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Nudges won’t save us

Few theories have grabbed my imagination the way behavioral economics has, and I’m not alone in that. One of the big stories when President Obama was elected was that his administration was going to use behavioral economics to painlessly solve a variety of problems. Last week, economics professors George Loewenstein and Peter Ubel wrote an op-ed for the New York Times throwing some water on the idea that we can nudge our way into solutions for big problems. Here’s the conclusion:

Behavioral economics should complement, not substitute for, more substantive economic interventions. If traditional economics suggests that we should have a larger price difference between sugar-free and sugared drinks, behavioral economics could suggest whether consumers would respond better to a subsidy on unsweetened drinks or a tax on sugary drinks.

But that’s the most it can do. For all of its insights, behavioral economics alone is not a viable alternative to the kinds of far-reaching policies we need to tackle our nation’s challenges.

For what it’s worth, studies show that taxes are more effective than subsidies in changing people’s behavior.

2 Comments

  1. I would disagree. Obama’s “Race to the Top” has ushered in more needed education reforms than we’ve seen since desegregation. Here is a fascinating article on his program (though it is also a bit anti-union as well).

    http://www.nytimes.com/2010/05/23/magazine/23Race-t.html

    Of course, I don’t know if our craptastic education system is a “big problem” or not in the context of that article.

    I do agree that penalties and taxes are much more effective motivators. Folks will do all sorts of things to get out of paying taxes.

  2. The proponents of many “soda tax” proposals I’ve seen recently claim they are to “save the children from obesity”, but of course they tax sugar free sodas as well, just confirming that as usual it’s more about creating new revenue streams than actually helping anyone.

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