Economics and Ethics

New book: The Manipulation of Choice (including free chapter)

Mark D. White

My latest book, The Manipulation of Choice: Ethics and Libertarian Paternalism, was released earlier this month by Palgrave Macmillan in both paperback and hardcover. In the book, written for popular audiences, I discuss the ethical and practical problems with the idea of "nudges" as popularized by Richard Thaler and Cass Sunstein in their book of the same name.

Walter Olson of the CATO Institute writes that "the 'libertarian paternalism' theory promises to use the state to help correct citizens' wrong decisions without asking their consent, yet also without truly entering the realm of coercion. Too good to be true? Indeed it is, as this book helps to show. Mark White gives us the sort of analysis we need to nudge back." Our own Jonathan B. Wight also comments that: "The Manipulation of Choice states that paternalists impose their own values and goals onto hapless consumers and citizens. Hence, public policies designed to correct the imperfections of behavioral irrationality are coercive. This is an important point and one that needs to be debated."

If you're interested, Palgrave has made the first chapter available for free, and I have written several blog posts recently tied into the book, including one at this blog commenting on Cass Sunstein's recent review of another book on paternalism at The New York Review of Books, and a post at Psychology Today on the nudge concept in general. (See also past posts at this blog on paternalism.)

Have economists ignored clinical depression?

Mark D. White

A recent issue of Science (October 5, 2012) is a special issue on depression, and senior editor Peter Stern's introduction lays out the reason for it (emphasis mine):

Depression is a devastating disease. It affects not only the directly afflicted but also the people around them, their families, and their closest relations. It indiscriminately hits all strata of society, no matter one’s intellectual background, age group, or economic situation. There are many cases of highly successful and widely admired individuals who have been struggling with depression for years. Unfortunately, for reasons we still do not fully understand, this condition has been on the rise over the past decades. Considering its impact on an individual’s quality of life and subsequently on the economy and society in general, gaining an understanding of what causes depression and trying to develop effective therapies is of utmost importance. Hence, this year’s Neuroscience Special Issue is devoted to different aspects of depression.

I've long wondered why economists don't look more at both the microeconomic and macroeconomic effects of clinical depression. (I'm careful to add the modifier "clinical" because economists do, of course, spend a lot of time thinking about depressions, Great or otherwise.) Behavioral economists identify, quantify, and model the cognitive biases and dysfunctions that affect the choices of the average person, but have not yet (to my knowledge) looked into how depression affects decision-making. As Dr. Stern recognizes, choices affected by depression--given reported high rates of incidence of the disease--have potentially tremendous economic effects, not only on personal well-being but also on market outcomes, aggregate economic performance, and government policy.

There are many theories of depression in psychology, but one that seems extraordinarily well-suited to incorporating the effects of depression into economic models of choice is cognitive psychology, as typified by the work of Aaron Beck. Beck maintains “the individual’s problems are derived largely from certain distortions of reality based on erroneous premises and assumptions” (Cognitive Therapy and the Emotional Disorders, p. 3). Examples of this negative thinking include: dichotomous reasoning (everything is either black or white, failure or success), selective abstraction (focusing on failures and glossing over successes), and overgeneralization (exaggerating the importance and incidence of failures). In economic terms, these have obvious effects on beliefs and preferences, the foundation of decisions in the mainstream model of choice.

Depressives also report a lack of motivation or "paralysis of the will" that makes them less likely to act decisively to further their goals. In the mainstream economic model of choice, this can be be regarded once again as a result of distorted perceived benefits and costs (downplaying the former and emphasizing the latter) which result in a bias toward inaction (or at least decisional inertia).

This is just one possible framework, and there are many others. I believe that behavioral economists could work within such a framework to refine the cognitive and conative effects of depression on decision-making. Behavioral economists have already told us that we're "presumably irrational"--now it's time to turn to the members of society who are "presumably depressed."

