A Note on the Ethics of Nudge - Guest Post from Dr. Christian Schubert

This is a guest post from Dr. Christian Schubert.

Let’s assume that in country X ‘nudges’ are being implemented. As you may recall, these are the innovative policy tools suggested, most prominently, by Richard Thaler and Cass Sunstein in their book Nudge (Thaler and Sunstein 2008). Nudges have been shown to impact people’s behaviour without changing their material incentive structure or in any way coercing them. They manage to do so by either harnessing people’s cognitive biases or by responding to them (Hansen 2015), which implies that they affect human beings, but not homo oeconomicus (Thaler and Sunstein 2008: 8).¹ Default settings and cafeteria arrangements are examples of the former, while cooling-off periods and warning signs belong to the latter category. It’s always about (re-)designing parts of people’s choice architecture (CA). Think of the CA as the set of all elements of an agent’s decision context that affect her choices. Crucially, it includes much more than just the monetary incentive structure and the nominal choice set. The focus on people’s CA, rather than only their incentives and choice sets, allows behavioural economists to devise regulatory tools (and institutions more generally) that are robust, as it were, against variations in people’s rationality (Angner 2016: ch. 12).

Nudges have been widely associated with the overarching normative programme of ‘Libertarian Paternalism’ (Thaler and Sunstein 2003), which restricts the set of legitimate CA modifications. They can however be applied in order to pursue non-paternalistic goals as well, such as protecting the environment (e.g. Sunstein and Reisch 2013, Schubert 2016). Nudges are supposed to be transparent, perhaps in the sense that an alert agent should be able to identify them and the channels through which they operate. That condition excludes, for instance, ‘subliminal advertising’ (Bovens 2009).² Importantly, there’s evidence that even perfectly transparent nudges can be highly effective (Loewenstein et al. 2014).

As Sunstein (2014a: 13) puts it, the general idea is to develop "sensible, low-cost policies with close reference to how human beings actually think and behave". Nudges have become very popular among practical policy-makers, particularly in the U.S. and the UK. In this post, I will neither discuss the desirability or otherwise of nudges, nor the surprisingly under-researched issue of the political economy of nudging by policy makers who may be assumed to be as cognitively biased as the citizens themselves. (which speaks against some kinds of nudges).³ Rather, I am interested in some aspects of the ethical assessment of nudging that have been somewhat neglected to date.⁴There’s still a long way to go until we’re able to draw sound conclusions in terms of policy advice from all this – which, again, is a point widely neglected both by proponents and critics of nudging.

So, country X is about to implement nudges – what’s the framework to find out whether they are ethical? What are the potential normative costs of nudging? I suggest approaching this problem in four steps. First, let’s see whether the nudges in question increase people’s well-being. Unfortunately, we are already in deep water, for it’s unclear how to think about well-being in the ‘behavioural world’ (aka the real world) in which nudges are supposed to work. Remember, that’s a world where people not only have limited mental resources – meaning computational capacities, willpower and attention –, but also context-dependent, inconsistent and incomplete preferences. In such a world, the standard neoclassical notion that defines well-being as the technical degree of satisfaction of given and consistent preferences cannot be applied. What’s the alternative? We don’t know. Ideas have been floated – from measurable happiness to “only perfectly informed preferences should count” all the way to Bob Sugden’s ‘opportunity’ criterion (probably the most elaborate alternative concept at the moment)⁵– but the jury is basically still out on how to think about well-being in a behavioural world.⁶ Let’s bracket this first question, then. As Chetty (2015) puts it, nudges may still be ‘pragmatically’ useful (in concert with more traditional regulation) in achieving specific policy goals that citizens have somehow agreed upon beforehand.

Second, we have to ask how nudges affect people’s autonomy. Most critics agree that nudges compromise this key value by interfering with and manipulating people’s preference formation, and by addressing people’s lower instincts instead of reason. It is then argued that individuals lose ‘control’ over their own preferences (e.g. Hausman and Welch 2010). Upon closer inspection, though, this argument looks a bit strange: Does autonomy really depend on the kind of hyper-rationality presupposed here? Aren’t we all subject to a myriad of influences on a daily basis, most of which we are not even aware of?⁷Do we really lose our autonomy – and potentially our moral accountability with it – when acting thoughtlessly or akratically (Buss 2012)? Suffice to say that whoever takes issue with nudges along these lines faces difficult conceptual and ethical questions (what’s ‘manipulation’ anyway?).

