THE OLDER I GET, THE MORE I UNDERSTAND WHY ROOSTERS SCREAM TO START THEIR DAY.
NSW Supreme Court criticises IHRA definition as ‘detached from reality’ Deep Cut
US judge drops bribery and fraud case against Indian billionaire Gautam Adani BBC. “Highly unusual.”
Nudge or tax? At last, some data How significant are behaviourally informed public policies?
It all seems very long ago, but there was a time when David Cameron was most famous for his enthusiasm for behavioural public policy, better known as “nudges”. In a TED talk released a few months before Cameron became the UK’s prime minister, he began by asking, “How do we make things better without spending more money?”
It remains a seductive question, and one of the answers he offered was to use more behavioural science: “The best way to get someone to cut their electricity bill is to show them their own spending, to show them what their neighbours are spending, and then show what an energy-conscious neighbour is spending.”
Nobody should object to a judicious nudge like this, particularly since such approaches are easily tested with randomised experiments. But I’ve long argued that Cameron was just wrong to say that it was “the best way”. A tax on carbon-intensive energy would be better still: it would help shift the energy system to cleaner sources, encourage consumers to conserve energy more assiduously if it was from dirtier fuels, and raise revenue into the bargain. I’ve also argued that while nudges can be quick, easy and effective, serious policy action usually requires a change to regulations or the tax system. We shouldn’t become so enamoured of the icing that we forget to bake the cake.
But were my protestations based more on instinct than on evidence? Is it really true that a carbon tax has a bigger impact on behaviour than a cleverly formatted energy bill? At last, we have some data to answer such questions.
A new working paper from the economists John List, Matthias Rodemeier, Sutanuka Roy and Gregory Sun reviews more than 600 studies of different nudge-style interventions and asks the question: how significant are behaviourally informed public policies?
Start with the reformatted electricity bill. After reviewing such interventions around the world, the researchers conclude that the kind of tweak Cameron was applauding might reduce electricity consumption by something between 4 and 7 per cent. That doesn’t sound like much.
But who is to say that 4 per cent is a small saving? Small compared with what? One natural comparator is my preferred policy: a tax increase. How much would the electricity price have to increase to persuade people to cut back consumption by 4 per cent?
“The answer is actually quite a lot,” says Rodemeier. “You would have to raise electricity prices by 11 per cent . . . Try to go to the public and say, ‘We’re going to raise electricity prices by 11 per cent.’”
Fair. Cameron’s latest successor as UK prime minister, Andy Burnham, made a cut in VAT on electricity bills one of the very first policies he announced. There is not much point in columnists arguing that taxes on energy use are better than mere nudges, if politicians disagree.
In other areas, the best behavioural approaches are even more effective and the equivalent price rise would be even higher. The details vary. In the case of cigarettes, the most effective nudges have proven to be information about the risks of smoking. For vaccination, the best tactic is simply a timely reminder. The researchers reckoned that cigarette prices would have to increase by 28 per cent to match the impact of the best nudges. Alcohol prices would have to rise even further, by 34 per cent. As for a flu vaccine, the researchers estimate that a 100 per cent subsidy — making the vaccine free — is still not as effective at improving uptake as a reminder to get vaccinated.
So nudges are not just politically convenient. They induce a change in behaviour that is more substantial than we might assume.
When estimating the value of such nudges, it is useful to distinguish two yardsticks. The first is the cost-benefit ratio: for every dollar we sow implementing some clever behavioural tweak, how much social benefit would we expect to reap? The second is the total value of a policy intervention.
As an analogy, I might try to insulate my home by fitting some draught excluders, or by installing double glazing. The draught excluders look good on a cost-benefit basis because I might save 50 times what I spent. Still, if I want a noticeably warmer home with lower bills, draught excluders won’t do the job — it will have to be those costly new windows.
The same story appears to be true for behavioural public policy. The cost-benefit ratios of such ideas are often large, with tiny expenditures yielding outsized rewards. But the biggest total benefits emerge not from nudges but from more traditional policies such as appropriate taxes, subsidies and regulations. List, Rodemeier, Roy and Sun estimate that the optimal energy tax “generates roughly seven times the total welfare of the optimal nudge, even though the nudge is more cost-effective”.
So which approach is best? That depends on where the bottleneck is. A government with a limited budget to invest would do best looking for clever nudges here and there. If the binding constraint is political capital, space in the legislative agenda, or the attention of the prime minister, then a better bet is to pick a handful of traditional policy reforms and push them hard.
A well-functioning bureaucracy should be able to do both, of course. While political leadership is focused on major reforms, a bit of delegation goes a long way in implementing the small stuff. Whether the UK and the US currently have well-functioning bureaucracies is a separate question.
In any case, the two approaches complement each other. Take vaccination: a government keen to maximise the uptake of a vaccine would do well to reduce the price (zero is a particularly attractive price point, it turns out) but should also send out well-timed and well-phrased reminders. There is nothing mutually exclusive about these options.
Or energy policy: a government might favour a carbon tax to push every element of the energy system towards lower-carbon options, but some of those elements are likely to prove sticky. Bills that provide well-formatted information and a bit of peer pressure can help shake up consumer behaviour, and reforms elsewhere can help the whole system respond to the tax incentive.
If the choice is between the icing and the cake, politicians should choose the cake. Nudges are far from trivial in their benefits, but there is no substitute for using taxes to get price signals right. List et al write: “In four of five markets, price instruments deliver substantially larger total surplus than nudges.”
All too often, politicians are turning their back on the most beneficial policies because they lack the political courage or the political skill to introduce them.
Find out about our latest stories first — follow FT Weekend Magazine on X and FT Weekend on Instagram
We Finally See Trump Administration’s Sweeping Census Power Grab Emerge
TPM’s Layla A. Jones and Josh Kovenskypublished a major story yesterday outlining a new, draft Commerce Department rule [Wired first reported the draft rule’s existence] that is circulating within the Trump administration.
Our story includes documents that TPM is the first outlet to make public. The rule aims to do two things: exclude undocumented immigrants and other types of non-citizens from the census (in violation of the Constitution), and stop the census from collecting most demographic data on Americans. These changes would have several impacts, the enormity of which is hard to overstate:
- They would likely change allocations of power in Congress, shifting it toward red states. After the decennial census, the federal government apportions congressional seats to states. A census that doesn’t count many categories of non-citizens would see fewer congressional seats apportioned to blue states, and, as a result, more apportioned to red states.
- They would likely change the Electoral College, again shifting power toward red states. The Electoral College is based on each state’s congressional allotment. Fewer seats for blue states in Congress would mean blue-state voters have less power to elect the president.
- They would eliminate a crucial source of data. By not collecting data on race and other demographics, the administration would eliminate information that is critical both for the government, as it distributes congressionally allocated funds to various communities meant to receive those funds, and to researchers trying to better understand America.
- They would make it harder to challenge maps that are gerrymandered based on race. Data on race is a critical tool for plaintiffs looking to prove that state governments have illegally carved up their congressional districts to dilute the power of minority voters. “You have to prove discrimination, you have to prove the fact that you have been discriminated against,” Walter Schwarm, a California state demographer, told TPM. “But if you don’t have race and ethnic data on the ground, how can you prove that you’re being discriminated against?”…
