Economic analysis of law, defaults as nudges
I am writing an essay on socially desirable and socially undesirable instances of how nudging by default (i.e. choice architects changing the default rule - such as opt out organ donation) is a powerful option and how loss aversion and mindless choosing contribute to large market share of options.
I have written the half of the essay (socially desirable instance of nudge) about pensions and am happy with that example and now need an example for un-desirable instance of nudging. I was going to write about roll off contracts with increasing tariffs but am sure there must be a better example somewhere, that I just can't think of. Any suggestions or help would be greatly appreciated.
I have written the half of the essay (socially desirable instance of nudge) about pensions and am happy with that example and now need an example for un-desirable instance of nudging. I was going to write about roll off contracts with increasing tariffs but am sure there must be a better example somewhere, that I just can't think of. Any suggestions or help would be greatly appreciated.
I don't really know a lot about the area but I suspect that an undesirable example of nudging would have to satisfy two conditions:
1) The 'choice architect' (not a phrase I had heard before but I think I know what you mean), has made an incorrect choice of the 'default rule' by picking one which does not, in fact, maximise welfare.
2) The default rule is, contrary to what the choice architect believes, not really a 'nudge' at all because the choice architect has vastly underestimated the costs (whether financial, informational, or whatever) in switching from the default position to another option.
I'm not sure that I agree that a rolling contract is a 'nudge' type situation at all. I would have thought the idea in a 'nudge' was that the choice architect had as his goal maximising social welfare. The drafter of the rolling contract has as his goal maximising the profit of the company he is drafting for. He wants to make it as costly (economically) as he can for consumers to cancel the contract without falling foul of any statute law prohibiting such terms.
Have you read the Posner article responding to Jolls, Sunstein, and Thaler's article? If I recall correctly it is in the same edition of the Stanford Law Review as the Sunstein article. There are also (from what I vaguely remember) some other critical pieces in the same journal.
1) The 'choice architect' (not a phrase I had heard before but I think I know what you mean), has made an incorrect choice of the 'default rule' by picking one which does not, in fact, maximise welfare.
2) The default rule is, contrary to what the choice architect believes, not really a 'nudge' at all because the choice architect has vastly underestimated the costs (whether financial, informational, or whatever) in switching from the default position to another option.
I'm not sure that I agree that a rolling contract is a 'nudge' type situation at all. I would have thought the idea in a 'nudge' was that the choice architect had as his goal maximising social welfare. The drafter of the rolling contract has as his goal maximising the profit of the company he is drafting for. He wants to make it as costly (economically) as he can for consumers to cancel the contract without falling foul of any statute law prohibiting such terms.
Have you read the Posner article responding to Jolls, Sunstein, and Thaler's article? If I recall correctly it is in the same edition of the Stanford Law Review as the Sunstein article. There are also (from what I vaguely remember) some other critical pieces in the same journal.
(edited 7 years ago)
Original post by Forum User
I don't really know a lot about the area but I suspect that an undesirable example of nudging would have to satisfy two conditions:
1) The 'choice architect' (not a phrase I had heard before but I think I know what you mean), has made an incorrect choice of the 'default rule' by picking one which does not, in fact, maximise welfare.
2) The default rule is, contrary to what the choice architect believes, not really a 'nudge' at all because the choice architect has vastly underestimated the costs (whether financial, informational, or whatever) in switching from the default position to another option.
I'm not sure that I agree that a rolling contract is a 'nudge' type situation at all. I would have thought the idea in a 'nudge' was that the choice architect had as his goal maximising social welfare. The drafter of the rolling contract has as his goal maximising the profit of the company he is drafting for. He wants to make it as costly (economically) as he can for consumers to cancel the contract without falling foul of any statute law prohibiting such terms.
Have you read the Posner article responding to Jolls, Sunstein, and Thaler's article? If I recall correctly it is in the same edition of the Stanford Law Review as the Sunstein article. There are also (from what I vaguely remember) some other critical pieces in the same journal.
1) The 'choice architect' (not a phrase I had heard before but I think I know what you mean), has made an incorrect choice of the 'default rule' by picking one which does not, in fact, maximise welfare.
2) The default rule is, contrary to what the choice architect believes, not really a 'nudge' at all because the choice architect has vastly underestimated the costs (whether financial, informational, or whatever) in switching from the default position to another option.
I'm not sure that I agree that a rolling contract is a 'nudge' type situation at all. I would have thought the idea in a 'nudge' was that the choice architect had as his goal maximising social welfare. The drafter of the rolling contract has as his goal maximising the profit of the company he is drafting for. He wants to make it as costly (economically) as he can for consumers to cancel the contract without falling foul of any statute law prohibiting such terms.
Have you read the Posner article responding to Jolls, Sunstein, and Thaler's article? If I recall correctly it is in the same edition of the Stanford Law Review as the Sunstein article. There are also (from what I vaguely remember) some other critical pieces in the same journal.
Hi,
Thanks so much for your response! The was you've just set it out makes a lot of sense!
Reflecting on what you've just said my example doesn't seem to be a good example. I've just had a thought and was thinking maybe the government guidelines on 5 pieces of fruit a day might count as a nudge. It was a suggestion which they tried to educate with and I believe it ended up backfiring since people assumed they wouldn't reach 5 and so didn't bother and ended up consuming less fruit and veg than they otherwise would. It might be a simplistic example but in line with what you suggested I think it might better reflect what I'm trying to explain!
Another idea was the 'bedroom tax', since it was to make sure that housing is used efficiently but has had a negative effect. Not sure if this would be a nudge since it seems quite close to a mandate.
Very impressed by your memory of the journal articles! I have read the article but should probably re-read it to make certain I fully understand! Thanks again, any other suggestions of socially undesirable nudges are more than welcome (or advice on what I've written)
(edited 7 years ago)
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