Cass Sunstein and the rise and fall of nudge theory

In the post-crash age, people are turning away from the former Obama adviser’s nudge theory of economics – and towards the smack of firm government.

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In February 2010, a few months before he became prime minister, David Cameron delivered a Ted talk in California titled “The Next Age of Government”. Appearing youthful in an open-collar shirt, he assured his audience that only one question should preoccupy modern politicians: how to make things better “without spending more money”.

In a new era of austerity, the Conservative leader had an answer: forging a “big society” by harnessing the insights of behavioural economics. Flicking to a slide showing five accomplished male academics and a large illustration of the human brain, he proudly told the audience: “We’re working with… these people.”

Two of them were Cass Sunstein and Richard Thaler, the American authors of the influential book Nudge. Soon after its 2008 publication, the title became ubiquitous among Westminster policy wonks. Its central idea was that making small changes to the environment in which citizens take decisions – such as placing healthy food close to supermarket checkouts – could incentivise better behaviour. In the aftermath of the financial crisis, Nudge offered fiscally constrained governments a benign cattle-prod to herd citizens into acting in their own best interests.

Did it work? More than a decade after Nudge’s publication, Sunstein mounts a defence of his original thesis in two new books: On Freedom, a short work that echoes John Stuart Mill, and Trusting Nudges: Toward a Bill of Rights for Nudging, co-authored with the German behavioural economist Lucia Reisch. When we meet in London, Sunstein, 64, is about to deliver a lecture at the London School of Economics. He’s softly spoken but easily enthused and is keen to affirm the enduring relevance of his ideas.

Sunstein cites automatic enrolment as one of the defining achievements of nudge theory. Rather than parents having to sign up, school children automatically receive free school meals – and employees contribute to pension schemes. “In a bad year,” he says, “nine million children are enrolled in that [free meals] programme” in the US. Such seemingly obvious reforms, he adds, address “serious poverty problems”.

Sunstein, a law professor at Harvard, first encountered Thaler (who was awarded the 2017 Nobel Prize in economics) when he read the economist’s paper Toward a Positive Theory of Consumer Choice; Thaler had mentally titled it “Stupid Shit That People Do”. The paper helped transform the standing of behavioural economics, a field that combines economics with psychology to demonstrate how cognitive biases influence decision-making. The pair began chipping away at the classical economic notion that humans always act rationally to maximise their own ends.

Occupying the terrain between free-market economics and statist interventionism, Nudge seemed to offer liberals a political panacea. Following his election, Barack Obama made Sunstein administrator of the Office of Information and Regulatory Affairs at the White House. Cameron, similarly enamoured with his philosophy of “libertarian paternalism”, founded the Behavioural Insights Team to put nudging into practice. It is now an independent “social purpose company”, with revenues of £14m in 2017.

Critics of nudge theory are less concerned with its outcomes than its underlying ideological assumptions. But Sunstein believes such foes have neglected the concept of “navigability”. It’s a clunky word and, by way of illumination, he cites the example of a GPS device: a tool that “respects people’s ends” and does not “quarrel with their judgement about their preferred destination”. Much like nudge theory, a GPS device navigates the surface without examining the depths beneath.

Rather than confronting the economic structures that create profound inequalities, nudges are designed to encourage people to cope with their material circumstances. Citing Obama’s Affordable Care Act, which made use of behavioural incentives as well as more radical measures, Sunstein insists that nudges can form part of a transformative programme. Yet in the context of austerity, nudges have too often been a substitute for, rather than a complement to, ambitious intervention.

In 2013-14, for example, Cameron’s Behavioural Insights Team launched an experiment by sending 11,000 letters to poor students who were less inclined to apply to prestigious universities. The letter pointed out that such institutions frequently offer more generous financial aid. Though well-intentioned, it located ultimate responsibility in the individual, without confronting the conditions that create aspirational inequality or the burden of student debt.

The 2008 crisis that formed the conditions for the rise of nudge may also contain the seeds of its irrelevance. In the US and UK, where banks received exorbitant bailouts, citizens are increasingly dismissive of the notion that governments are unable to fund adequate public spending. Unscarred by memories of 1970s “stagflation”, a younger generation is turning to politicians who promise radical state intervention.

“Many people in the US are embracing socialism,” Sunstein observes. “It’s really a way of stamping one’s feet and saying, ‘Things aren’t right…’ It’s admirable.” What of socialist policies? “Most conceptions of socialism I despise,” he replies candidly. But in a new era of discontent, politicians of left and right alike are turning away from nudging – and towards the smack of firm government.

Hettie O'Brien is the New Statesman’s online editor. 

This article appears in the 24 May 2019 issue of the New Statesman, The Brexit earthquake