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What's the good of advertisers?

Much of what I read and hear in debates about obesity, nutrition, and public health seems to assume that all corporate food marketing is "bad".  Food marketers are nudging us away from healthful choices toward the more profitable (for them) unhealthful ones (never mind that some companies sell healthy products).  Many people argue that the government needs to make its own commercials to counter-nudge us back toward health eating.

With that backdrop, I was interested to read the back-and-forth letters between Rory Sutherland and George Loewenstein at the beginning of this paper, The Behavioral Economics Guide 2014. (HT: Andreas Drichoutis)

Here's an interesting point by Sutherland:

“Interestingly the late, mostly great, Gary Becker (in a paper with Kevin Murphy) seems to agree with me on this. Their model of advertising seems to suggest that advertising should be viewed not as persuasion (something which distorts preferences, as you suggest) but as a complementary good, the consumption of which, alongside the main product, increases the value of that main advertised product and which therefore allows sellers to capture more of the consumer surplus. He sees advertising as potentially a value-add, not as manipulation.

Nonetheless, I agree that we are right to be suspicious of manipulation. After all, the most successful advertisers over the past 150 years have been totalitarian regimes. ”

Sutherland also responds to Loewenstein's story about a recent joy-ride to the country ending in a meal of burgers and beer which was ruined when Loewenstein learned he was simply playing out a scene he'd seen in a credit card commercial.  Sutherland writes: 

“But what is strange is that we are already affected by frames, without being remotely aware of them. When you described your cycling experience, it was clear that you saw the cycle ride as virtuous and the food and beer as sinful. Yet people have been enjoying the consumption of beef products and fermented beverages since the time of the pharaohs.

Indeed, perhaps 900m people in China would have read your story and said, “The beer and the burger I understand. What I don’t understand at all is why a presumably wealthy Yankee professor would get to the restaurant by bicycle, when I have been dreaming of owning a car for the last ten years. Travelling by bicycle is the lowest form of drudgery.” You have clearly been manipulated here. But it’s not the credit card company I blame, it’s Nike.”

Loewenstien responds with some interesting observations of his own.  Do read the whole exchange. 

Does behavioral economics justify paternalism?

That is the question I attempt to answer in a paper forthcoming in the European Journal of Agricultural Economics.  The paper is a summary the plenary address I will give in a couple months at the European Association of Agricultural Economics congress.

The issue at play:

“The traditional economic approach justifies government regulation when there are market failures. Thus, economists have traditionally confined their advocacy for government regulation to well-defined classes of market failures that exist when there are issues like externalities, public goods, market power or information asymmetries. Although these traditional motivations are often mentioned when advocating food policies, the new and particularly influential weapon that has been added to the arsenal is the argument that there are cognitive failures. The identification of the cognitive failures, and their policy implications, is the subject of behavioural economics.”

The article goes on critique the idea that behavioral economic findings necessarily justify paternalistic regulations.  For example:

“If we really suffer from time inconsistent preferences, then resources like stickk.com allow us constrain (or impose costs) on our future-selves. The fact that many people are unwilling to create commitment contracts only serves to emphasise that although we often say we want to behave differently in the future, we are unwilling to actually constrain ourselves. So, there is no real inconsistency in our preferences; only an inconsistency in what we actually do and the stories we tell ourselves about what we wished we were doing in a world with no difficult choices or consequences. But, in cases where time inconsistent preferences actually exist, we do not need paternalists to constrain our future choices; we face ample incentive (and opportunity) to make that determination ourselves.”

or

“If we no longer use individual’s own choices to define what is or is not ‘good’, then whose do we use? The paternalist seeks to replace each individual’s judgment of the ‘good’ with their own. But, if we forgo the traditional economic notion of consumer welfare analysis, we lose any logical basis for claiming that one policy is superior to another from the consumers’ standpoint.”

The article concludes with some suggestions for future research, such as this one:

“Fourth, it might be constructive to use behavioural insights to, rather than devise new policies, learn how to better determine what consumers want, and perhaps even to help consumers better learn and ascertain their own preferences. In Norwood and Lusk (2011), we propose one such value elicitation approach, but there are other ways these concepts can be applied and implemented. Rather than seeking to discover ever new behavioural biases, perhaps we should learn how people make choices when they are warned of their biases and are offered opportunities to state their preferences in environments that minimise them. If using willingness-to-pay values in cost–benefit analysis is only credible if the values arise from well-defined preferences, it makes sense to think about designing approaches to help consumers learn and reveal those preferences.”

What we think about a label may be as important as the label itself

What believe about a food's ingredients may have a biological effect on our bodies above and beyond the actual nutrient content.

That is the conclusion from a study published in the journal Health Psychology, which was recently covered by Alix Spiegel at the NPR Health blog.

The authors conducted an experiment in which they fed the same 380 calorie milk shake to two different groups of subjects.  The first group was lied to, and were told (via a label) that the shake was a "sensible" 140 calories.  The second group was also lied to, but in the opposite manner: they were told (via a label) that the shake was an "indulgent" 620 calories.  

The researchers measured the levels of a hormone, ghrelin, before during and after the label experiment.  Ghrelin levels are particularly interesting to monitor because they regulate metabolism and help signal hunger or satiety.  After eating a big meal, ghrelin levels fall, signalling us to stop eating.  Eat a light meal, and ghrelin levels remain high, signaling us to eat more.

