Yesterday I got home from a European Commission conference on the implications of behavioural economics for policy-makers. Speakers included Professor Cass Sunstein (co-author of Nudge), Professor David Laibson (Harvard University), Dr David Halpern (head of the UK Government’s Behavioural Insights Team) and Professor Nick Chater (Warwick University and Decision Technology)
As promised, here are the best bits, organised by my favourite quotes from the day!
We all fall into the traps
Professor Cass Sunstein: “I’m now subscribing to a number of magazines that I don’t like”. Sticking with the default option is something that affects us all. Once you’ve started subscribing, it’s an effort to stop. Cue lots of procrastination.
Professor Cass Sunstein: “90% of college professors think they are better than the average college professor”. College professors are (unsurprisingly?) unrealistic about their true abilities. This mirrors the statistic that the majority of drivers think they are better than the average driver.
Professor Nick Chater: “Don’t rely on financial education as a silver bullet”. Educating consumers to make better decisions just doesn’t seem to work. Professor Laibson suggested two reasons why this may be the case:
1) people are not very good at applying their knowledge in different contexts,
2) the products on offer may change over time – for example, a good grounding in defined benefit pension schemes isn’t likely to help you much now when you’re choosing a pension scheme.
The number of years of training you have in mathematics and economics do not appear to impact the quality of financial decisions. (Well, why should it, I think huffily? Being able to perform integration or maximise a utility function subject to constraints is completely different from selecting an investment portfolio. Hmph)
BE: does it lead to more or less Govt intervention?
Professor David Laibson: “It’s going to make us more paternalistic than Ronald Reagan or Alan Greenspan… but less interventionist or paternalistic compared to Franklin D. Roosevelt”, on how behavioural economics is going to change policy.
Dr David Halpern: “If we banned chocolate at the checkouts in the UK, there would be a political storm”, on the issue of whether consumers need to be protected from themselves (in this case whether changing layouts in supermarkets would promote healthier eating). Professor Laibson subsequently suggested having “temptation” checkouts stocked with chocolate and “non-temptation” checkouts which would instead be stocked with healthy food. Customers could then decide how much they wanted to be tempted and pick which checkout to use. Yay for a policy suggestion that preserves consumer choice.
Professor David Laibson (he really was the star of the show) also had another idea to combat obesity: encourage people to have business meetings standing up, and to have “walking corridors” instead of meeting rooms in offices. He even got up to demonstrate, but then had to be called back to his seat as the microphone failed to pick up the rest of his explanation. The unfortunate constraints of technology…
Professor David Laibson: “Let data be your guide”, on how to use behavioural economics to develop policy.
Professor David Laibson: “Focus groups are borderline useless”. The main problems are that people say what they think you want to hear and/or follow the most charismatic person in the room. Professor Laibson strongly advocated experiments (in the lab and in the field) to test policy proposals before they are implemented. Asking people can play a role – but it’s more useful to ask what they did/what they thought rather than what they would do in a hypothetical situation.
Professor Nick Chater: “All Greek sciences proceeded in the absence of experimental methods”. A reminder of how experiments evolved in other disciplines: once upon a time experiments were viewed sceptically in medicine. Now we wouldn’t dream of trusting a medical product that hadn’t been properly tested (well, most of us).
Quote of the day
Professor David Laibson (did I say star? I meant superstar): “Defaults, I’m not talking about Ireland”, on introducing his slide on default biases.