Nutritional labeling, nudges, and a "cynical view of human nature"

Mark D. White

New today from associate editor Brian Fung at The Atlantic is a piece on an experimental nutritional labeling system modeled on traffic lights. In use in the United Kingdom (where it was instituted by the British government's "nudge unit"), the revised nutrition labels would have color-coded icons for fat, calories, and other aspects of food products according to whether the levels are considered healthy or unhealthy. Mr. Fung reports the results of a study from Masschusetts General Hospital that--unsurprisingly--such labels increase the amount of healthy food consumered and lower the amount of unhealthy food consumed.

I discuss labeling systems such as these in my upcoming book, The Manipulation of Choice: Ethics and Libertarian Paternalism, in which I differentiate between the information provided by such label--which allows people to make better decisions according to their own interests--and schemes like the traffic light one which nudge people toward some food and away from others based on bureaucrats' judgment of what is healthy and what is not. (I also discussed nutrition labeling in an earlier blog post.) As Mr. Fung acknowledges, "Bickering over what red, yellow, and green actually mean is likely to be as difficult -- if not more so -- than actually putting the system in place." Some of this bickering may be political, of course, but some will be due to disagreements among health experts over what a proper diet consists of--a debate unlikely to be settled any time soon among the experts, much less by government fiat!

But what I found most interesting about Mr. Fung's article was the irony in the subheading:

If soda bans take an implicitly cynical view of human nature, food labels that give consumers the impression of freedom might be their opposite.

I don't know what could reflect a more cynical view of human nature then trumpeting proudly the prospect of "giving consumers the impression of freedom." These two approaches to paternalistic regulation are not opposites--the only difference is that one is clumsy and the other is "clever." This attitude continues as the article begins (emphasis mine):

From New York City's point of view, humans are notoriously bad at making good decisions. That's what makes a ban on large sodas necessary: the idea that Americans can't be trusted with their own health. But maybe there's a middle ground between letting people gorge themselves on junk food and making it illegal. The key to making it all work is creating an environment where consumers still believe they're in control.

No, there's no cynical view of human nature on display there.

Finally, as the article ends, Mr. Fung writes:

New York's faith in humanity must be low indeed if it thinks only the most blatant coercion can get people behaving differently. Whether collectively or alone, people are hopelessly incompetent, is the message Bloomberg's soda ban sends. A more accurate way to put it might be that people are incredibly malleable, open to having their decisions swayed in terrible ways by factors that are out of their hands. The difference is slight, but in the small gap between those two statements lies an opportunity to move people in the right direction without taking away their freedom.

As above, I disagree with Mr. Fung: the difference is not slight, it is nonexistent. In my view, all paternalists have little faith in humanity, as shown by their willingness to substitute their own judgment for those of the people they claim to help, based on an overly simplistic view of decision-making and interests. And if you "move people in the right direction" by manipulation rather than by reasoned persuasion--subverting their deliberative processes rather than engaging them--you are taking away their freedom, little by little.

But as long as they're left with the "impression" of their freedom, as long as they "still believe they're in control," I guess that's OK.

Decision-making is not math: A lesson in the subjectivity of value

Mark D. White

Last month, The Economist published an article (based on research published in Journal of Marketing) on consumers' irrationality when compared discounts and added content:

Consumers often struggle to realise, for example, that a 50% increase in quantity is the same as a 33% discount in price. They overwhelmingly assume the former is better value. In an experiment, the researchers sold 73% more hand lotion when it was offered in a bonus pack than when it carried an equivalent discount (even after all other effects, such as a desire to stockpile, were controlled for).

In a recent issue, the magazine printed a letter by Rory Sutherland of Ogilvy & Mather UK, succinctly and humorously pointing out the problem with attributing irrationality to such consumers:

You mentioned research which revealed that shoppers often prefer “50% extra free” to a notionally more generous 30% reduction in price, and you cited this as evidence of irrationality or poor mathematical ability on the part of consumers. I think you may be wrong and consumers may be right.

