Nudge Unit Pool Table

Should Government Have a Nudge Team?

Nov 30, 2013 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Debates, Economic Thinkers, Education, Innovation, Labor, Lifestyle, Macroeconomic Measurement, Regulation, Thinking Economically • 286 Views    No Comments

Is society better off when people stop smoking? Return to work sooner after a layoff? Pay their taxes on time?

Using “nudge theory,” the UK’s Nudge Unit says it can help policymakers help us to make better decisions.

A part of government, the Nudge Unit (aka the Behavioural Insights Team) is staffed by people who understand behavioral economics and psychology. Their mission is to improve public policy by “encouraging and supporting people to make better choices for themselves.”

The group’s advisor, U. of Chicago Professor Richard Thaler, explained an example of nudge policy.

In the UK, most people automatically pay their taxes through their paychecks at work. Those, though, who have outside income do the payment themselves. As a result, some delay, some forget, some avoid. To get those individuals to pay up, the office in charge of delinquencies tried out a randomized control trial whereby different letters were sent to different people. One approach made the letter more personal. Just saying that most other town residents paid the tax and that the proceeds were used locally increased collection rates.

Using a more jolting nudge, a letter to people who did not pay their road tax became simpler. Instead of mentioning a fine and a tow, the new letter simply said, “Pay your tax or lose your car.” It worked.

As you will see in this BBC HARDtalk interview, the Nudge Unit is controversial. Responding to a tough series of questions, Dr. Thaler defends his approach.

http://www.youtube.com/watch?v=oConjVvKM5o

In the US, with Affordable Health Care looming and Dodd Frank evolving, should we have a Nudge Unit that helps with incentives? I have read that the Obama Administration has begun to create a “Nudge Squad.”

Sources and resources: First hand, at the Nudge Unit website, you can read about their mission, while this Guardian article and video are more critical. Please note that I have read the nudge unit might become a part of a private enterprise in which the British government participates. Finally, Nudge by Cass Sunstein and Richard Thaler is enlightening.

 

Related Posts

« »