The authors found that people consuming the "indulgent" labeled shake experienced a significant increase in ghrelin just before consumption (in anticipation) and then a significant decline in ghrelin after consumption.  The change, the authors argue, is consistent with that typically observed after eating a big meal.  By contrast, the level of ghrelin was flat before and after eating the "sensible" shake.   All this is in spite of the fact that the two shakes were exactly the same in every way except for the labels!  

The authors were quoted as saying:

Labels are not just labels; they evoke a set of beliefs

and that labels might

actually affect the body's physiological processing of the nutrients that are consumed.

One way to interpret the results is to place them in the category with other "behavioral biases" in the behavioral economics literature: another piece of evidence that people do not behave rationally.  I see it a bit differently.  The results suggest a kind of "extra" rationality.  Mind over matter.  What we think might well trigger how our body responds.  Marketers might influence what we think about foods, but we have some control over the process too.  

Now, if I can just fool myself into believing that small lunch salad is actually one of the Carl's Jr. "Indulgent Salads", I'll feel fuller and lose more weight! 

The study's sample size was small (N=46), probably because to measure ghrelin they had to insert an intravenous catheter to draw blood at repeated intervals.  So one proceed with caution until more work of this sort is done.  Still, very interesting nonetheless.

Want to legalize dope but outlaw transfats?

An editorial in Politico by William Bennett and Christopher Beach highlights the irony of the policy positions held by many people on the progressive left (something I also point out in the Food Police).

They write:

The very same year, for example, that Colorado legalized marijuana, the Colorado Senate passed (without a single Republican vote) a ban on trans fats in schools. Are we to believe eating a glazed donut is more harmful than smoking a joint? California has already banned trans fats in restaurants statewide, but now is on the brink of legalizing marijuana statewide come November. Former New York City Mayor Michael Bloomberg supported New York Gov. Andrew Cuomo’s effort to decriminalize marijuana in New York State, while at the same time supporting a ban on extra-large sodas. A 32-ounce Mountain Dew is bad for you, but pot isn’t?

The logic is dumbfounding. For many years, health-conscious liberals have waged a deafening, public war against cigarettes. Smoking bans in public places like restaurants and bars have been enacted in states all over the country. Recently, New York City, New Jersey and several other cities and states have extended those bans to include the newest tobacco fad—e-cigarettes. Yet, when it comes to smoking marijuana? Crickets.

What explains this obvious paradox?

They don't actually answer their own question - later saying simply that "The answer is not clear, and there may not be a good answer at all."  I think there is an answer.

One way to think about these sorts of issues is to turn to ideology scales.  A common view is that people's ideologies can be explained by where they fall on two dimensions related to views about economic freedom and personal freedom and willingness to use government force in these two areas.  In this framework, a "liberal" wants personal freedom (abortion, gay rights, etc.) but wants to restrict economic freedom (by, e.g., setting minimum wages).  Conversely, a "conservative" wants to restrict personal freedom (outlaw abortion and prohibit gay rights) but wants economic freedom (e.g., no minimum wage).  I think one has to augment this model to provide an account of what's going on in this case.   

Here we have two health-related issues: smoking marijuana and eating transfats.  What would possibly rationalize supporting the legalization of one and the prohibition of the other?  I think it has to with people's heuristic thinking about whether companies are good or bad and whether government is good or bad - or stated differently whether businesses or government is more likely to be corrupt.  I think many on the left see transfats as bad because they're sold by big-bad food companies who will kill us just to make a buck, whereas marijuana (at least at present) doesn't have ties to big business.  Thus, it is interpreted as a personal freedom issue by many on the left.  Conservatives, by contrast, are probably less likely to want to ban transfats because it is seen as an intrusion of "bad" government into the economics sphere.  Conservative's support for marijuana prohibition likely comes about from their willingness to use government force to regulate personal/social issues.

Interestingly, Bennett and Beach attempt to resolve their paradox in the Politico piece by seemingly arguing both transfats and marijuana should be banned.  The other seemingly logically consistent stance is to suggest both should be legal, which is the position of many libertarians. 

I suppose the economist could logically support one and oppose the other based on the results of a cost-benefit analysis or considerations of the extent of externalities, etc.  Stated differently, a consistent utilitarian (or the economist who will use cost-benefit analysis as the final word on whether a policy is "good") could very well end up supporting one of these issues and opposing another.  

The challenge, from the economic standpoint, is that many of these policies are advocated on paternalistic grounds - arguing that somehow people don't know what is in their own self interest, which seems to degrade the ability to know what is "best" from the consumers perspective, and thus the ability to even do a legitimate cost-benefit analysis.

My own view is that there is a legitimate role for government to play in researching and informing the public of the risks of smoking marijuana, eating transfats, etc.  But, to step in and decide which choice should be made goes too far.  It supplants the judgement of "experts" and politicians for the judgement of each person.  If we are willing to dismiss people's ability to decide whether to smoke dope or eat transfats, it seems a short step to say that they also can't be trusted to make their own health care choices, or decide where they should live or what job they should take.  Heck, why even allow these people to vote?  That might seem a bit extreme, but I'm simply following the chain of paternalistic thinking to its logical conclusion.