Bob Cropf

Flies in mens-rooms and other lessons of behavioral economics

In rational actor model on February 8, 2009 at 6:40 PM

I read this article in the Business section of today’s NY Times. It has to do with an experiment in the use of behavioral economics to solve a real-world problem. It seems that adding a fake fly to urinals reduces “spillage” by 80 percent, providing yet another example of the application of economics to urgent social problems. In seriousness though, the work of economists such as Richard Thaler (who is mentioned in the article) shows that sometimes human beings need a nudge to behave rationally. That, at least, is the thesis of a new book by Thaler and his colleague (and Obama Administration official) Cass Sunstein, entitled appropriately enough Nudge. Visit the blog by clicking on the link. They have some very “outside-the-box” type of thinking about changing public policy using “libertarian paternalism”. Eric Posner, a blogger, profiles Sunstein about the book and has this to say about libertarian paternalism: the approach that has received the most attention recently is Sunstein’s argument (with Dick Thaler) in support of what they call “libertarian paternalism,” government policies that help prevent errors that people predictably make because of cognitive biases (Sunstein is a prominent critic of the rational actor model used by economists) without interfering with the choices of sophisticated people who know their interests better than the government does (You can read the whole interview here

On a separate note, Joseph Stiglitz goes on record with his claim that “nationalizing banks is the only answer.” Read his reasons why here.

–BC

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  1. I like this libertarian paternalism (without foregoing the option of additionally limiting choices when society deems it necessary to do so).

    An alternative to nationalization that I’ve seen mentioned is to treat the banks as utilities. I don’t know much about this solution, but it doesn’t sound like it would be more palatable to neo-classical/conservatives among us (regulations up to the bankers’ eyeballs or government ownership… hmmm…) but it may be a workable option.

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