Mirrors in Grocery Carts

One of my colleagues forwarded me this article in the New York Times on some research published in an agricultural economics journal on the effects of "nudges" on consumer purchases of vegetables and produce.  

One part of the authors' research program is looking at how placing a mirror in the cart affects sales (I suppose it is supposed to encourage you to think more about the effects of your purchases on your long term self).  They don't yet know what effects the mirrors will have, but what they have found is the following: 

the scientists tinkered again with the cart, creating a glossy placard that hung inside the baskets like the mirrors. In English and Spanish, the signs told shoppers how much produce the average customer was buying (five items a visit), and which fruits and vegetables were the biggest sellers (bananas, limes and avocados) — information that, in scientific parlance, conveys social norms, or acceptable behavior.

By the second week, produce sales had jumped 10 percent, with a whopping 91 percent rise for those participating in the government nutrition program called Women, Infants and Children. 

This research is being facilitated by a grocery chain, which is interesting.  I find it interesting because this research and the author's article (Michael Moss) position this as research into the "Nudge" phenomenon advocated by many behavioral economists:

Mr. Payne and Mr. Niculescu are pursuing a strategy that behavioral scientists call nudge marketing, an idea popularized by the 2008 book “Nudge,” by the former Obama administration regulatory affairs administrator Cass R. Sunstein and the University of Chicago professor Richard H. Thaler.

Nudge marketing calls for applying just the right amount of pressure to persuade: not too little, not too much.

Here's my beef.  The Sunstein and Thaler book is primarily about government "nudges".  This research is about a grocery store's "nudge".  Retailers try to nudge us all the time - it's called advertising.  And I suspect this store will not continue with the mirrors and special carts if it ultimately hurts sales in the long run. The difference between a store nudge and a government nudge is important: if we don't like what a store is doing, we can leave and shop elsewhere.  Stores have an incentive to only adopt those nudges that consumers actually want, as revealed in their purchase behavior.  Governments, by contrast, have no such accountability or rapid feedback mechanisms.  For these reasons, I think it is important to draw a distinction between marketing and advertising on the one hand and nudging on the other.    

Food Nudges

Over at Reason.com, Baylen Linnekin writes about the the growing call for Food Nudges.   The issue of libertarian paternalism - government enacting rules to, among other things, framing the way options are presented - has gained a lot of attention since news stories indicating the development of a "behavioral insights team."  

This is an important enough issue that I devoted all of chapter 4 of the Food Police  to this topic.  Here are a few of my quick thoughts on the issue:

• "Libertarian paternalism" is certainly less objectionable than old-fashioned paternalism in that it presumably preserves freedom of choice, while only trying to nudge people toward the "correct" choice (thus, Bloomberg's large soda ban would be an example of old-fashioned paternalism whereas making the larger cups less prominently displayed would be an example of a nudge).
• Nevertheless, there is a a key philosophical problem here in determining what is the "correct" or "best" choice toward which people should be nudged.  Who decides what is "best"?  And how can the bureaucrats objectively claim the option is "best" when people are choosing something different?  Here are the ways I put it in the book:

"Thus, the elite seek to replace each individual's judgement of the "good" with their own."

and

"The supposed proof of this irrational behavior is said to be found in survey responses in which we say we wished we weighed less or saved more.  But our current self will always wish that our previous self had dieted and saved more, because we are now in the position to reap the benefits without paying any of the costs.  The paternalist has simply decided that your abstract future self is right and your current-acting future self is wrong, and the only possible excuse the paternalist can give for his paternalism is his own preferences for your actions."

