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There’s Nothing Profreedom about “Nudging” People with Government Policy

John Staddon
September 2nd, 2021
The Mises Institute
Comments (13)

This article was originally published by John Staddon at The Mises Institute. 

The July/August 2021 Cato Policy Report hosted a friendly debate between Cass Sunstein and Mario Rizzo. Sunstein is a Harvard Law professor, a onetime member of the Obama administration, and coauthor of Nudge and other books advocating public policy applications of behavioral economics. Rizzo is an economist at New York University.

Sunstein argues that modifying the “choice architecture” available to consumers so as to “nudge” them toward the correct choice is a libertarian position perfectly compatible with Friedrich Hayek’s The Constitution of Liberty. Rizzo disagreed, arguing that behavioral economics does not solve Hayek’s knowledge problem, quoting psychologist Jerome Kagan’s 2012 book: “Few psychological concepts intended to represent a person’s tendency to react in a certain way apply across diverse settings.” In other words, we do not know enough psychology to know how people will react in every choice situation. Kagan did not write about behavioral economics, but, as we will see, his reservation applies there with special force.

The “knowledge problem” manifests itself in many places in this short debate; I will mention just one: Sunstein’s frequent use of the undefined term “epistemically favorable conditions,” which seems to mean conditions under which people will act “rationally”—which of course presupposes the kind of knowledge that Kagan and Hayek dispute. We cannot in general know what epistemically favorable conditions are. Much more could be said along these lines, but here I simply want to point out a couple of serious flaws in behavioral economics.

The seminal paper in behavioral economics is the 1979 paper by Daniel Kahneman and Amos Tversky called “Prospect Theory: An Analysis of Decision under Risk.” This work eventually led to many thousands of citations and an economics Nobel Prize in 2002. Kahneman and Tversky consulted their own intuitions and came up with simple problems which they then asked individual subjects to solve. The results generally confirmed their intuitions.

Here is a typical problem. Subjects were asked to pick one of two choices. In one case, the choices were A, 4,000 (Israeli currency) with probability 0.2, or, B, 3,000 with probability 0.25. Sixty-five percent of the subjects picked A, with an expected gain1 of 800 over B, chosen by 35 percent, with an expected gain of 750. This represents rational choice on the part of 65 percent of choosers.

The authors contrast this result with an apparently similar problem, A, 4,000, p = 0.8, versus B, 3,000, p = 1.0. In this case, 80 percent of subjects chose B, the certain option with the lower expected value (3,000 versus 3,200), an irrational choice. Kahneman and Tversky then used this contrast, and the results of many similar problems, to come up with an alternative to standard utility theory. Prospect theory, as they called it, is not like most scientific theories, namely a modest set of assumptions from which many predictions can be deduced. It is rather a list of effects—such as the certainty effect (this case), loss aversion, confirmation bias, and the like (Wikipedia lists more than a hundred “biases” like this). Prospect theory attempted, with only partial success, to account for these discrepancies by proposing a modified utility function (a more complex version appears in a later paper), but basically, it is a set of labels, rather than a theory.

There two problems with this superficially attractive approach: teleology and the object of inquiry. First, as to teleology, the use of utility functions: Ludwig von Mises argued that “teleology presupposes causality,” and teleological accounts often fail, because they are either silent on the causal processes which, under some conditions, allow people to maximize utility or, more commonly, because they assume that the mathematical method for obtaining the maximum, equating marginals, is in fact the one that people use. Kahneman and Tversky did not (and we still do not) know the processes by which people arrive at their decisions. Hence the failure of their teleological models and the reduction of “prospect theory” to a set of labels.

The more serious problem, hinted at by Rizzo’s Kagan quote, is prospect theory—any theory that attempts to account for the majority choice—cannot apply to the minority choice. Neither the 35 percent who chose rationally in the first case nor the 20 percent who chose irrationally in the second. If the object of inquiry is the psychology of individual human beings, the work is incomplete. To finish the job, the experimenters need to find out what it takes to produce the same result for all subjects.

Kahneman and Tversky’s results, and the theory that describes them, are property of groups of people under very restricted conditions. They are not, as is sometimes assumed, general properties of human nature. The method is just opinion polling, albeit with a clever set of questions. Yet each effect is presented as an invariant property of human choice behaviorBecause the group effect is reliable, individual exceptions are ignored. There is little doubt, for example, that subjects given a lesson or two in probability, or faced with a question phrased slightly differently (e.g., not “What is your choice?” but “What would a statistician choose?”), would choose differently. As Rizzo hints at one point, under some conditions, a group might even choose differently than an individual. For example, suppose the subjects were allowed to consult among themselves before choosing. If the choice were between, say, 1,000 for sure versus a 0.6 chance of 2,000, would it not be wise for the group of, say, twenty subjects to agree among themselves to always choose the 0.6 and 2,000 option and then split the proceeds evenly—thus ensuring that everyone would probably get more than $1000?

