Free choice by the firm is restricted by push policies.
Such policies involve nudging firms to use the policy but also a push for the firm to implement it.
The possibilities for behavioral economic policies increase greatly once one accepts the potential desirability of implementing the insights of behav ioral economics through push policies.
Push policy might involve government intervening in the market to change incentives.
It is possible that firms could be prevented from using many of the nudges that they currently use for their advantage.
Private firms have used the insights of behavioral economics to their advantage, and many of the practices that they follow are designed to take advantage of these insights for their own profit, not necessarily to benefit the consumer.
Firms know that people gravitate towards the default option all the time.
Firms often ask if you want to be included on their mailing list when you order something on the web.
The box is usually checked.
You have to remove the box to be excluded.
Firms can argue that you can either be on the list or not.
If the box were left unchecked, fewer people would choose to be on the mailing list.
Buyers have to check a box to be included in the mailing list if firms are required to frame the choice.
The lure of free goods is an example of a firm taking advantage of the default option.
If you join a wine club, they will give you a half dozen bot tles of wine free in exchange for your membership.
Wine clubs could be made to drop new subscrib ers if they continued past the free period.
Push policy is when government regulates the behavior of firms.
Adopting the behavioral economic framework opens up many ways in which the government can intervene in the market.
The framework opens up many ways in which a person desires.
Behavioral economists say that government can intervene in the market if desires are affected.
In order to allow people to express their true desires, firms would have to be prevented or countered by the government.
If advertising leads people to want things that don't make them happy, it can be argued that the government should provide "counteradvertising" that warns people about how firms are trying to change their desires.
A large regulatory presence by the government would be needed to counter firms.
Economists say that having more makes you happy.
Behavioral economists say that having more is not what makes people happy.
There are potentially radical implications for economic policy from that propo sition.
There are many different types of nudging.
The proposition is relative, not terms of implications.
He believes that after societies pass absolute, income matters have a certain threshold level of income, a threshold all Western societies have passed.
Veblen argued that the rich spend their money on things that they don't really want for themselves, but want to show off their wealth to others.
What matters for the rich is that they outdo the others.
Sometimes rich men marry someone with a trophy wife whose job is to spend their money in a way that will show off their wealth even more.
An example of how relative, not absolute, matters.
When we get a barbecue grill with built-in speakers and an internet connection, we will be better off.
We slip back to being no better off when the neighbors get the same one.
We are worse off if the neighbors get one with a built-in TV as well.
Society ends up in a consumption war in which everyone is trying to outdo the other and no one is better off.
Frank believes that there are consumption wars in our society.
Houses get bigger and bigger, eventually turning into McMansions when they don't meet our needs.
Cars turn into McRangeRovers when they get bigger and bigger, because a less powerful car wouldn't do as well.
His solution is to tax those goods that have a high consumption value and use the tax to provide social amenities that make society better off.
He believes that we should structure the economy so that people work less and take more vacations.
There are arguments for push policy that might be called "shove" policy.
People can't be economists in the past.
Karl Marx was the strongest advocate of one-dimensional and to help them escape from their general ideas.
Marx and Marxists argued that the market needed to be used to overthrow the bourgeois capitalist government.
He argued that people are not born with a desire to replace capitalist institutions with a communist government, but with a desire to fulfill their true desires.
He said that eventually the com of society.
Society crest government would wither away if firms need workers, once people's true ates wants in people that will lead them to work.
Many of the wants that people have are artificial and need to be stopped.
People's true cooperative selves wouldn't have inherent needs.
Marx argued that come their competitive selves.
The capitalist society created strong tendencies toward want communist revolution, and are still held by a number of materialistic goods.
He said markets made people.
Communism was not a success.
It created short words of Marxist philosopher Herbert Marcuse, one- ages and unfairness, instead of fulfilling people's true desires.
People who think of life only in terms of the oppressor, and not in terms of spiritual and overthrow the communist economies, decided to replace them with material goods.
Those arguments lead to strong policy conclusions that economists and other people can agree on.
Marx preferred what was signed to fill people's true wants.
One can easily arrive at a number of policies that extend far beyond traditional economic precepts once one opens the gate to using behavioral economic insights.
Traditional economists have serious doubts about these behavioral economic policies.
Behavioral economic policies are presented in this section.
