Behavioral economics: towards a new model?

Le Regard Libre N° 44 - Nicolas Jutzet

Winner of the Bank of Sweden Prize in Economic Sciences in memory of Alfred Nobel, dubbed the «Nobel Prize in Economics» in 2017, American economist Richard Thaler has helped to democratize this still little-known branch of economics: behavioral economics. He summarizes his work in bestseller general public Nudge. Emotions, habits, behaviors: how to inspire the right decisions.

Behavioral economics rejects the idea of a homo economicus rational and omniscient. It focuses on actual human behavior. Roughly speaking, the concept can be summarized as follows: given the limitations of the neoclassical model, behavioral economics aims to give people a «nudge» so they make better decisions. The goal is to guide them toward «desirable» behavior while leaving the final decision—and thus their freedom—in the hands of the individual.

Visit nudge or «a helping hand,» libertarian paternalism

In their bestseller, the two authors focus on examples of how their theory is put into practice. The best-known example—the cafeteria—provides a quick and precise explanation of their «gentle method.».

Carolyn is the director of school cafeterias in a large city. When setting up these cafeterias, she has the following options: 1. Arrange the food in a way that promotes the children’s well-being in every respect. – 2. Choose the order in which the food is presented to them at random. – 3. Try to arrange the food so that the children choose the items they would have selected on their own. – 4. Maximize sales of items from suppliers who express their gratitude most generously. – 5. Maximize profits, period.

In this context, Carolyn is an «architect of choice»—that is, someone whose role is to «organize the context in which people make decisions.» By applying the gentle approach, she should follow Option 1—the one that encourages and helps children make «good» choices about the contents of their meal trays. This process, which leads to a more informed decision, is described as a new path that transcends partisan divides, specifically the usual left-right divide.

«Better governance would mean fewer government restrictions and greater freedom of choice. If incentives and a gentle approach replace mandates and prohibitions, the government will be both smaller and more modest.»

In reality, the architecture of choice is ubiquitous and inevitable, even if we don’t necessarily see it. However, unlike traditional government taxation, it is designed to be neutral toward «good students.» Libertarian paternalism is based on the asymmetry of access to information. As much as possible, the goal is to avoid imposing costs on the most informed members of the community, focusing solely on bringing the rest of the public up to their level. By pulling the right levers, we can increase transparency and thus facilitate informed choices by the entire population, while leaving the final choice—and therefore the option to decline the assistance—to citizens who are responsible for their own actions.

«The government provides the impetus but does not limit the scope for action.»

Situation in Switzerland

According to Eric Scheidegger, head of the Economic Policy Directorate at the State Secretariat for Economic Affairs, Switzerland is hesitant in this area. Unlike the Anglo-Saxon countries, which are considered pioneers with their nudge units, we remain less than enthusiastic about this approach. Yet the subject is far from trivial, as Zurich is recognized as the global leader in behavioral economics. Ernst Fehr, a professor of microeconomics and experimental economic research at the University of Zurich, who is often cited as a potential Nobel Prize candidate, is the leading figure in this field. The winner of the 2013 Gottlieb Duttweiler Prize is widely recognized beyond Switzerland’s borders. In Switzerland, his work has also been highly honored, including the 2008 Marcel Benoist Swiss Science Prize and his recent recognition as the «country’s most influential economist.». 

How, then, can this practical reluctance be explained? Gerhard Fehr, head of the consulting firm Fehr Advice, simply states that «Switzerland doesn’t need it. The federal government’s powers are significantly more limited than in other countries. A central authority might even be counterproductive.» Furthermore, semi-direct democracy and ongoing public awareness of government measures serve as a natural bulwark against the need for top-down guidance. Decentralization and the simplicity of the measures render this «new» approach to achieving goals virtually obsolete. Let us hope, however, that complexity, globalization, and increasing cross-sectoral interdependence will not spare our country indefinitely; it must, as always, adapt its model of success to new paradigms. May our motto, «Hurry slowly,» and our legendary resilience once again prove effective.

In the coming months, we will have the opportunity to discuss a concrete application of this gentle approach. The Junior Chamber International (JCI) of the Riviera launched a grassroots initiative in support of organ donation in October 2017. The initiative’s proposal aims to make every citizen an organ donor by default. It reverses the logic: under presumed consent, it is up to the citizen to take the step of indicating that they refuse to be on the list. This is the solution advocated by Richard Thaler and Cass Sunstein in their book. Another version—that of “offered consent”—meets the criteria of the “gentle nudge” method much better, in my opinion. The latter can be summarized as follows, as Samia Hurst writes:

«The solution is to make it mandatory—or at the very least, to place much greater emphasis on—the requirement that everyone make a choice. We could include a checkbox on ID cards, health insurance cards, or driver’s licenses. We could even add a box that says ‘I’d prefer not to choose yet,‘ but we’d make it mandatory to check a box in order to receive the card in question.’

By requiring everyone to consider the question—without presupposing their choice—the proposed consent model meets the various criteria. It increases the number of donations, enhances transparency, and facilitates informed decision-making, all while respecting each individual’s freedom of choice. The epicenter of thinking on behavioral economics is therefore finally set to get started.

Write to the author: nicolas.jutzet@leregardlibre.com