Nudging Social Policy

Imagine you can reduce obesity, homelessness, smoking, child neglect, or other social challenges or health risks without spending new public money or coercing people. This would be a kind of public policy nirvana.[i]

In their best-selling book, Nudge, Richard Thaler and Cass Sunstein describe a nudge as an influence “that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives.”[ii] Nudges take advantage of human psychology, using our brain’s natural inclinations to perceive – and sometimes misperceive – risks and choices in particular ways. Posing a risk or reward in one way leads to fundamentally different choices than posing a risk or reward in another way, even though the actual payoffs are not different. Restaurants have learned that it matters whether you ask the customer if they would like to supersize their order as opposed to downsize their side orders.

The classic illustration of a policy nudge is the change in organ donation commitments that occurs when driver’s license applicants are given the option of “opting out” of organ donations, as opposed to proactively signing up for organ donation on the back of their license. Another classic example is the increase in retirement savings participation—from 20 percent to 80 percent in some cases—which occurs when you pre-commit to the program.

Nudges are just one type of intervention that relies on behavioral economics.[iii] In recent years, the broader revolution in behavioral economics—the marriage of economics and psychology in the social sciences—has led to a growing menu of regulatory changes, innovations in communication and information, and evaluations of existing policies that have the potential to significantly affect population behavior.

The private sector has led this movement. Retirement planning, investment choices, savings behavior, pharmaceutical management, and other consumer decisions have been influenced by the conscious structuring of choices as a way to change behavior. Pharmaceutical companies and pharmaceutical benefits management companies have structured prescription drug choices in subtle and not so subtle ways to maximize compliance with medications, timely refills, and consistent renewals. Health plans and health care organizations are beginning to employ strategies for member and patient choices to improve health and reduce costs. Changing obesity and diabetes, smoking, and high risk behaviors have been early targets for health plans and health care organizations.

In public policy, behavioral interventions leapt forward with the creation of Cass Sunstein’s role in the Obama administration. Sunstein effectively used the White House Office of Information and Regulatory Policy as a lab for developing federal rules, regulatory policy, and communications approaches using behavioral economics principles. Sunstein’s influence culminated in an Executive Order in September 2015, The Behavioral Science Insights Policy Directive, requiring agencies to identify opportunities to apply behavioral economics, implement informational and other strategies for improving choices, and revisit existing policies to improve their choice architecture.

The White House created its own Social and Behavioral Sciences Team (SBST) to advance this work in public policy in 2014. The newly released 2016 Report reviews advances in eight policy areas: promoting retirement security, advancing economic opportunity, improving college access and affordability, responding to climate change, supporting criminal-justice reform, assisting job seekers, helping families get health coverage and stay healthy, and improving the effectiveness and efficiency of Federal Government operations.

In academia, whole new programs and connections to public policy have sensitized students and faculty to the importance of the psychology of choice and framing of decisions for human behavior, the performance of systems of health care and criminal justice, and political behavior like voting.

Internationally, behavioral economics approaches have gained a strong foothold in Britain, France, Australia, Denmark, and many other countries. David Cameron created a major unit in the U.K., the Behavioural Insights Team (BIT) which came to be known as the “Nudge Unit” and has now spun off to be its own organization. (The BIT’s annual report also documents a series of U.S. urban behavioral experiments, mostly supported by the Bloomberg Foundation.) Professionally in Europe, groups like the Behavior Science and Policy Association have been rapidly expanding research, application, and evaluation of behavioral economics. There has been tremendous ferment and interest in applying behavioral insights and tools in international development programs, drawing the attention of the OECD, the World Bank, and other major economic players.

A leading agency implementing behavioral economics in social policy in the U.S. has been The Administration on Children and Families (ACF), launching an initiative called “Behavioral Interventions to Advance Self-Sufficiency (BIAS)”

Examples of BIAS projects include:

• Attempting to influence the participation of TANF participants in work programming
• Attempting to increase child support participation and payments
• Attempting to increase the number of parents who renew their child care subsidies, especially in a timely way.

BIAS projects are typically carried out with state government or agency partners, have a strong research and evaluation components, and are tightly designed around behavioral principles.

More broadly, there are myriad social policy examples at all levels of government: EITC communications, tax-refund to savings programs, child savings accounts, school choice, neighborhood choice, reproductive health, immunizations, health exchange choice, prescription drug plan choice, advance directive choice, chemotherapy choice, smoking cessation, condom use, expanding college access, building and urban design structures (e.g. to encourage use of stairs and parks), and many others.

