Trick or Treat?

A new way of thinking about individual choice has taken the political landscape by storm, because it holds out the promise of "nudging" rather than coercing people into making optimal decisions, like enrolling in pension plans. But is tricking people into making choices that they otherwise wouldn't make really any better than forcing them to do so?

OXFORD – A new way of thinking about individual choice has taken the political landscape by storm.  America’s new president Barack Obama and the leader of the British Conservatives, David Cameron (just to drop a couple of names) have shown an interest in it. Its intellectual and academic pedigree is impeccable. It is said to be effective, evidence-based, and cheap to implement. Most of all, it stakes a claim to a degree of philosophical coherence of which the various “third ways” of the last decade could only dream.

The novel idea, elucidated in Cass Sunstein’s and Richard Thaler’s book Nudge , is that skillfully controlling the way alternatives are presented to us can “nudge” us toward making the choices that our own “better selves” would make. “Libertarian paternalists” like Sunstein and Thaler claim that we have two different ways of making decisions: one “from the gut” (called System I), and the other more deliberative and far more effective (called System II).

But, while System II choices may be more effective than System-I decisions, they are more “expensive” to make: one needs data, analysis, and concentration. Only when the importance of the task warrants the effort do we shift gear and deploy the System-II heavy artillery. This division of labor between the System-I and System-II mechanisms would work well were it not for the fact that our lazy and cheap decision-making mode tends to take over in situations that should command our fullest attention: choosing a pension plan or a health care scheme, for example. As one can imagine, the results of this System-I coup d’etat are not pretty.

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