Thirdly, let's consider whether perhaps it's people's integrity rather than their autonomy that is at stake in nudging. After all, nudges are supposed to work in a setting where people haven’t yet made up their mind (consider the notorious cafeteria case), i.e., they lack complete preferences. It may be a good idea, then, to have a closer look at the problem of preference formation, which, for economists, is akin to the problem of identity or character formation. The late James Buchanan suggested that we take seriously the notion that human beings face the task of creating their preferences and assume responsibility for them (e.g. Buchanan 1999). As Korsgaard (2009) shows, a necessary condition for succeeding in this ongoing process of ‘self-constitution’ is active choosing. While some kinds of nudges clearly support informed active choosing,⁸ others rather seem to discourage people from engaging in active choice. Put differently, some nudges may produce ‘excessive convenience’. Consider a world with widespread adoption of public nudging: There, I, the consumer, don’t need to worry about my retirement savings, or about mustering the little self-control that I have to avoid the chocolate bars in the cafeteria, nor about being wary about the tricks of door-to-door salespersons. In all these cases, some choice architect, somewhere behind the scenes, subtly steers me into the ‘right’ direction – by changing defaults and frames, and by implementing cooling-off periods. In other words, I’m outsourcing my choices to some external body.

In parts of the critical literature, this specific variant of Moral Hazard makes an appearance as the ‘infantilisation effect’ of nudging (Bovens 2009, White 2013). Note what’s at stake here: When preferences depend on people’s context, and policies can (partly) change that context, we face the problem that policies can impact preferences, which would present us with the awkward task to ponder over which kinds of preferences we want to promote (Hargreaves Heap 2013). The Buchanan-Korsgaard focus on identity formation may help us bypass this question (which is impossible to answer), without losing the ability to identify normative costs associated with nudging.⁹

Fourth and finally, we should think about what all this means in terms of practical policy implications. Ideally, citizens should be informed about the normative costs involved in public nudging before voting on its implementation (Schubert 2014). Consider integrity: People seem to face a trade-off between ‘excessive convenience’ on the one hand (which discourages active choosing, to the detriment of character formation), and ‘too little’ convenience on the other hand (leaving them overwhelmed with complex choices). This trade-off looks different for different kinds of goods: With primary goods that satisfy basic needs, we may conjecture that most people will favor delegating choices, at least partly, to trusted external bodies. Consider basic retirement savings. The demand to form idiosyncratic preferences on issues related to basic retirement savings seems rather limited. In contrast, preferences on morally charged issues such as whether to donate organs post mortem – a popular example of effective nudging (Smith et al. 2013) – don’t easily generalise. In that latter case, integrity arguments speak against the use of nudges as a regulatory policy tool.¹⁰

In most cases, nudges are likely to be implemented as complements to more traditional incentive-based tools. Research on the interplay between modifications of different parts of people’s choice architecture is still in its early stages. What’s striking, though, is that economists interested in deriving behavioural policy implications apparently require much more ethical input than what their neoclassical predecessors were accustomed to. The behavioural economist may turn out to be the moral philosopher’s best friend.

