Richard Thaler and Cass Sunstein's best-selling book Nudge, published in 2008, is the first book I recommend when people are interested in learning more about behavioral finance, even though little of it deals directly with markets, and even though I vehemently disagree with most of it. I recommend it so highly because its underlying insights into human behavior are true and useful. I disagree with its policy implications because I think it's immoral for government to manipulate decisions people make, even if it does so "benevolently." For years, I've assumed readers would discern that distinction themselves.
But a recent trend has proven me wrong. The followers of Nudge, though to be sure not the authors themselves, have now gone overboard in their rabid enthusiasm for governmental manipulation.
In the book, the authors introduce the science of "choice architecture" or "libertarian paternalism," the idea that decision making can be modified through ostensibly benign and subtle manipulations of people's options. For example, making the default choice for organ donation an "opt-out" versus an "opt-in" drastically raises the portion of donors.
But the authors never claimed that all nudges were good. By its very definition, choice architecture requires an architect, and architects can be flawed. One can be nudged just as easily towards a cliff as towards a pillow.
Yet nudge-niks today have become extremist. They think all nudges by government are good.
The most recent example is New York City Mayor Michael Bloomberg's push to ban what he considers overly large soda cups. It is a quintessential nudge: changing the default choice for the majority of New Yorkers who would otherwise "foolishly" order a larger size but making it easy to circumvent the regulation for those who want to by allowing refills.
But it's not a good nudge. Thaler tweeted his disapproval of the proposal almost immediately.
So now the question becomes: what is a good nudge? If we can't objectively discern good ones from bad ones ahead of time, maybe the entire question of government nudges needs to be uprooted. Maybe there are no good governmental nudges.
The touchstone example of Thaler and Sunstein is the arrangement of food in a cafeteria. If fruits are displayed more prominently and earlier in the line than French fries or fatty meats, people can be nudged towards supposedly healthier eating. Sounds reasonable.
But what if that's wrong, too? What if fatty foods are better for you than fructose and other "healthy" carbs? Could nudges that even the authors of Nudge consider good actually be bad, perhaps deadly?
Let's look at the evidence. Actual nudges predate Nudge, of course, and in the field of nutrition no less. The United States Department of Agriculture has been nudging Americans for generations to eat what the feds consider a healthy diet. The famous food pyramid was ubiquitous from its introduction in 1992 until its replacement last year. It encouraged vast quantities of carbohydrates in meals, and only sparing use of fats and oils.
But contrary to federal opinion, it is not fats that cause obesity, but carbohydrates. Gary Taubes carefully documents the devastating effects of carbohydrates historically, nutritionally, and experimentally in his book Good Calories, Bad Calories.