Behavioral Science in Government: Theory and

Practice

Cass R. SunsteinRobert Walmsley University Professor, Harvard

Law SchoolAdministrator, White House Office of

Information and Regulatory Affairs, 2009-2012

A Small Preface: Self-Government

• What Do People Actually Think?• The answers are Inevitably relevant, in a

democratic society• Green, yellow, or red light from public?• And answers have (at least some) value on ethical

and other issues• This is US data; there is a lot more from other nations

Very Popular Nudges (nationally

representative sample)• Calorie labels (85 percent)• Graphic warnings* for cigarettes (74 percent)• Automatic enrollment for savings (80 percent favor

encouragement; 71 percent favor mandate!)• Traffic lights for food (64 percent)• Automatic enrollment, green energy (72 percent

favor encouragement; 67 percent favor mandate)• Campaign to combat obesity (82 percent)• Campaign to combat distracted driving (85

percent)

On Popular and Unpopular Nudges

• Bipartisan approval in every case. Some significant differences, but majority approval for all (and people favor MUCH MORE)

• What people don’t like: subliminal advertising, automatic charitable deductions; a campaign to get mothers to stay at home

• France, Germany, Denmark, Italy, Hungary, UK• Two principles: 1) legitimate goals?• 2) consistent with values and interests of choosers?

United States Perspective, 1

• Centralized oversight: Office of Information and Regulatory Affairs (OIRA)

• 1) regulations must be justified and subject to cost-benefit analysis

• 2) managerial control and interagency coordination, including fidelity to law

• Need to measure the actual consequences of regulation, with best available tools

United States Perspective, 2

• FIRST: All significant regulations must be formally submitted to OIRA for approval, with appeal to the President (OIRA has effective veto power, working with other offices)

• SECOND: Benefits must “justify” costs• THIRD: Less restrictive/burdensome

approaches must be considered• Distributional considerations, equity, and

fairness can count (help poor people)

A Tale

From Executive Order 13563, 2012: “Mini-Constitution”

Flexible approaches: “each agency shall identify and consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice for the public.” “These approaches include warnings, appropriate default rules, and disclosure requirements as well as provision of information to the public in a form that is clear and intelligible.” And note: 2011 Memorandum on Disclosure and Simplification As Regulatory Tools

Executive Order, Sept. 2015, from President Obama

• “A growing body of evidence demonstrates that behavioral science insights -- research findings from fields such as behavioral economics and psychology about how people make decisions and act on them -- can be used to design government policies to better serve the American people.”

• “The Federal Government should design its policies and programs to reflect our best understanding of how people engage with, participate in, use, and respond to those policies and programs.”

Executive Order from Pres. Obama, Sept. 2015

• Agencies shall:• (i) identify opportunities to help qualifying

individuals, families, communities, and businesses access public programs and benefits by . . . streamlining processes that may otherwise limit or delay participation -- for example, removing administrative hurdles, shortening wait times, and simplifying forms;

• (ii) improve how information is presented . . . by considering how the content, format, timing, and medium by which information is conveyed affects comprehension and action by individuals . . .

Executive Order from President Obama, Sept. 2015

• (iii) carefully consider how the presentation and structure of . .. choices, including the order, number, and arrangement of options, can most effectively promote public welfare . . , giving particular consideration to the selection and setting of default options; and

• (iv) review elements of their policies and programs that are designed to encourage or make it easier for Americans to take specific actions, such as saving for retirement or completing education programs. In doing so, agencies shall consider how the timing, . . . Particular attention should be paid to opportunities to use nonfinancial incentives.

Practical Challenges• Changing government?• “We did that. We never did that.”• Problem-driven, not theory-driven• Authority• Persuasion• The analogy to open government

What is a Nudge (1)? A GPS is. Also and similarly:

What is a Nudge?

A Nudge That Went Wrong

Relevant Uses of Behavioral Science

• Default Rules• Disclosures, simplification, framing, warnings,

reminders• “Behavioral market failures” (eg, present bias)

potentially leading to mandates (fuel economy, energy efficiency, financial regulation)

• Choice Architecture for Choice Architects (cost-benefit analysis, data.gov, regulations.gov, reginfo.gov)

• A number: $150 billion• Now a list:

1) Children and School Meals

• “Direct certification”• States and Local Educational Agencies directly

certified 12.3 million children at the start of School Year 2012-2013, an increase of 740,000, or 6 percent, from the previous school year.

2) Federal Reserve, 2010• In 2010, the Federal Reserve Board adopted a regulation

to protect consumers from high bank overdraft fee. The regulation forbids banks from automatically enrolling people in “overdraft protection” programs; instead, customers have to sign up.

• In explaining its action, the Board observed that studies have shown that “consumers are likely to adhere to the established default rule, that is, the outcome that would apply if the consumer takes no action.”

• The Board also referred to the phenomenon of unrealistic optimism, suggesting that consumers might well underestimate the likelihood that they would not overdraw their accounts.

• Significant results

3) President’s Budget, 2010

• Research has shown that the key to saving is to make it automatic and simple.

• Under this proposal, employees will be automatically enrolled in workplace pension plans—and will be allowed to opt out if they choose. . . . The result will be that workers will be automatically enrolled in some form of savings vehicle when they go to work—making it easy for them to save while also allowing them to opt out if their family or individual circumstances make it particularly difficult or unwise to save.