There is, as the advertising sage Jeremy Bullmore observed, a significant difference between a bonus and a bribe. A price tells you much more about a product than merely what it costs. A price cut may be sensibly perceived as a mark of mild desperation on the part of the seller and it is not unreasonable to infer from a price cut that a product is an inferior good. Charging the full price but adding something extra does not convey the same desperation. In any case this whole debate is silly.

If people value 50% extra free more highly than 33% off, then that is an end of the matter. Since all value is subjective, what you are doing by offering the former is simply creating more perceived value at a lower cost. Whether or not the resulting behaviour conforms to some autistic neoclassical idea of rationality is irrelevant.

If the sole purpose of life was to be rational, we would have banned golf years ago.

Mr. Sutherland said it better than I ever could--and I've tried, in many places and many contexts, including previous posts (such as here), book chapters, and my forthcoming book, The Manipulation of Choice: Ethics and Libertarian Paternalism. Economists--of both mainstream and behavioral varieties--all too often see irrationalities where none exist because they insist on interpreting choice through the lens of their narrow understand of decision-makers and the overly simplistic choices they assume on consumers' parts.

The factors that consumers take into consideration when make choices are much more complicated than economists recognize--as Mr. Sutherland points out. And while behavioral economists are making headway in identifying some of these factors, they still don't account for qualitative ones like principles and ideals. Nor do they consider the complex and subjective interests of consumers (and all decision-makers), choosing instead to assume simple unitary goals like wealth-maximization. Until they take these common influences on choice into account, they will see irrationalities wherever they look--which reflects more on the shortcoming of their models than on the decision-makers themselves.

Not so sweet: Crossing the line from science to opinion in the sugar wars

Mark D. White

In a New York Times op-ed this morning, Daniel E. Lieberman, an evolutionary biologist at Harvard, makes a strong case for our strong attraction to sugar, but a weak case for paternalistic action on the part of the government to limit our consumption of it.

The problem is captured by the question he poses after he lays out the scientific reasoning: "What should we do?" Professor Lieberman somehow makes the leap from "people are eating too much sugar" to "the government should do something to stop this" without appreciating the size of the chasm he's jumping. (Just ask David Hume.) He fails to explain why this is a problem that justifies government intrusion into the choices of individuals--he simply takes it for granted that because we have evolved to crave more sugar than he thinks is optimal, the government is entitled to adjust our sugar consumption to bring it in line with what he thinks is optimal.

This is yet another example of the most offensive aspect of paternalism: value substitution. We are lucky to have access to Professor Lieberman's scientific insights regarding why we crave sugar so much. But then he asserts his opinion that we eat too much sugar, based on his opinion regarding our optimal diets (based on our ancestors' nutritional nirvana long before Coca-Cola and Nabisco). This much is fine--everyone is entitled to his (or her) opinion, and he is fortunate that The New York Times gives him a platform to express it. But like all who endorse paternalism based on what they think we can do better, Professor Lieberman crosses a line when he shifts from expressing his opinion regarding our behavior to endorsing government action to adjust our behavior based on that opinion.

But isn't it commonsense that we should eat less sugar (and salt, and trans fats) and more healthy foods? Of course. But is that all our only concern? Is it our only interest? Should it be? Not only does value substitution mispresent our true interests, but it only greatly oversimplifies them. I know I shouldn't eat too much sugar. But I also think a sugary treat or drink is a fine complement to a meal, or the cornerstone of a celebration, or a nice way to acknowledge a job well. People's interests are complex, and while they do include health, they also include a myriad of other things, things that are ignored when a scientific expert or government regulator proclaims, "Too much! Too much!"

