Various arms of government are tentatively beginning to ask what they can learn from behavioural economics. There seem to be two principle reasons for this. Firstly, there are various policies that aren’t quite achieving what is hoped of them because individuals aren’t responding to the incentives as neo-classical economics states they will. Then there are the various problems that government is lumped with - obesity being the most prominent one right now - which arise because of people taking ‘irrational’ decisions in the marketplace. Behavioural economics promises to integrate empirical psychology into the analysis of decision-making, though in doing so, threatens to make human behaviour impossible to model (as of course it actually is).
What is fascinating about this learning process is how ambivalent it is. Policy-makers want to learn useful lessons from behavioural economics, but not to learn sufficient lessons that the neo-classical edifice is fatally damaged. I was struck by this recently, when I came across this interesting paper by the National Consumer Council and the Better Regulation Executive, ‘Warning: Too Much Information Can Harm’ [pdf]. Page 24 contains the following proposal:
In many markets, government’s aim in providing regulated information is to inform consumers about their choices without steering them to any particular choice. By contrast, the work carried out by economists and psychologists suggests it is impossible to provide information or frame choice in an entirely neutral way… Attempts to render the information neutral can be counter-productive if they sterilise the information to the point in which it is no longer of relevance to the consumer.
Buried in here is a paradox: it turns out that treating people as rational utility-maximisers does not enable them to take rational, utility-maximising decisions. Instead, this report appears to be suggesting, government should recognise that they can only take a rational, utility-maximising decision if they are offered some help. All options are equal, but some are more equal than others.
With a grain of theoretical consistency, the neo-classical edifice would collapse at this point. The discipline is founded on a belief that consumers must be free to choose between rival suppliers, in order that the price mechanism functions properly and goods are then allocated as efficiently as possible. Take away that freedom of choice, and everything else starts to crumble and a planned economy beckons.
Ah, but there is a third way! If the ‘Warning’ report is a hint of what’s to come, the emerging political economy looks as follows. The consumer remains an autonomous, rational being, who will be the driving force of resource allocation in the market. But they will only be able to actualise this rational autonomy if told how to. Faced with a choice between four rival products, they will be informed which one is the one they want, then freely select that one.
Which brings us to Hegel. Hegel’s critique of Kant’s moral philosophy (and latterly, the communitarian critique of Rawls) was that the Kantian self is an empty, rational selection machine, which never exists in concrete situations. For Hegel, reason could not simply be a regulating principle, but should become historically manifest as an actually existing social order. Notoriously, his Philosophy of Right argues that individual freedom is finally realised, not through obedience to Kant’s ‘moral law within me’, but obedience to the (profoundly undemocratic) Prussian state.
Consumer policy appears to be drifting in a similarly peculiar direction. None of which is to say that people have an automatic right to smoke, eat and vegetate themselves to death, especially given the costs these impose on taxpayers and so on. But what is interesting to observe is how the strategies for preventing them from doing so cannot be defended via a reduction in freedom, but almost in terms of a higher order freedom, a la Hegel.
Baudrilard actually gives a far more convincing account of consumer choice. He points out that in a society where the majority of people have little in the way of really pressing practical survival problems, then the focus of the human struggle becomes more on the level of existential survival. If this seems fanciful, then consider the recent debates on Prozac and Placebos. What does it say about our current pressing needs and about the “use value” of things?
His point is that in a consumer society, people do not buy things for the practical uses they will put them to, but for what those things say about them as a person: In other words that people make themselves through what they consume.
Now this may be overstating the case a bit (we still do use stuff to do things, and also worry about their ‘use value’ when buying, though this may be “rationalisation” rather than rationality) but it makes the point that ‘rational choice’ may be as much about the stories tell about themselves as about the “optimal solutions” they may come up with for their “resource allocations.”
The implications for choice theories are that social contexts and social narratives are probably far more important for economic choice than Economist’s very bitty and disjointed views of human awareness account for.
If you don’t think this is credible, then just look at marketing and market research. These people are very much trying to sell stuff to “rational consumers”, and they use as much semiotics and discourse analysis as psychology and rational choice theory in how they approach them. Ultimately they are also very fond of ethnography, because funnily enough, it is people’s lived lives (and their own perceptions of their lived lives) that frame their choices much more than abstract rationality.
Can an understanding of lived lives contribute to policy making and economic theory? Probably yes, but economists might need to pay attention to life outside of Psychology labs in order to get more insight into this.