The Exaggerated Power Of Nudges

by Patrick Appel

This NYT op-ed by George Loewenstein and Peter Ubel argues behavioral economics is no panacea.

The policy implications from many behavioral economics studies are often relatively pain-free from a political perspective. For example, they suggest that simply giving consumers a bit more information can encourage them to eat healthier, save energy, and make better health care choices. The problem, Loewenstein and Ubel assert, is that these solutions often have only tiny effects compared to the size of the problem they seek to address. Ultimately, changing relative prices is much more likely to meaningfully impact behavior deemed socially undesirable. So, making healthier foods cheaper is much more important than labeling unhealthy food. Meaningful reductions in CO2 emissions require increasing the cost of traditional sources of energy. Giving people more information about their energy consumption helps a little at the margin but should not be thought of as a solution to the problem. The op-ed has many more examples.

Cowen's verdict:

I don't agree with a number of their examples, but I do agree with their overall point.