Automatic Enrollment and Savings

Note: Automatic Enrollment and the Environment

• Single-sided, double-sided• A randomized controlled trial in Germany that

tested the impact of default rules • Setting the default choice to more expensive

‘green’ energy increased purchases of such nearly tenfold.

• County-level political preference for the green party uniquely predicted behavior in the absence of the nudge – but had no effect with it

4) Old USDA Food Pyramid

New USDA Food Plate

5) Old Fuel Economy Label

New Fuel Economy Label

Know Before You Owe

6) Food and Drug Administration, 2014

• In 2014, the Food and Drug Administration (FDA) proposed to revise its “nutrition facts” panel, which can be found on almost all food packages. The FDA stated that the new label could “assist consumers by making the long-term health consequences of consumer food choices more salient and by providing contextual cues of food consumption.”

• The FDA added that the “behavioral economics literature suggests that distortions internal to consumers (or internalities) due to time-inconsistent preferences, myopia or present-biased preferences, visceral factors (e.g., hunger), or lack of self-control, can also create the potential for policy intervention to improve consumer welfare.”

7) Open Government Partnership

• OGP’s vision is that more governments become sustainably more transparent, more accountable, and more responsive to their own citizens, with the ultimate goal of improving the quality of governance, as well as the quality of services that citizens receive. This will require a shift in norms and culture to ensure genuine dialogue and collaboration between governments and civil society.

OGP

8) FDA, 2014: Menu Labels

• “The final rule may also assist consumers by making the long-term health consequences of consumer food choices more salient and by providing contextual cues of food consumption. The behavioral economics literature suggests that distortions internal to consumers (or internalities) due to time-inconsistent preferences, myopia or present-biased preferences, visceral factors (e.g., hunger), or lack of self-control, can also create the potential for policy intervention to improve consumer welfare.”

9) Fuel Economy Rules

10 (and much more): White House Social

and Behavioral Sciences Team• A behaviorally informed email campaign to

increase savings by service members nearly doubled enrollment in federal savings plans.

• Simple text messages to lower-income students, reminding them to complete required pre-matriculation tasks, increased college enrollment among those students by 5.7 percentage points.

SBST, continued• An outreach letter to farmers, designed to promote

awareness of a loan program, produced a 22 percent increase in the proportion of farmers who ultimately obtained loans.

• A new signature box on an online form, requiring vendors to confirm the accuracy of self-reported sales, produced an additional $1.59 million in fees collected by the government in just one quarter, apparently because the box increased honest reporting.

SBST, continued• An outreach letter to farmers, designed to promote

awareness of a loan program, produced a 22 percent increase in the proportion of farmers who ultimately obtained loans.

• A new signature box on an online form, requiring vendors to confirm the accuracy of self-reported sales, produced an additional $1.59 million in fees collected by the government in just one quarter, apparently because the box increased honest reporting.

11) The Energy Paradox (a quotation from US Gov)

• [T]he problem is that consumers appear not to purchase products that are in their economic self-interest. There are strong theoretical reasons why this might be so:

• -- Consumers might be myopic and hence undervalue the long-term.

• -- Consumers might lack information or a full appreciation of information even when it is presented.

The Energy Paradox, continued

• -- Consumers might be especially averse to the short-term losses associated with the higher prices of energy-efficient products relative to the uncertain future fuel savings, even if the expected present value of those fuel savings exceeds the cost (the behavioral phenomenon of “loss aversion”).

• -- Even if consumers have relevant knowledge, the benefits of energy-efficient vehicles might not be sufficiently salient to them at the time of purchase, and the lack of salience might lead consumers to neglect an attribute that it would be in their economic interest to consider.

12) USDA and Healthy Food Choices

• USDA’s “ERS plays a leading role in applying behavioral economic theories and concepts to improving food choices. In collaboration with USDA's Food and Nutrition Service (FNS), ERS has invested in developing a major behavioral economics/healthy food-choice research program; this includes the establishment of two university-based research centers dedicated to generating knowledge and developing research capacity in this important research area:

• New Duke-UNC-USDA Center for Behavioral Economics and Healthy Food Choice Research

• USDA Behavioral Economics/Child Nutrition Research Initiative”

13) Paperwork and Reporting Burdens

• The Initiatives (part of “regulatory lookback”)• Eliminating hundreds of millions of hours in

paperwork burden (that goal has been achieved, but much work remains)

• Example: FAFSA reform; and note data on effects• Goal, 1: Free people up not to spend time on

paperwork• Goal, 2: Prevent programs from being undermined

or defeated by complexity (FAFSA; EITC; many others)

On Not Admiring the Problem

Dilemmas and New Directions, 1

• 1) Active choosing as a form of libertarian paternalism (what limits?)

• 2) Personalized default rules as a form of libertarian paternalism (what limits?)

• Continuing learning about what works (negative results!)

New Directions, 2• Poverty and the Bandwidth Problem• What happens to IQ• The importance of cognitive scarcity• Duflo on “the right track”• Policy implications and “take up”

A Continuing Agenda• For the Administration and its successors (and for

many other nations):• What has high benefits and low costs?• What would help address the most serious policy

problems? (including unemployment and insufficient economic opportunity)

• What are best candidates for lookback, including repeal and simplification?

• What does public approve and disapprove, and exactly why? Can we “map” categories of approval and disapproval?

An Analogy• Over last decades, much focus on two ideas:

performance standards vs. design standards• And incentives vs. commands• Choice architecture might have the same

relationship to performance standards as those standards have to design standards, or the same relationship to incentives as incentives do to commands

A Final Word