Clearing houses and sponsors, such as Ideas42, the Common Cents Lab, and others, have sprung up to document and stimulate the vast enterprise of behavioral approaches in policy and programs. A rapidly expanding literature in economics and psychology is developing theory, evaluating interventions (e.g., in randomized trials), and documenting policy and program applications. Some of the interventions sound trivial: rewording of the language of parking tickets or changing the color of a notice to pink changes behavior. As the evidence mounts, some of the well-studied social interventions have had modest or insignificant results, or the results are short term and do not endure. In some cases, nudges have unintended effects, such as the sign that told hikers that many visitors had removed scarce petrified wood from the forest. This well-intended message was actually associated with an increase in theft, possibly because hikers interpreted theft as more socially acceptable, not a rare event.

When Does a Nudge Become a Shove?

To date, many examples of behavioral economics applications have been clever, subtle, and interesting, but not large, visible, and consequential as tools of public policy.

To implement larger interventions, policy design will need combinations of communications, powerful incentives, consequences, and a more comprehensive idea of behavior change. This is completely consistent with the original Thaler and Sunstein formulation of policy change, but most real-world examples have not had this kind of scale and scope.

Housing First is a major policy approach that changes the order and sequence of housing and supportive services for chronically homeless individuals and families. Rather than building up to independent living in an apartment in a sequence of steps, as its name implies, Housing First places clients as soon as possible in a rental unit and then attempts to build a menu of supportive services after, with the goal of permanent housing.

While the theory and evidence of Housing First appeared well before the behavioral incentive revolution in public policy (and as far as I know it has never been framed in behavioral economics terms), it is a classic and powerful example of the theory at work. The program fundamentally alters the choice structure of clients (and providers) and attempts to overcome many of the practical and psychological barriers that occur in the long gauntlet of transitions from the street to independent living. In effect, chronically homeless individuals have to “opt-out” of a stable housing situation, rather than make all of the incremental changes that would ultimately qualify them for permanent housing.

Housing First is an example of the kind of “big policy” innovation that the movement for behavioral incentives needs in order to generate more serious policy support and attention. Importantly, it is not just about changing the choice architecture for clients—it also envelopes many other aspects of support, treatment, information, and incentives. While Housing First also has its critics and opponents, nobody can deny that as a policy experiment it flips the table and changes the choice/incentive/consequence sequence of homeless individuals and families.

In social policy, applications of behavioral economics are especially challenging because subjects may present with addictions, mental health issues, poverty, and other circumstances that complicate the relatively simple conceptions of decision making at the heart of this theory.

Whither the Behavioral Economics Revolution?

One cannot help but wonder if the behavioral economics revolution in public policy is at a precipice, in danger of becoming a fad or a policy tinker, not a game-changing approach to policy design.

The behavioral economics movement has its doubters and critics. It is one thing to have clever examples, it will be another to produce large-scale interventions that have demonstrable behavioral change. Some of the critique is coming from the academy itself, where some psychologists and economists are loudly skeptical or worse about the prospects of these behavioral economics approaches to fundamentally alter human behavior. One element of this critique is fundamentally about the dose effect. Are the size and strength of psychological tools up to the tasks of significantly altering social behavior? Or, do these tools need to be married with other incentives, rules, mandates, or other devices that strengthen policy influence? Of course, the stronger the dose, the more worries about coercion creep in.

Some are uncomfortable with the social engineering and possible paternalism that is implicit in these approaches. In the extreme, libertarians read a kind of Orwellian mind-control agenda into ever-more sophisticated uses of communications, incentives, and orchestrated behavior change. There are signs that the administration may be openly hostile to policy design that smacks of “social engineering.” Despite the integral role that behavioral economics has had in many private sector innovations—and its potential complementarity with Republican tools such as tax credits—there may be a larger aversion to these approaches in the sweep to reduce regulation, federal interventions, and the role of the state.

As in all domains of public policy right now, behavioral economics approaches run headlong into huge ideological and political obstacles. At best, the impact of the Sunstein era in the federal government is seen as mixed, even discounting for the immaturity of such a new movement in the federal bureaucracy.

The real potential of behavioral approaches to social policy will come with the combined power of communications, technology, proper use of incentives, and proper feedback through coaching and other supports.

With the political transitions occurring especially at the federal level, the immediate game will probably be for international, private sector, and state and local initiatives to produce and demonstrate scalable outcomes—more proof of concept—for the behavioral policy agenda to really take off.

[i] Thanks to my colleague Michal Grinstein-Weiss for her help with this post.

[ii] Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness (New Haven: Yale University Press, 2008).

[iii] Reuben Finighan, “Beyond Nudge: The Potential of Behavioural Policy,” Melbourne Institute Policy Brief No. 4/15 (July 2015) https://www.melbourneinstitute.com/downloads/policy_briefs_series/pb2015n04.pdf