After making a reasonable case for limiting unhealthy foods in schools--a proposal I have very little problem with--Professor Lieberman proclaims that "adults need help too." This is the paternalistic mindset in a nutshell: you need help because we know better than you how you should run your life. Again, he makes a tremendous leap, from "you are being tempted by cheap sugar from the food industry" to "you need the government to step in and counter this influence." First, there is no way to know how much sugar consumption is due to "irresistible temptation" and how much is due to open-eyed choice. Paternalistic regulation--whether in the form of prohibition, taxes, or nudges--is a blunt tool that misses the nuances of human decision-making.

Second, this treats people as slaves to their passions--there's Hume again--which must be manipulated by the state to counter manipulation by industry. Professor Lieberman devotes just two sentences to spreading information, but decides that it hasn't done enough--"enough," of course, based on his opinion regarding what should have happened. But here's another possibility: people know how bad sugar is from them, and armed with that information plus all of their multifaceted interests, they nonetheless choose to eat more sugar than Professor Lieberman would like them to.

Professor Lieberman concludes with this: "We have evolved to need coercion." I hope he's not making that claim on the basis on his scientific expertise, because science cannot tell us what we need. Science can help explain why we do what we do--as Professor Lieberman well details in the early part of his article--but it has nothing to contribute to what we need. Such a proclamation requires knowledge of our goals, interests, or "purpose"--the last one a teleological notion which scientists normally disavow--and none of which science or government knows better than people themselves.

Does cognitive science relieve us of responsibility--or require us to redirect our effort?

Mark D. White

In this morning's New York Times, James Atlas discusses recent books about cognitive processes and neuroscience, such as Jonah Lehrer's Imagine: How Creativity Works, Charles Duhigg's The Power of Habit: Why We Do What We Do in Life and Business, and Leonard Mlodinow's Subliminal: How Your Unconscious Mind Rules Your Behavior. Atlas highlights several interesting things about this publishing trend, including the increasingly analytical focus on the "how" of thought rather than the more existential "why," and the shrinking space allowed for true agency to operate amid of the ever-expanding, hidden wiring in the brain. The latter concern motivates the title of his piece, "The Amygdala Made Me Do It" as well as his characterization of this genre as "Can't-Help-Yourself" books.

Even though I'm an advocate of autonomy, willpower, and self-knowledge myself, I find little to be troubled by here, and quite a bit to be excited about. Freud, of course, posited that much of our thought happens under the surface, and this idea has been brought into modern experimental psychology and described in books such as Timothy D. Wilson's Strangers to Ourselves: Discovering the Adaptive Unconscious (which I highly recommend). And it is the title of Wilson's more recent book, Redirect: The Surprising New Science of Psychological Change, that suggests a positive interpretation of these developments, as described by Atlas:

The Power of Habit and Imagine belong to a genre that has become increasingly conspicuous over the last few years: the hortatory book, armed with highly sophisticated science, that demonstrates how we can achieve our ambitions despite our sensory cluelessness.

The discovery of increasing levels of complex scaffolding underneath conscious thought processes need not threaten intentional choice, but rather help to enable it. Citing David Hume, Williams James, and Daniel Kahneman (no Adam Smith, Jonathan!), Atlas focuses on the importance of habits to everyday action, and how the conscious mind can redirect those habits for its own ends, such as countering a habit of watching TV with a healthier habit of exercising. Such a person is making an intentional and strategic choice by harnessing the power of habit; our habitual nature is thus transformed from a liability to an asset, from a weight to a tool.

The danger lies in letting the easy intertia of habit take over and forgetting we have the responsibility to choose which habits to nurture and which to reject. The current picture of our brains casts each of us as the CEO of our minds rather than the entry-level employee or even middle manager: we have the ability to command and direct our cognitive resources, but we retain responsibility for what we do with them.

Virtue ethics, evolutionary psychology, and human nature

Mark D. White

The latest Royal Institute of Philosophy Supplement (70, 2012) examines a number of issues concerning human nature. From the editors' introduction:

The study of human nature has always been of central importance to philosophy. ... Questions such as ‘what is human nature?’, ‘is there such a thing as an exclusively human nature?’, ‘through what methods might we best discover more about our nature?’, and ‘to what extent are our actions and beliefs constrained by it?’ are of central importance not only to philosophy and science, but also to our general understanding of ourselves as people who belong to the human species.