People’s choice in a problem like this almost certainly depends on the absolute quantities involved. Who can doubt that if subjects were offered a credible choice between, say $10 million for sure versus a 0.6 chance of $20 million, close to 100 percent would choose the sure thing? Until the theory is developed to account for the minority choice and the effect of absolute amount, until it is in a form that allows no individual exceptions, it cannot pretend to be an adequate model of human choice behavior. Hence, quite apart from all the other objections to “nudge” policy is the fact that to the extent that it relies on behavioral economics, it relies upon a fallacy.

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    Author: John Staddon
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    Date: September 2nd, 2021
    Website: https://mises.org/wire/

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    13 Comments...

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    1. Andrea.Iravani. says:

      This Is Not A Simulation!

      We are witnessing the bystander effect in action, 911 emergency services started after the brutal rape and stabbing to death of Kitty Genovese whose blood curdling screams for help in an apartment building filled with people went largely ignored, untill it was too late, on 3/13/64. U.S. troops entered Nazi Germany on 9/11/45 because the bystander effect in Nazi Germany tolerated the brutalities of Hitler, Mengele, and Goebbels to transpire. There were faked plane attacks orchestrated in America on 9/11 and now we have a global Mengele style mass murder campaign taking place in broad daylight with the scamdemic and the lethal bioweapons shots. You can reasonably question whether America should have intervened in WW2 or not. What cannot be unquestioned though is everyone in Nazi Germany that did not want to get involved in order to stop the atrocities. The thing that the neo-nazis will not acknowledge is that it was Christian Germans that tolerated and permitted what they claim led to the Jewish destruction of German society, and in complete honesty, I do not know very much about that at all, however, on Ron Unz’s website, their are neo-Nazis that are also claiming that this is fundamentally a Jewish problem, looking at a Zionist foreign policy that has been downright disastrous, in addition to financial ruin brought on by deregulation that created a criminogenic environment, and the rapacity of the ignoble and infamous Jewish billionaires like Gates, Zuckerberg, and Buffet, but why let the scumbags that permitted all of this to take place off the hook free and clear which was the mistake of the German Nazis. To insinuate that 2.5% of the population has complete control over the government is asinine and ludicrous. It has been white Christians, blacks, and Hispanics that permitted this to happen.

      Americans are being terrorized by Americans in broad daylight. It is time to start worrying about what is taking place right here in America 1st! 

      Wasn’t that the plan? America First? Only when it is not too inconvenient, evidently! 

      Zero Reasons to Participate in This Society !

      Obviously, all laws are officially null and void in America, because if there was any law and order at all, the evil monsters would have been prosecuted for the sick sadistic crime spree that they have perptrated against me and members of my family, which I have written about and for the scamdemic, and the 9/11 faked plane attacks, and the seven false flag wars, and the $21 trillion that vanished inexplicably from The Pentagon, and the police sexually enslaving children for profit by running child porn websites, and the FBI sexually enslaving and ritualistically murdering children with The Atom Waffen Division and The Order Of Nine Angels ( O9A ).

      Evidently, everyone is just free to do whatever the hell they want to do. What else is everyone supposed to think?

      Andrea Iravani

    2. Anonymous says:

      Choices are decisions and decisions have consequences.

      You should think carefully before letting someone push you into making one the way they want you to instead of making it yourself.

      After all, you’re the one that will bear the consequences, be they good or bad, not them.

      Just think for yourself instead of letting others think for you, that’s the only way you’ll be in control of your own life.

    3. Andrea.Iravani. says:

      911

      Murder She Wrote

      The Great Retards are Attacking Biden Over Thirteen Americans That Died in Afghanistan.

      I am far more concerned about the 13,000 + Americans that have died from covid GMO bioweapons shots. Of course the number is far larger than that. Those are only the ones reported to the VAERS system.

      Ground Zero is in America.

      Trump rammed Operation Warp Speed through as political cover for his financial catastrophies.

      Total U.S. Deaths Drastically Sky Rocket After Vaccine Roll Out!

      It appears that the “covid-19” injections which started on 
      December 14th,  2020 are killing many more people than they are reporting because there were 2,487,350 annual total deaths until November 16th, 2020.  On December 22nd, 2020,  they report that there have been 3.2 million total deaths in America. So, between November 16th, 2020 and December 22nd, 2020, there were 712,650 deaths. Verses 2.4 million to 2.8 million total deaths per year between 2015 and 2019. So, as usual, medical error is at least the third leading cause of death, and maybe the first or second.