The libertarian paternalism criterion is very small and the possibility for true nudge policy that meets it is very small.
The government believes that a particular default option will benefit people.
If the government passes a law that requires firms to save the default option, the policy does not meet the libertarian criterion, and thus is more than a nudging.
The firm is being told what to do.
Traditional economists don't think that a separate analysis is necessary for true nudge policies.
The second concern is that designing policies quickly becomes complicated, requiring more information than the government has.
It is possible to see the difficulties of a simple informational policy by requiring firms to label rBST milk.
Despite the fact that labeling would be a government regu lation, Microeconomics # Modern Economic Thinking is not a strong nudging.
Most scientific tests have found that milk that comes from cows given the growth hormone rBST is not dif ferent from milk that does not, so economists oppose such labeling.
If people believe that rBST milk is bad for them, they should be given the information needed to avoid milk with rBST, according to other economists.
The problem is that placing the statement on the milk carton will likely raise people's concerns about the issue and lead them to choose higher-priced milk than they otherwise would.
Frank and others advocate for what is a necessity and what is a luxury.
Pennsylvania considers bathing suits to be luxuries and taxes them.
The government has to decide which goods make people happy and which don't in order to implement policies to tax luxuries.
People would be happy to give up a portion of their income if everyone else did the same.
It isn't clear if government can determine what is in a person's self-interest or not.
In dealing with a problem, the government makes it worse.
Traditional economists are concerned with government failure in implementing economic policies that correct for externalities.
The government will slide along a slippery slope if it accepts behavioral economic policy, according to traditional economists.
The government will slide along a slippery slope if it has a monopoly.
The early Classical econo mists argued that government power had to be kept under control because one cannot assume that the government will use its power appropriately.
The market with minimal government intervention was often the better option because of the fear of an oppressive government.
Economics' laissez-faire set of policy precepts was based on certain inalienable rights of the individual.
These argu ments fit in political philosophy and are outside the confines of this text, but they are the ones that a consideration of behavioral economic policy raises.
Traditional economics argued that people knew what they wanted better than anyone else because of their actions.
Consumer sovereignty was not going to be questioned.
Behavioral economics questions consumer sovereignty and thus opens up a box of issues that the traditional economic model keeps out of sight.
Behavioral economics is part of a broader movement in modern economics where economists see themselves as mechanism design engineers.
Problems are solved by sight.
Economic incentives and people's tendency to respond to price incentives are the focus of traditional econ Omists' models.
Behavioral economists take into account people's tendency to be irrational.
Modern economic policy making involves complicated issues and we need to take into account those when designing policy.
A behavioral economist's argument is better than a tradi tional economist's.
People aren't good at making decisions when issues are complicated.
The general population and policy makers need a nudging to make good decisions in economic policy.
The traditional model gives them that nudging by concentrating on the most important aspects of choice, and not distraction by focusing on the many irrationalities that people exhibit.
The state can't try to shape people's wants because the traditional model protects individual liberty.
By taking the focus away from that most important incentive, models based on behavioral economic insights don't give people enough incentive to con centrate on the most important element.
I leave that to you to decide.
The implications of those changes for policy are given in this chapter.
Behavioral economics opens up a new set of policy and ways of looking at the world through an economic lens.
It shows you that economics isn't a single lens, but a set of lens that recognize that incentives are important, but also recognize that the way in which incentives work is far more complicated than a simple model can capture.
A mechanism design is an engineering approach to eco in which one identifies a goal and default option policies and then designs a mechanism such as a market, social encouragement policies.
Behavioral economics is an outgrowth of the mecha and does not have to be imposed through a design approach to economics.
Choice architecture is the context in which decisions requiring firms or individuals to use certain types are presented.
Nudges are designed to influence others.
They don't meet the libertarian choice architecture in a way that leads people to criterion.
Government regulation may be required if firms do something.
Making choices becomes a result of such nudgings.
It isn't making people change their behavior in a way that makes it clear that the government can decide what is best for them.
Government and the market are both subject to and separated by time.
Give an example.
Money must be exchanged for a model that includes just money price.
How is choice architecture related to shadow prices?
Behavioral economics is a new field.
Give an example.
Person A has to check a box on the form.
90 percent of residents pay their taxes on time, according to the cover of your state tax forms.