The essays collected in this volume collectively address key issues and taboos surrounding the theme of human nature by bringing together philosophers working in a multitude of areas including the philosophy of cognitive science, evolutionary psychology, the philosophy of biology, psychoanalysis, ethics and moral psychology, developmental psychology, the philosophy of mind and action, the philosophy of psychology, the philosophy of religion, and the history of philosophy.

The  papers all looks fantastic, but because of my interests in both virtue ethics and evolutionary psychology (or biology), I found Rosalind Hursthouse's contribution, "Human Nature and Aristotelian Virtue Ethics," most intriguing:

Given that it relies on claims about human nature, has Aristotelian virtue ethics (henceforth AVE) been undermined by evolutionary biology? There are at least four objections which are offered in support of the claim that this is so, and I argue that they all fail. The first two (Part 1) maintain that contemporary AVE relies on a concept of human nature which evolutionary biology has undercut and I show this is not so. In Part 2, I try to make it clear that Foot's Aristotelian ethical naturalism, often construed as purporting to provide virtue ethics with a foundation, is not foundationalist and is not attempting to derive ethics from biology. In Part 3, I consider the other two objections. These do not make a misguided assumption about Aristotelian ethical naturalism's foundational aspirations, nor question AVE's use of the concept of human nature, but maintain that some of AVE's empirical assumptions about human nature may well be false, given the facts of our evolution. With respect to these, I argue that, as attempts to undermine AVE specifically, they fail, though they raise significant challenges to our ethical thought quite generally.

On Character (in The New York Times' The Stone)

Mark D. White

In this morning's The Stone column in The New York Times, UNC visiting professor Iskra Fileva offers "Character and Its Discontents," in which she writes eloquently on the nature of character in response to the situationist critiques of Gilbert Harman and John Doris. Her article doesn't lend itself well to quotes--it really must be read in full to be appreciated--but two points stood out to me.

1. Even when we judge people to have behaved inconsistently with what we took to be their character traits, this may be the fault of our limited perception of their character rather than any inconsistency of their part. (She attributes this point to psychologist Gordon Allport.) This parallels my point against paternalism, that the only knowledge regulators have of a person's interests in what they can infer from his or her choices or behavior, for which there can always be multiple explanations. By the same token, it is difficult to infer character traits from behavior with any confidence, and therefore it is difficult to make any judgments of inconsistency based upon them (just as external judgments of poor choices cannot be made simply based on observations of previous ones).
2. Unity of character is an aspirational goal, rather than something to be taken for granted. This reminds me of Kant's understanding of autonomy as a responsibility as well as a capacity, in that all of us have the potential to be autonomous but we have to work at it constantly, exercising our strength of will, in order to maintain it. It is also consistent with what I wrote in Kantian Ethics and Economics (in chapter 3, based on the work of Christine Korsgaard and Ronald Dworkin) about constructing, expressing, confirming our characters through the choices we make, which is a responsibility for personal integrity that we all have.

I also appreciated that she began the piece with a discussion of character in fiction, which is important for more pragmatic reasons. Nonetheless, creators have a responsibility to their audience to maintain behavioral consistency in their characters, who can have complex motivations up to a point. This makes them more fascinating, but beyond this point, the characters themselves become imperceptible, such as in absurdist literature and theater, as Fileva mentions, or in poorly written traditional fiction (a frequent complaint of fans of "serial fiction" such as myself).

