There is something rather interesting about the urinals in Amsterdam’s Schiphol Airport, something which has helped to reduce spillage in the men’s bathrooms by 80% and resulted in a saving of 8% in the total budget for cleaning the toilets. Look into any of the urinals and you will be greeted by an etched image of a fly. This remarkably simple and inexpensive porcelain creature has had a significant impact on cleanliness in the toilets, simply by giving its users something to aim for. Whilst this may not be the most sophisticated or earth-shattering idea, it perfectly represents the aims of libertarian paternalism, which looks to shift the way our choices are presented to us whilst still maintaining our freedom to choose.
The sheer concept of libertarian paternalism may seem a contradiction in terms, as surely libertarians cannot possibly embrace paternalism, yet the ideology has gained significant traction and support in recent years, with Cameron setting up the Behavioural Insights Team, or Nudge Unit, under the Coalition as the world’s first government institution dedicated to the application of behavioural sciences in public policy. There is certainly nothing contradictory about the notion of public or private institutions affecting behaviour whilst still respecting freedom of choice, and since its foundation in 2010 the BIT has since expanded its operations to the United States and Australia.
The Nudge Unit’s concerns and projects are far more wide-ranging than simply flies in urinals however, with significant strides being made in health, taxation and environmental policy, to name but a few. The department has helped to sign up an extra 100,000 organ donors a year, persuaded 20% more people to consider switching energy provider, and doubled the number of army applicants. One project nudged forward the payment of £30 million a year in income tax by simply introducing new reminder letters that informed recipients that most of their neighbours had already paid.
This is not to say that the practice of nudging is met without scepticism, given that it works by influencing the public without their knowledge, and since the Nudge Unit has been part-privatised it is not subject to the Freedom of Information Act. However, such concerns are largely unfounded, and represent a clear misunderstanding of the practice, focusing too exclusively on the notion of ‘paternalism’ and ignoring the libertarian nature of the Department. Whilst the practices are paternalist in that they try to influence choices in a way that will make choosers better off, as judged by the behavioural economists, they are libertarian in that they neither force nor prohibit any actions. Libertarian paternalism is a relatively weak and non-instrusive type of paternalism, because choices are not blocked or fenced off, and at worst the approach imposes trivial costs on those who seek to depart from the preferred option of the choice architect. Behavioural economics works by adjusting the choice architecture of the world around us, but given that no combination of choices is objectively neutral, there is no harm in presenting choices to promote our more productive tendencies.
The origins of the term ‘libertarian paternalism’ comes from Thaler and Sunstein, who in outlining their ‘nudging’ approach aimed to ensure that “people should be free to opt out of specific arrangements if they choose to do so.” Equipped with an understanding of our bounded rationality and bounded self-control, Thaler and Sunstein suggest that libertarian paternalists attempt to steer people’s choices in welfare-promoting directions without eliminating freedom of choice. For example, setting the default to promote beneficial behaviour is a clear soft paternalist policy, and countries that have an ‘opt-out’ system for voluntary organ donation experience dramatically higher levels of organ donation consent than countries with an opt-in system. Austria, with an opt-out system, has a consent rate of 99.98% among its citizens, whilst Germany, despite being culturally and economically similar, but with an opt-in system, has a consent rate of only 12%.
To put the fruit at eye-level and junk foods out of reach is not to prevent us from making the choice we wish to, but it is to ultimately accept the emotional and irrational behaviours which are intrinsic to human nature and have been ignored by classical economics for far too long. Whilst none would be so bold as to suggest that Homo Economicus provides a flawless account of human nature, we accept that the assumptions made are sufficiently accurate as to justify such simplifications, particularly if the only another option is to throw our arms up in the air and forget any form of economic modelling because it will never reflect human nature.
But irrationality is not the end of the story when it comes to behavioural economics, and the reason that libertarian paternalism has the potential to be so effective is because we are irrational in ultimately predictable ways. We may act against our own best interests, but it is a flaw to which we are all subject, and it is in accepting and exploiting these irrational behavioural patterns that we can all make better choices, whilst still maintaining that ultimate freedom that we must all be granted: to think and choose for ourselves.
