Thursday, June 15, 2017
Pragmatic but hard behavioral policies
Raj Chetty has an Ely Lecture at the American Economic Association where he defends a pragmatic contribution of behavioral economics to public policy. The video of the lecture can be watched here. Chetty sees behavioral economics as contributing to design new policy tools, such as nudges or frames. But also as contributing to making new predictions about the impact of traditional policy tools, or as contributing to analyzing welfare effects when there is a difference between experienced utility (real individual welfare) and decision utility (the objective function used to make decisions). In the lecture he gives useful examples with retirement savings, cash transfer programs and moving decisions. A good complement of Chetty's lecture, in my view, is a recent article by Loewenstein and Chater, in the new journal Behavioural Public Policy, entitled "Putting Nudges in Perspective." These authors regret that behavioral economics has been reduced to many to be seen as a synonym of nudges. They claim that behavioral insights can be used to help in the deployment of hard policies that have their origins in traditional economics but that would crucially benefit from the help of emotions, narratives and the management of perceptions. They argue that humanity has three key challenges: climate change, inequalities and automation. In the three of them, behavioral insights can be of help, but not as a soft excuse to avoid hard interventions. Instead, behavioral insights should be a key aid to develop deep interventions that make change possible.