Call for papers: Well-being in Contemporary Society

Mark D. White

International Conference on the Philosophy and Science of Well-being and their Practical Importance

Location: University of Twente, Enschede, Netherlands

Date: July 26-27, 2012

Program Chair:                 
Philip Brey (University of Twente)

Organising committee:                
Johnny Hartz Søraker (University of Twente)
Pak-Hang Wong (University of Twente)
Jan-Willem van der Rijt (University of Amsterdam)
Jelle de Boer (University of Amsterdam)

About the Conference

In recent years, well-being has enjoyed a renaissance in philosophical discussions, as well as in fields like psychology, economics, development studies and sociology. Although these approaches share a common goal – to better understand what well-being is and how it can be enhanced – these developments have led to a great diversity in philosophical and scientific approaches to the analysis of well-being. Despite the increasing amount of research, most of the work on well-being is also performed at a highly abstract level. This is especially true in philosophy, but relatively little work has been devoted to the application of theories of well-being also in other fields, in particular when it comes to an understanding of life in contemporary society. Developments such as globalization, consumerism, and the rapid innovation and use of new and emerging technologies, all exert significant impact on the well-being of people living today, and we need a better understanding of their consequences for well-being.

Contemporary society requires that well-being researchers examine these problems – and, if possible, propose solutions to address them. This international conference aims to bring together researchers from various disciplines, including, but not limited to, psychology, economics, sociology, philosophy and development studies, in order to examine the practical role of well-being in contemporary society.

Potential Topics

We are looking for contributions that examine the notion of well-being in the context of contemporary society. The conference particularly welcomes papers that employ a notion of well-being to address social, political and ethical issues in present-day society. Suggested topics for the workshop include, but are not limited to:

• Theoretical developments and approaches in the philosophy and science of well-being in relation to contemporary society, culture and life.
• Well-being in social and political philosophy and/or in policy studies
• Positive psychology (and related research fields) and its practical applicability
• New and emerging technologies and well-being
• Intercultural and interpersonal comparisons of well-being
• Reliability, validity and applicability of well-being measures
• Other specific practical issues pertaining to well-being in contemporary society

The workshop will include both invited papers and an open call for papers. For the open call, we invite extended abstracts (1500-2000 words).  Please anonymise the abstract, and include title, name and address in the accompanying email. The abstract, and any questions you may have about the conference, should be sent to wics2012@utwente.nl. Your abstract should be submitted before February 15^th 2012, and will be subject to blind peer review.

Publication

Following the conference we aim to publish the papers, subject to a blind review process, in either an edited volume or a special issue of a relevant journal. We did so successfully with our previous conference, Good Life In a Technological Age, from which select papers were published as book in the prestigious Routledge Studies in Science, Technology and Society series, and will be available in February 2012.

Important Dates

Abstract Submission Deadline: February 15. 2012
Notification of Acceptance: March 1, 2012
Conference Dates: July 26-27, 2012

Adam Smith, the virtues, and motivation crowding out

Mark D. White

An article in the latest issue of Politics, Philosophy & Economics (10/4, November 2011), discusses the contrast between higher and lower virtues in Adam Smith's thought, in particular concerning the market, and links this to modern thinking in economics and psychology on motivation crowding out:

"Higher and Lower Virtues in Commerical Society: Adam Smith and motivation crowding out"

Lisa Herzog

Abstract: Motivation crowding out can lead to a reduction of ‘higher’ virtues, such as altruism or public spirit, in market contexts. This article discusses the role of virtue in the moral and economic theory of Adam Smith. It argues that because Smith’s account of commercial society is based on ‘lower’ virtue, ‘higher’ virtue has a precarious place in it; this phenomenon is structurally similar to motivation crowding out. The article analyzes and systematizes the ways in which Smith builds on ‘contrivances of nature’ in order to solve the problems of limited self-command and limited knowledge. As recent research has shown, a clear separation of different social spheres can help to reduce the risk of motivation crowding out and preserve a place for ‘higher virtue’ in commercial society. The conclusion reflects on the performative power of economics, arguing that the one-sided focus on models of ‘economic man’ should be embedded in a larger context.