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Behavioral economics and social justice: A perspective from poverty and equity

James Walsh's picture

It has been almost ten years since Richard Thaler and Cass Sunstein wrote Nudge, but the revolution in behavioral policymaking is still unfolding.
Around the world, behavioral economists and policymakers strive to show that a richer model of human behavior can improve both individual and social welfare in virtually all domains of society.

Harvard Business School’s Mike Luca presented a nice example of this recently at BX2016, a behavioral policymaking conference. Luca pointed out how unhelpful physically located health warnings can be at unclean restaurants. The information is not accessible prior to the customer’s arrival at the restaurant and the costs of leaving are high. Luca is now working with local governments to explore the behavioral effects of disclosing sanitation warnings on Yelp, so that consumers can access the information when it is most useful.
Innovations like this are undoubtedly valuable. But the tendency of behavioral economists to zoom in on concrete decision-making contexts may lead the community to miss the broader implications of behavioral economics for questions of social justice.
Social institutions are just when the advantages they allocate are not distributed in a way that is arbitrary from a moral point of view. Distributions that result from parental wealth, place of birth, gender, race, or caste are typically considered to be morally arbitrary.
How does this apply to behavioral economics? We know that good choice architecture (a choice environment that guides individuals to make good decisions) confers substantial advantages in life –e.g., defaults increase savings, role models can inspire aspirations, reminders help us take our medicine, and positive frames improve our performance.
Much like prices, these effects on behavior are systematic and predictable. Yet we treat them differently. While it is widely recognized that incentives and resources are a central concern for social justice, behavioral economists rarely consider whether some groups have systematically better access to good choice architecture than others.
Such an oversight matters. “Justice,” John Rawls claimed, “is the first virtue of social institutions, as truth is of systems of thought.” Failing to consider whether the choice architecture embedded in our social institutions is just or unjust represents a moral danger. We could be missing major sources of unfairness and inequity.
This is not to say that behavioral economics has had nothing to say about poverty and inequality. Groundbreaking research from Anandi Mani, Eldar Shafir and others has shown that the psychologically deleterious effects of poverty lower individuals’ IQ at a rate equivalent to about three quarters of a night’s sleep.
This research helps us understand why poor people often make such poor decisions–smoking too much, saving too little, and taking excessive risks. But it offers only a limited perspective on the implications of behavioral science for social justice. By focusing only on individuals as the cause of bad decisions, we risk missing the importance of environmental contexts.
This should ring alarm bells.
For one thing, the field of psychology implores us to dig deeper. Fundamental attribution error – one of the discipline’s most important findings– warns us of our tendency to wrongfully attribute the cause of behavior to individuals rather than their environment.
The notion that poor neighborhoods are embedded with terrible choice architecture is hardly difficult to imagine. When an experimental project in the United States offered people living in a poor neighborhood vouchers to move to a wealthier neighborhood, young children’s annual earnings later in life improved by an average of $3,477.
Defaults offer some insight into why this might be the case. In the US, poor kids with high test scores in 8th grade are less likely to graduate college than rich kids with low 8th grade test scores. Scholarships are often made available for disadvantaged children, but they are burdensome to attain and precarious to maintain. While college is the default for middle class kids, disadvantaged kids must actively break norms, take on risks, and opt in to going to college.
The divergence in defaults is even more extreme when comparing rich and poor countries, where active choices must often be made about whether to send a child to school, how to allocate food, and whether to invest in basic healthcare. Many economists worry that behavioral approaches to development emphasize the trivial. A question then for policy makers in governments and at institutions such as the World Bank is, would a focus on improving choice architecture for disadvantaged people really make a difference?
A story from Brazil illustrates that it really can. Voting is compulsory for adults in Brazil. Despite this, for a long time, many poor people were de facto disenfranchised. They lacked access to education and the complicated ballots required writing and literacy skills. Then in 1998, electronic balloting was introduced. The technology walked voters step-by-step through the process, making it more intuitive. The rate of error-ridden ballots plummeted, and effectively enfranchised 11 percent of citizens, most of them poor. The small tweak led to the election of more pro-poor parties who introduced more pro-poor legislation. The political and economic effects of this small design tweak were enormous.

Behaviorally informed policies will typically lack such profound impacts. But thinking about choice architecture through a lens of social justice offers considerable promise. This is the case for at least two reasons:

First, it provides an important standard against which to consider the legitimacy of behavioral insights in public policy. If the choice architecture embedded in our institutional environment systematically advances privileged groups over the poor and socially excluded, we must consider not only whether or not to nudge, but whether nudges are fairly allocated.

Second, behavioral insights are a low-key way of leveling the playing field. The advantages of good choice architecture enjoyed by wealthy groups can often be provided to poor people at minimal direct cost to wealthier groups.

The implications of behavioral science for social and political thought are still emerging. It has already revolutionized systems of thought built on a view that human beings are economically rational creatures. As George Akerlof and Robert Shiller have pointed out in their recent book Phishing for Phools, in a “behavioral world,” firms have an incentive to profit off consumers’ biases. This brings into question the assumption that market transactions are necessarily mutually advantageous – a cornerstone of economic thought.

Theories of social justice are yet to be influenced in such a profound a way. A next step for behavioral economics should be to outline an adequate account of social justice in a world where people are human beings, not rational actors.

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