      2,487,350 Total U.S. Deaths November 16, 2020

      https://www.politifact.com/factchecks/2020/dec/11/facebook-posts/chart-comparing-2020-us-death-toll-previous-years-/

      3.2 Million Total U.S. Deaths December 22, 2020
      https://apnews.com/article/us-coronavirus-deaths-top-3-million-e2bc856b6ec45563b84ee2e87ae8d5e7

      “Vaccines” Delivered to 50 States. Nursing Home and Healthcare Workers Started Being Injected on 12/14/20 CNN Reported : 

      “(CNN)The first doses of an FDA-authorized Covid-19 vaccine have been delivered to all 50 states, the District of Columbia and Puerto Rico, less than a year after the disease was first spotted in the US, officials said Monday.”

      “Operation Warp Speed, a public-private effort, developed the Pfizer vaccine in less than a year, an astonishing feat since most vaccines take years to develop. Delivery was speedy, too — shipping companies FedEx and UPS started transport on Sunday and completed all first-day vaccine deliveries.
      US Surgeon General Jerome Adams called the rollout of the vaccine “tremendous.”  ” –  CNN

      https://www.cnn.com/2020/12/14/health/us-coronavirus-monday/index.html

      This Is Not A Simulation!

      We are witnessing the bystander effect in action, 911 emergency services started after the brutal rape and stabbing to death of Kitty Genovese whose blood curdling screams for help in an apartment building filled with people went largely ignored, untill it was too late, on 3/13/64. U.S. troops entered Nazi Germany on 9/11/45 because the bystander effect in Nazi Germany tolerated the brutalities of Hitler, Mengele, and Goebbels to transpire. There were faked plane attacks orchestrated in America on 9/11 and now we have a global Mengele style mass murder campaign taking place in broad daylight with the scamdemic and the lethal bioweapons shots. You can reasonably question whether America should have intervened in WW2 or not. What cannot be unquestioned though is everyone in Nazi Germany that did not want to get involved in order to stop the atrocities. The thing that the neo-nazis will not acknowledge is that it was Christian Germans that tolerated and permitted what they claim led to the Jewish destruction of German society, and in complete honesty, I do not know very much about that at all, however, on Ron Unz’s website, their are neo-Nazis that are also claiming that this is fundamentally a Jewish problem, looking at a Zionist foreign policy that has been downright disastrous, in addition to financial ruin brought on by deregulation that created a criminogenic environment, and the rapacity of the ignoble and infamous Jewish billionaires like Gates, Zuckerberg, and Buffet, but why let the scumbags that permitted all of this to take place off the hook free and clear which was the mistake of the German Nazis. To insinuate that 2.5% of the population has complete control over the government is asinine and ludicrous. It has been white Christians, blacks, and Hispanics that permitted this to happen.

      Americans are being terrorized by Americans in broad daylight. It is time to start worrying about what is taking place right here in America 1st! 

      Wasn’t that the plan? America First? Only when it is not too inconvenient, evidently! 

      Zero Reasons to Participate in This Society !

      Obviously, all laws are officially null and void in America, because if there was any law and order at all, the evil monsters would have been prosecuted for the sick sadistic crime spree that they have perptrated against me and members of my family, which I have written about and for the scamdemic, and the 9/11 faked plane attacks, and the seven false flag wars, and the $21 trillion that vanished inexplicably from The Pentagon, and the police sexually enslaving children for profit by running child porn websites, and the FBI sexually enslaving and ritualistically murdering children with The Atom Waffen Division and The Order Of Nine Angels ( O9A ).

      Evidently, everyone is just free to do whatever the hell they want to do. What else is everyone supposed to think?

      Andrea Iravani

      P.S.

      Can you read the names of the covid GMO Bioweapons deaths 
      reported to the VAERS system on the House Floor?

    4. Culvert Crab says:

      Holy Word Salad, Batman! This gave me a flashback to my more naive days when I read The Economist regularly.

    5. cranerigger says:

      Cass Sunstein (D) & many RINOs (R) are AINOs (Americans in Name Only). These elites do NOT embrace founding principles of individual rights & determination. These elites believe American CITIZENS are serfs to be guided down one hole or another dreamed up by fellow elites. Their study of mass psychology should include B.F. Skinner. In one study Skinner slowly added additional rats to a confined space (a cage). Eventually one additional rat caused the entire population to go berzerk. Kind of like the behavior we see in our Demonrat-run big cities. Sunstein & his ilk might reflect what the consequences might be.

