Has the behavioural economics pendulum swung too far?


Jason Collins


September 5, 2018

Over at Behavioral Scientist, as part of their “Nudge Turns 10” special issue, is my latest article When Everything Looks Like a Nail: Building Better “Behavioral Economics” Teams. Here’s the opening:

As someone who became an economist via a brief career as a lawyer, I did notice that my kind had privileged access to the halls of government and business. Whether this was because economics can speak the language of dollars, or that we simply claimed that we had all the answers, the economists were often the first consulted (though not necessarily listened to) on how we priced, regulated, and designed our policies, services, and products.

What I lacked, however, was a privileged understanding of behavior. So about a decade ago, with the shortcomings of economics as an academic discipline top of mind, I commenced a Ph.D. to develop that understanding. It was fortuitous timing. Decades of research by psychologists and “misbehaving” economists was creating a new wave of ideas that would wash out of academia and into the public and corporate spheres. Famously encapsulated in Richard Thaler and Cass Sunstein’s Nudge, there was now a recognized need to design our world for humans, not “econs.”

Following Nudge, a second wave found many organizations creating their own “nudge units.” The Behavioural Insights Team (BIT) within 10 Downing Street was the precursor to government behavioral teams around the world. Although the first dedicated corporate behavioral units predated the BIT, a similar, albeit less visible, pattern of growth can be seen in the private sphere. These teams are now tackling problems in areas as broad as tax policy, retail sales, app design, and social and environmental policy.

On net, these teams have been a positive and resulted in some excellent outcomes. But my experience working in and alongside nudge units has me asking: Has the pendulum swung too far? My education and experience have proven to me that economics and the study of human behavior are complements rather than substitutes. But I worry that in many government departments and businesses, behavioral teams have replaced rather than complemented economics teams. Policymakers and corporate executives, their minds rushing to highly available examples of “nudge team” successes, often turn first to behavioral units when they have a problem.

A world in which we take advice only from economists risks missing the richness of human behavior, designing for people who don’t exist. But a world in which policymakers and corporate executives turn first to behavioral units has not been without costs. A major source of these costs comes from how we have been building behavioral teams.

We have been building narrow teams. We have been building teams with only a subset of the skills required to solve the problems at hand. When you form a team with a single skillset, there is the risk that everything will start to look like a nail.

It’s now time for a third wave. We need to build multidisciplinary behavioral units. Otherwise we may have results such as those reflected in the observations below. Some of the observations relate to my own experiences and errors, some are observations by others. To protect identities, confidential projects, and egos (including my own), I have tweaked the stories. However, the lessons remain the same.

You can read the rest here.

I considered a few alternative angles for the special issue article. One was around the question of whether behavioural interventions that look impressive in isolation are less so if we consider the system-wide effects. Another angle I considered, hinted at in the published piece, is around replicability and publication bias in the public sphere. Maybe they can be topics for future articles.

I also considered an alternative introduction, but changed my approach on feedback from a friend who reviewed the first draft. Here’s the old introduction, which takes too long to get to the point and is too narrow for the ultimate thread of the article, but which makes the point about narrow approaches in a stronger way:

Economists have never been shy about applying the economic toolkit to what are normally considered the non-economic aspects of life. They have tackled discrimination, the family, crime, culture, religion, altruism, sports and war, to name a few.

This “economics imperialism” has often been controversial, but (at least in this author’s opinion) left many subjects better off. Some of the subjects benefited from a different approach, with the effort to repel the imperialists creating more robust disciplines.

But at times the economics imperialists simply missed the mark. Often this was because they lacked domain knowledge. Complexities invalidated their underlying assumptions or created a dynamic that they simply didn’t foresee.

Some economists also have a habit of leaving the complexities of their own body of work behind when they wander into new domains. A rich understanding of moral hazard, adverse selection, information asymmetries and principle-agent problems often becomes a simple declaration to let the price mechanism do its job.

One (almost caricatured) illustration of this occurred when Freakonomics authors Steven Levitt and Stephen Dubner met with Prime Minister David Cameron to discuss increasing health expenditure in the United Kingdom’s free healthcare system. As described in Think Like A Freak, they posed a thought experiment:

What if, for instance, every Briton were also entitled to a free, unlimited, lifetime supply of transportation? That is, what if everyone were allowed to go down to the car dealership whenever they wanted and pick out any new model, free of charge, and drive it home?

We expected him to light up and say, “Well, yes, that’d be patently absurd—there’d be no reason to maintain your old car, and everyone’s incentives would be skewed. I see your point about all this free health care we’re doling out!”

Instead, Cameron said nothing, offered a quick handshake and disappeared to “find a less-ridiculous set of people with whom to meet.”

Can Levitt and Dubner have expected a different response? Even if Levitt had a more serious proposal up his sleeve, Levitt and Dubner’s failure to engage seriously with the particular features of the healthcare market rendered the message useless. They had effectively ignored the complexities of the problem and hammered away in the hope they had found a nail.

A few years before the visit by the Freakonomics team, David Cameron’s Conservative Government established the Behavioural Insights Team, or “Nudge unit” within 10 Downing Street. The team was tasked with realising the Government’s intention to find “intelligent ways to encourage, support and enable people to make better choices for themselves”.

Now spun out of the Cabinet Office, the Behavioural Insights Team was the precursor to government based behavioural teams around the world. Although the first dedicated corporate behavioural units pre-dated the Behavioural Insights Team, a similar, albeit slower pattern of growth can be seen in the private sphere. These teams are now tackling issues as broad as tax evasion, customer conversion, domestic violence and climate change.

While the development of these teams has been a positive and resulted in some excellent outcomes, these teams have not been without weaknesses – in fact, some of the same weaknesses suffered by the economics imperialists. The primary one is that when you form a team around a central idea, there is the risk that everything will start to look like a nail.