Sunday, October 9, 2022

Pandemic lessons for (and from) behavioral economics

Behavioral economics had a bad pandemic if we restrict behavioral economics to "nudges." It seems that Johnson’s UK government at the beginning of the pandemic thought that with nudges-like cheap interventions would be enough to flatten the curve, but it wasn’t.

In some cases, nudges may be a useful part of the tool box of public interventions, to help people decide, for example in cases where health or savings may be improved. Harvard economist Raj Chetty has an article I teach in my graduate courses on how nudges in some cases may help.

But it is more than nudges that is needed to address some of the most complex issues of our time, like pandemics, inflation or climate change. In many of these cases, citizen cooperation is needed for the success of traditional instruments, like taxation or quotas (quantity decisions, prohibitions, lockdowns, masks…). The worst that can happen is that in front of these challenges that require tough public intervention, significant parts of the public adopt a cynic approach disguised into anti-establishment politics.

George Loewenstein has written that the most important nudges are those that help people support or complement traditional public interventions, instead of crowding them out.

One way of “nudging” people to support or complement traditional interventions is thorugh the impact of policies itself on the preferences and beliefs of citizens. For example, Schmelz and Bowles found that mandatory vaccines are worse for cooperative behavior than voluntary vaccines. And Mónica Martínez Bravo and Carlos Sanz found that well-managed public policies increase trust in the political system, in times where this is necessary to avoid free-riding attitudes in tax compliance, vaccination or mask-wearing.

The article by Martinez Bravo and Sanz is based on an online survey that was administered in the fall of 2020, before vaccines were available. They find that bad contact-traing policies negatively affected trust in collective institutions. After that, I wouldn’t say that phenomena such as Euro-scepticism or anti-vaxer behavior has been a more serious problem in Spain than in other countries (in fact, we are OK on these), but we have our own “trust” issues in terms of tax compliance and tax culture in general, or our own versions of populist politics. Better policy execution creates a positive feddback loop.

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