Economics and public policy have long been intertwined. The very fact that a country is capitalist means that individuals and organisations within the country are ordered in a certain manner. This would be true also if the country was communist or socialist. The great works of British economist John Maynard Keynes are centered around the idea that changes to taxes and prices can get people to change their behavior in a way which leads to a more economically optimal outcome.
But the use of public policy to change behavior is often critiqued. I mean after all who is to say what type of behavior is “optimal”. I mean sure, we all know that vandalism is not exactly an optimal type of activity, but does this mean that the government should imprison anyone who vandalizes? Do they have the right to do this? This is the problem with public policy. Yes we should try to correct bad things in society but we have to consider the cost which these corrections bare onto the rest of society. Sometimes it can be the case that the cure is worse than the problem.
This whole area of debate is refereed to as the paternalism vs libertarian debate. Yes, people shouldn’t do certain things, but, can you really stop them from doing those things without infringing too much on their individual right to freedom? A great example of this can be seen in the music industry. When listening to music or audio on an apple device people often use earphones. Earphones are great because they allow us to listen to music privately in public, but, because they are inserted into the ear directly they can cause hearing loss.
The solution to this issue is just to get people to listen at lower volumes, thus minimizing the potential damage to hearing. But then the paternalism vs libertarian debate rears it’s head again. Hearing loss is bad for people, but if people want to listen to loud music then you can’t just go around and force them to lower the volume. The field of behavioral economics offers us a nice solution which bridges the gap between paternalism and liberty. It’s called a nudge.
A nudge “is any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives” (Thaler and Sunstein, 2008). It rearranges the way the exact same decision is presented to people – what volume do you want – in a way which makes people more likely to choose the more socially optimal decision without forbidding or changing the economic implications associated with the choice. Apple do this with the little volume icon which can be seen below.
As individuals turn up the volume to more damaging levels, the shade which shows the level of volume changes to more alarming colours like yellow and red. This subconsciously informs people that the decision to listen to music at this level is somewhat harmful and this reduces the high levels of volume use. Nudging is the perfect way to use public policy. It informs people of the costs of their actions leading them to make more optimal decisions but still allows them to make whatever decision they like.
By Daragh O’Leary