• Paternalism - of any sort - is less objectionable when we're talking about children.  But, these arguments must cease a some age - otherwise we are merely wards of the state. 
• There seems to be an under appreciation of the ability of competition and the market to structure the choice environment in a way that we most prefer (as determined by our actions).  It seems a little arrogant for some third-party to claim to "know" that re-arranging the choices to nudge us will lead to a "better" outcome, when there are hundred if not thousands of businesses competing for our paychecks, the most successful of which (the ones who stick around and multiply) offer those combinations of choice options we find most desirable.  
• I am not at all claiming that our choices can't be influenced by the way they are framed or presented to us - the research seems pretty clear on that matter. However, when we begin to divorce the idea that the choices people make correspond with what they ultimately want, we open the door for all kinds of coercive and tyrannical behavior.  Much of the behavioral economics literature is useful - and I have no problem with the government using those insights to make the things they are already doing more efficient and less cognitively demanding on citizens (I'm thinking here of the pain in the rear it is to fill out my income tax forms), but I balk when we start to license a third party (or a "behavioral insights team") that presumes the responsibility to (directly via a ban or indirectly via a nudge) know what I should choose.   

Mea culpa - fat tax version

About two years ago, I co-authored a paper that was published in the journal Health Economics  with the title "When Do Fat Taxes Increase Consumer Welfare."  

I started work on that paper because I was troubled by the contradictory way in which economists had approached the analysis of fat taxes.  One the one hand, economists estimated the effects of fat taxes by using elasticities of demand that were derived from a rational consumer-utility maximizing model.  In this kind of conceptual model, a tax (or a price increase) cannot make a consumer better off.  However, on the other hand, economists were publishing these papers with the premise that somehow the tax could make people better off.   In the paper, we tried to think about an approach for reconciling these two stances by asking whether a tax could make people better off if we make the reasonable assumption that people also care about (and consider) weight or health effects when choosing the quantity and type of food to buy.   

We had argued that in this situation, it was possible but empirically unlikely a tax could make people better off.  Enter Professor Neill, who wrote a comment on our work, saying "no" - it is concetually impossible for a fat tax to increase consumers' well-being in a "standard" economic model of the consumer.  Here are the first sentences of our forthcoming response to Dr. Neill:

We are flabbergasted at how such a fundamental lesson of mathematical economics escaped our attention, but Professor Neill is right and we were wrong. We apologize. 

Neill pointed out, embarrassingly to us, what should be obvious to any serious student of economics.  A tax is akin to reducing someone's income.  No one is better off with less income.  Even if one wants to weight less, they don't need a tax to do it.  A consumer can achieve a lower weight at current prices and re-allocate their income toward other non-weight-increasing goods and achieve a higher level of satisfaction.  

So, how do economist justify fat taxes?  One approach is to claim that obesity is an externality - that my food choices impose a cost on you (via Medicare/Medicaid) and thus a tax can force me to properly consider those costs.  However, in a paper a couple years ago, Bhattacharya and Sood dismantled the validity of that argument (although it is not well understood and continues to be debated).  

Another response is that the "rational consumer utility maximization" model is incorrect.  This "behavioral economics" approach posits that people fail to properly account for their future well-being and that a tax can force people to make decisions today that their future selves will ultimately find beneficial.  The precise mechanism for this welfare improvement is rarely laid out with any precision.      

In our reply to Neill, we tried to sketch out a behavioral-economics type model to see when a fat tax might be justified on those grounds.  Here is our conclusion:

under this sort of behavioral economics framework, where people naively or myopically optimize utility without considering future weight effects, it is possible to imagine situations where raising prices might increase ultimate experienced welfare. However, this condition occurs only when price is very high and falls in the range where consumption would take place only because people are ignoring the ultimate health impacts; at lower prices, a ‘fat tax’ would only lower welfare.

Sunstein on GMO labeling

At Bloomberg.com, Cass Sunstein sensibly weighed in on the ongoing state and federal proposals to mandate labeling of GMO foods.  He argues that mandatory labels are a bad idea.  His reasoning is that ​the science shows biotechnology to be safe with few unique environmental concerns; however, requiring a label would "signal" that something is unsafe.  

Here is Sunstein:​

GM labels may well mislead and alarm consumers, especially (though not only) if the government requires them. Any such requirement would inevitably lead many consumers to suspect that public officials, including scientists, believe that something is wrong with GM foods -- and perhaps that they pose a health risk.

