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Commentary

Sometimes, whatís needed is a nudge
David Leonhardt, The New York Times, 5-16-07

Leonhardt has written a short but fascinating article on how policymakers can "nudge" consumers into making better decisions without restricting choice or using heavy handed regulations.

A couple of weeks ago in this space, I described some ingenious food psychology experiments that help explain why this country has become so fat. By surrounding ourselves with foot–wide dinner plates, huge popcorn buckets and 20–ounce bottles of Coke, we have made gorging seem normal. The only obvious way to fight back is through thousands of individual decisions, like buying smaller plates and avoiding the bulk bags of potato chips. (The bigger the bag, the more you'll eat. Really.)

But in a lot of areas beyond the kitchen—like health care and education—innovative people are starting to devise policies based on the economics of nudging. Like the push to elevate beds, these policies don't restrict choice; they simply make sure the right choice in most circumstances is also the default. Cass Sunstein and Richard Thaler, two professors at the University of Chicago, have referred to this idea as "libertarian paternalism," and they are now writing a book about it. The book is tentatively titled "Nudge."

They're not ready to talk about all their ideas, but I think there are two big ways that libertarian paternalism can work its magic. The first has to do with bureaucracy. No matter how lofty the aims of a government program, it usually won't make a difference if people canít understand it.

Five years ago, the Charlotte–Mecklenburg Schools, the largest district in North Carolina, started a school choice program, giving parents a bigger say over where their children went to school. But finding good information about schools, like their average test scores, sometimes seemed like an unpleasant exam in its own right. Parents often had to wade through a Web site filled with acronyms like EOC, EOG, ABC and AYP.

Last year, at the urging of an economist named Justine Hastings and two other Yale researchers, the Charlotte schools conducted a little experiment to see if this complexity mattered. Along with their school choice applications, a few thousand parents were also mailed a sheet of paper listing a single test score—the average of the math and reading scores—for each school they could apply to.

And guess what? These parents were much more likely than others to apply to schools with high scores. They were starting to create the feedback loop that is the whole point of school choice.

Unfortunately, Charlotte hasn't drawn the obvious lesson from the experiment and continues to make good information hard to find. This same sort of complexity has plagued Medicare Part D, the new prescription drug benefit. Almost one–quarter of low–income people eligible for a subsidy aren't getting it because they have not signed up for the program at all. "It's sufficiently complicated that people sort of throw up their hands and say, 'I can't deal with it,' said Joseph Newhouse, a Harvard economist.



Project FDA.
  
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