    6. Woogie says:

      But there is a difference between “Nudged” and to be FORCED or lose their livelyhood and freedom.

      Tell us what happens to a group who are Forced to take something where they know it will eventually kill or permanently disable them. What do you think that outcome will be in a debate?

      • cranerigger says:

        When people are “forced” as some politicians suggest with the “vaccines”, we go to an entirely more volatile situation. I compare it to a PHASE CHANGE of liquid water to gas within a confined space. The enormous resulting pressure can be catastrophic, like the French Revolution (off with their heads) and many other societal reactions to tyranny. When the pendulum swings too far in one direction, beware of the return swing.

    7. Andrea.Iravani. says:

      While New Orleans is once again without power as a result of hurricane Ida, and the Texas snowjob which does not result in any type of power grid damage, which I happen to know since I live in Wisconsin and my gas pipes and home heating oil pipes never freezed, and in the North East, with frequent blizzards, that relies on home heating oil have never had oil pipes freeze either, the latest scam is calling for trillions of dollars spent over decades for updating the power grid.

      We really need a no grid system for national and personal security.

      Years ago on CNBC they had a segment on Squawk Box with a man that designed off the grid roof top wind powered turbines. A typical home would need three to supply almost all electicity needs. These 
      were approximately less than two feet in diameter. They were not suspended high above the roof on poles either.

      Obviously, industries are purchasing these patents being developed by entrepeneurial inventors the same way that the oil industry purchsed patents for the first cars ever invented, which were all electric, and electric car inventors kept mysteriously dying. Henry Ford even purchased the Niagra power plant because he thought that all cars would be electric, but evidently struck a deal with the devil that used gasoline instead. 

      Another reason for an off the grid system is because these individuals spy on customers and are therefore guilty of numerous violations and are really nothing more than perverted peeping tom serial criminal psychopaths and mentally incompetent intellectual property thieves that belong in prison eternally. Smart meters spy. Copper wire used for electricty, and copper piping used for plumbing conduct sound and literally allow anyone to tap into the homes and businesses of everyone in America and spy on them. 

      They are going to have to learn how to live without being parasites for once in their pathetic lives!

      Death to the parasites! 

      No grid means more power! 

      They say that they want non nuclear renewable energy and people to be able to have higher standards of living, yet, they consistently legislate the necessity of wasteful power grid spending connecting everyone’s homes and businesses directly to them! That is wasteful and unnecessary! Think of all of the raw materials in the power lines themselves and the towers being wasted that runs from our homes 
      and businesses when there is absolutely no need for it at all! 

      They are fake environmentalists and fake humanitarians! They are charlatan serial criminal psychopaths, perverted peeping toms, and mentally incompetent intellectual property thieves! Nothing more! 

      Put your money where your mouth is AOC! 

      Put up, or shut up AOC! 

      I am not community property and am not your merchandise and I do not exist to provide a source of income for scumbags like you!

      Andrea Iravani

    8. All these guys belong to a certain tribe.

      Just like Bernays and Freud (same tribe), they love talking about and manipulating public perceptions. Economists are sidekicks of the (((moneychangers))) and they’ve been fooling the people for thousands of years.

    9. Anonymous says:

      If you’re not rubbing, you’re not racing.

    10. Andrea.Iravani. says:

      Russia’s Abuse of the Nuclear Option

      It is extremely disappointing that Russia is acting so irresponsibly by developing nuclear power plants in African countries.

      Russia, as the largest fossil fuel reserve country, in addition to having many of the world’s top notch scientists that know the inherent irreversible dangers of nuclear power plants, which are even more difficult to manage in Africa because of cooling factors and water scarcity, should not be building nuclear power plants in Africa!

      Naturally, if Russians truly wanted to power Africa, they would go solar, and the fact that they didn’t shows that Russians obviously have it in for African countries, in a really big and evil way.

      As far as the JCPOA is concerned, Iran already was a quasi-nuclear power, and the JCPOA limited Iran’s nuclear capabilities, not enhanced them.

      Now, Africa will be swimming in nuclear waste like India, and there is no safe form of nuclear energy and all nuclear power plants create more nuclear waste.

      Africa also has many undeveloped fossil fuel reserves. 

      Russia wants Chernobyl for all of Africa.

      Why do you feel compelled to impose energy systems on countries that have managed to live without them while simultaneously trying to force countries that have come to rely on them off of them?

      Parasites!

      Obviously, most Africans do not use energy systems because they do not need to because of their climate.

      Just what the climate alarmists want! One billion more air conditioners and refigerators running warming the climate with the laws of thermodynamics!

      Andrea Iravani

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