His arguments are virtually identical to those I published in a paper with Anne Rozan in the Journal of Agricultural and Resource Economics back in 2008 entitled "Public Policy and Endogenous Beliefs: The Case of Genetically Modified Food."  We wrote then:

Our argument is that policy can serve as a signal about the safety of GM food

and, conceptually:

Believing the government imposes a mandatory labeling policy on GM food could be consistent with a belief that GM food is perhaps not as safe as traditional food, but it is not so unsafe that GM food should be completely banned. Depending on a consumer's prior beliefs about the safety of GM food, the imposition of mandatory labeling could be taken to imply GM food is safer than previously thought (in the case where one's prior was that GM food is so unsafe it should be banned) or might be taken to imply GM food is riskier than previously thought (in the case where one's prior is that GM food is safe enough to warrant no labeling at all).

​Empirically, we found:

that individuals who believed the government imposed a mandatory labeling policy for GM food believed GM food was less safe and were less willing to eat and buy GM food than consumers who either believed no policy was in place or were uncertain on the matter

As we discussed in that paper, and as I've discussed elsewhere, such findings make cost benefit analysis really complicated.  How much would consumers "benefit" from a mandatory GMO label?  That depends on how much they are willing to pay for non-GMO food.  But, if our arguments are right, willingness-to-pay for non-GMO food depends on which policy is in place.  Thus, the benefits (and costs) of the policy are not independent of whether the policy is in place.  The act of passing (or failing to pass) the policy changes the benefits and benefits.  Thus, there are no "objective" or "true" benefits and costs.

Although I agree with Sunstein on this point, I find it a little ironic coming from him.  He has advocated using government "nudges", for example to change defaults or opt-in/opt-out options, to get people to make "better" choices that presumably the citizens themselves would prefer.  But if his theory on GMO labeling is right, a "nudge" might very well serve as a signal about what is the appropriate behavior.  Thus, a "nudge" isn't simply changing the default.  It is changing people's preferences, and presumably toward that desired by the regulator/nudger.  Thus, nudges aren't just getting people to make choices that presumably better match their "preference" - it might be very well changing their preference.  I find that problematic both from a philosophical standpoint but also from a public choice perspective.  You can get a sense of why in chapter 4 on behavioral economics in The Food Police.  

A Quasi-Paternalist Takes on Paternalism

Cass Sunstein has a really interesting review of Sarah Conly's new book ​in the New York Times Review of Books.  Conly advocates strongly for paternalism in her book: Against Autonomy: Justifying Coercive Paternalism.  The interesting thing about this review is that Sunstein had a very popular book promoting his own version of paternalism.  Sunstein's version (libertarian paternalism) is admittedly among the least objectionable (though still found several reasons to object in my forthcoming book - the Food Police).  

Here are some of Sunstein's key critiques of Conly's work:​

in my view, she underestimates the possibility that once all benefits and all costs are considered, we will generally be drawn to approaches that preserve freedom of choice. One reason involves the bluntness of coercive paternalism and the sheer diversity of people’s tastes and situations. Some of us care a great deal about the future, while others focus intensely on today and tomorrow. This difference may make perfect sense in light not of some bias toward the present, but of people’s different economic situations, ages, and valuations. Some people eat a lot more than others, and the reason may not be an absence of willpower or a neglect of long-term goals, but sheer enjoyment of food. Our ends are hardly limited to longevity and health; our short-term goals are a large part of what makes life worth living.

​and

Conly favors a paternalism of means, but the line between means and ends can be fuzzy, and there is a risk that well-motivated efforts to promote people’s ends will end up mischaracterizing them.

​and

Freedom of choice is an important safeguard against the potential mistakes of even the most well-motivated officials. Conly heavily depends on cost-benefit analysis . . . Officials may well be subject to the same kinds of errors that concern Conly in the first place. If we embrace cost-benefit analysis, we might be inclined to favor freedom of choice as a way of promoting private learning and reflection, avoiding unjustified costs, and (perhaps more important) providing a safety valve in the event of official errors.