References
Akerlof, G.A. and R.J. Shiller. 2015. Phishing for phools: The economics of manipulation and deception. Princeton: Princeton University Press.
Angner, E. 2016. A course in behavioral economics, 2nd ed. London:Palgrave.
Berg, N. 2014. The consistency and ecological rationality approaches to normative bounded rationality. Journal of Economic Methodology 21: 375-395.
Bovens, L. 2009. The ethics of nudge. In Preference change: Approaches from philosophy, economics and psychology, ed. T. Grüne-Yanoff, S.O. Hansson, pp. 207-220. Berlin: Springer.
Buchanan, J.M. 1999. Natural and artifactual man. In his The logical foundations of constitutional liberty, Vol. I, pp. 246-259. Indianapolis: Liberty Fund.
Buss, S. 2012. Autonomous action: Self-determination in the passive mode. Ethics 122: 647-691.
Glaeser, E. 2006. Paternalism and psychology. University of Chicago Law Review 73: 133-156.
Hansen, P.G. 2015. The definition of nudge and libertarian paternalism – does the hand fit the glove? European Journal of Risk Regulation, forthcoming.
Hargreaves Heap, S. 2013. What is the meaning of behavioural economics? Cambridge Journal of Economics 37: 985-1000.
Hausman, D.M. and B. Welsh. 2010. Debate: to nudge or not to nudge? Journal of Political Philosophy 18: 123-136.
Korsgaard, C.M. 2009. Self-Constitution – Agency, Identity, and Integrity. Oxford: Oxford University Press.
Lepenies, R., Malecka, M. 2015. The institutional consequences of nudging – nudges, politics, and the law. Review of Philosophy & Psychology 6: 427-437.
Loewenstein, G., C. Bryce, D. Hagmann, and S. Rajpal. 2014. You are about to be nudged. Working Paper, http://ssrn.com/abstract=2417383
Reiss, J. 2013. Philosophy of Economics: A contemporary introduction. London: Routledge.
Schnellenbach, J. 2012. Nudges and norms: The political economy of libertarian paternalism. European Journal of Political Economy 28: 266-277.
Rothenberg, J. (1962), Consumers' sovereignty revisited and the hospitability of freedom of choice. American Economic Review 52: 269-283.
Schnellenbach, J., and C. Schubert. 2015. Behavioral Political Economy: A Survey. European Journal of Political Economy 40: 395-417.
Schubert, C. 2014. Evolutionary economics and the case for a constitutional libertarian paternalism. Journal of Evolutionary Economics 24: 1107-1113.
Schubert, C. 2015a. Opportunity and preference learning. Economics and Philosophy, 31: 275-295.
Schubert, C. 2015b. On the ethics of public nudging: Autonomy and agency. Working paper, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2672970
Schubert, C. 2016. Green nudges: Do they work? Are they ethical? Working Paper.
Smith, N.C., Goldstein, D.G., Johnson, E.J. 2013. Journal of Public Policy & Marketing 32: 159-172.
Sugden, R. 2004. The opportunity criterion: consumer sovereignty without the assumption of coherent preferences. American Economic Review 94: 1014-1033.
Sugden, R. 2008. Why incoherent preferences do not justify paternalism. Constitutional Political Economy 19: 226-248.
Sunstein, C.R. 2014a. Why Nudge? The politics of libertarian paternalism. New Haven Yale University Press.
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Sunstein, C.R. 2015. Nudging and Choice Architecture: Ethical Considerations. Working Paper (version 17 jan. 15), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2551264m. (forthcoming, Yale Journal of Regulation)
Sunstein, C.R., Reisch, L.A. 2013. Green by default. Kyklos 66: 398-402.
Thaler, R.H., Sunstein, C.R. 2003. Liberterian paternalism. American Economic Review, Papers & Proceedings 93: 175-179.
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White, M.D. 2013. The manipulation of choice: ethics and libertarian paternalism. New York: Palgrave.

Footnotes:

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1 The definition typically given by Sunstein (e.g. Sunstein 2015: 7) is more encompassing and would also include GPS, say; it seems however to neglect the asymmetry condition stressed by Thaler and Sunstein (2008: 8) themselves that “a nudge is any factor that significantly alters the behavior of Humans, even though it would be ignored by Econs” (italics added), where ‘Econs’ refers, basically, to homo oeconomicus.^↩
2 Strictly speaking, subliminal advertising should not qualify as a nudge anyway, for the simple reason that even rational agents would be susceptible to it.^↩
3 See Glaeser (2006) and Schnellenbach (2012). Schnellenbach and Schubert (2015) offer a survey on behavioral contributions to Public Choice reasoning.^↩
4 See Schubert (2015b) for an elaboration.^↩
5 See Sugden (2004, 2008) and Schubert (2015a) for a critical discussion^↩
6 This problem is closely related to the issue of conflicting understandings of rationality: While Thaler and Sunstein stick to the neoclassical variant (even elevating homo oeconomicus to a normative role model!), others suggest the alternative notion of ‘ecological rationality’ (e.g. Berg 2014).^↩
7 See, e.g., Reiss (2013: 299). It’s an open question whether competitive markets foster deceptive private commercial nudging; see, e.g., Akerlof and Shiller (2015). ^↩
8See, e.g., Reiss (2013: 299). Reminders and simplifications are obvious examples. To be sure, the whole nudge agenda raises awareness of the behavioural power of the choice architecture, which may promote informed choice overall. Note also that mandatory choice is a (non-nudge) element in the behavioural policymakers’ toolset (Sunstein 2014b). ^↩
9Here’s a heretical thought I dare only express in a footnote: Maybe it’s not people’s actual preferences that should be centre stage in normative economics, but rather their ongoing ability to cultivate them? Rothenberg (1962: 282-83) floated that idea long ago.^↩
10 Welfare arguments may be weighted against integrity concerns here, but as we have seen, no one really knows what ’welfare‘ stands for in our behavioural world, at least as far as the level of the individual is concerned.^↩