulation (the website, not the jungle). Why
can we avail of Amazon’s search engine to evaluate thousands of goods, but are
totally lost when evaluating fuel efficiency of different vehicles? Why can we
use websites such as Skyscanner
to find the cheapest flights, but can’t do the same for mortgages? Sunstein
cites a valuable example of disclosure as President Clinton’s unscrambling of GPS
signals in 2000, which allowed for information brokers to arise and meet market
needs in areas such as car navigation. In a similar vein, the Obama administration has overseen
the creation of simplified
fuel economy labels, college scorecards
and understandable insurance coverage forms. This principle of smart disclosure can be extended
to innumerable areas; credit card companies giving customers one page
statements making their APR rules salient, airplane fees including all costs up
front, shops listing the price of different bags of sugar per kilo to allow
easy comparisons.
Sunstein takes Amazon
as an exemplar of personalized defaults in its purchase recommendations. Sunstein has
called this trend a ‘wave of the future’ although less ambitiously group
demographics such as age and income might be more realistic tools when tailoring,
say, default pension plans. If deciding a default for someone can seem too
paternalistic, active-choice mechanisms (see #44)
are an option for encouraging people to overcome inertia and accommodate
diverse tastes.
Sunstein concludes with
a reflection on the work to be done in simplifying a vast government
architecture that has at times developed haphazardly, with overlapping
regulations and cumulative, burdensome red-tape. Beyond the retrospective
streamlining of old laws, his greater contribution is to clearly formulate a
paradigm of having regulation work in closer harmony with peoples’ behavior. He
closes with three lessons he has learned in his time at OIRA (Figure 4).
Further reading
Sunstein has a number
of recent papers on this area:
(3) The Real World of Cost-Benefit Analysis
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