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The nudge wars: A modern socialist calculation debate

The Review of Austrian Economics volume 32, pages 139–158 (2019)Cite this article

Abstract

We investigate the claims of behavioral paternalism in the more realistic framework of complex choice. In particular, we analyze the claims made by behavioral paternalists that predictive analytics over large amounts of data will make it possible to target and successfully implement purportedly welfare-enhancing nudges deemed to make nudged agents better off “as judged by themselves” (AJBT). We draw parallels between the socialist calculation debate and nudge theoretical arguments, particularly the libertarian socialism of H. D. Dickinson and the libertarian paternalism of Cass Sunstein and Richard Thaler. We find that if actual idealized behavior is a more complicated process of recursive feedback using a knowledge classification method, behavioral paternalists engaging in an automatized process of notice-and-comment rulemaking using Big Data methods still encounter epistemological problems and the problems associated with radical uncertainty unearthed during the socialist calculation debate and afterwards.

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Notes

  1. Furthermore, a well-founded concern about nudge outside the scope of this paper is that it applies a veneer of scientific respectibility to the historically illiberal institution of public manipulation. Even a naïve application of the theorems of public choice to nudge units seems to suggest that nudges would center on promoting the worldview of public choosers rather than enhancing public welfare.

  2. This debate may largely parallel the after-debate of socialist calculation, and especially theories of intervention post Sonneschein-Mantel-Debreu. This is where we can make a contribution to the larger critique of behavioral paternalism, in a way that is hopefully more robust to the latest volley from libertarian paternalists regarding the ability of Big Data or machine learning methods or agent-based methods to overcome epistemological constraints.

  3. See in particular Bowles et al. (2017), who cite the existence of cascades and herding effects like those observed in the 2007–2008 financial crisis and physical stampedes like the 2006 Hajj stampede that resulted in the death of almost 350 people as clear justifications for regulatory intervention in the interest of preventing herding effects (pp. 222–224). It is interesting to note that Hayek himself never advocated for catallaxy in all things. Hayek advocated for both designed and undesigned orders but emphasized that design is more efficient at the level of individuals and smaller groups and that the individual use of knowledge as a coordinative tool would be hampered by rules that were insufficiently general.

  4. Leonid Hurwicz explicitly describes the program of mechanism design in economic theory as a response to Hayek’s challenge of the Lange-Lerner model (Hurwicz 1973).

  5. Unlike nudging, jolting aims to explicitly manipulate preferences in favor of a choice outcome deemed better in some way by the social planner. Arguments for jolting typically rely on the indeterminate nature of preferences (Grill 2014).

  6. As mentioned in note 85 on page 930 of Rizzo and Whitman (2009), applying the regret criterion begs empirical evidence as to whether regret follows certain actions in a consistent way relevant to the specific individual in question.

  7. Since we can’t compare subjective outcomes using any constructive method, nudge theorists typically resort to non-constructive representative agent methods.

  8. Planning and prediction using game theory, however, come with the same stringent computational requirements as planning using traditional field-theoretic rational choice theory, in that the computation of the Nash equilibria of mixed games is generally NP-hard (Daskalakis 2013).

  9. Readers may object with the observation that mechanism design is still an open research area. There exists a controversy in the field about whether or not general equilibria are computable through approximation. Velupillai (2016) discusses so-called computable general equilibria (CGE) and demonstrates of the non-constructiveness of the proof of the existence of computable fixed-point approximations.

  10. The calculation and computability problems enter in here, which is why we must stress that we use “maximization” in a much looser sense than the exacting procedure agents undergo in the neoclassical utility maximization process. Our maximization is more like Herbert Simon’s satisficing.

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    Abigail N. Devereaux

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Devereaux, A.N. The nudge wars: A modern socialist calculation debate. Rev Austrian Econ 32, 139–158 (2019). https://doi.org/10.1007/s11138-018-0414-7

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  • DOI: https://doi.org/10.1007/s11138-018-0414-7

Keywords

  • Nudge theory
  • Behavioral economics
  • Economic calculation
  • Libertarian paternalism
  • Behavioral paternalism

JEL codes

  • B53
  • E03
  • D03