Behavioural economics

Behavioural economics is all the rage. Like all fashions it is important to distinguish innovation and quality from fad and silliness. The principle of 'nudging' is not at issue; the devil is in the detail.

The always provocative Jamie Whyte has a pop this morning at Harriet Harman’s proposed Equality Bill. Whyte's argument is that the Bill seeks to correct a non-existent market failure. If women are paid less than men it is because women have different priorities. Similarly Whyte claims that to complain that disabled people have lower rates of employment is to reveal a 'Marxist' view of justice which 'requires simple sameness of outcomes and proportionality be damned'.

Whyte is clever but a tad disingenuous. He encourages readers to believe that Harman's Bill is going to force employers to pay women more or to employ disabled people. But the Bill is much less prescriptive. Its main tool for bringing about change is to make it easier to know how much employers pay all their staff, so that if there is clear evidence of discrimination existing legislation can be used to tackle it. The other headline proposal is that if candidates for a job are otherwise equal in all regards, employers can adopt a policy favouring an under-represented group. Given the evidence that in many workplaces diversity is an advantage (for example, helping firms understand and relate better to a diverse client base) this seems like a modest proposal that could encourage firms to do the right thing and at the same time assist social mobility by making it easier for groups lower down to climb the ladder. Over the last year Scott Page talking about employment and Brooke Harrington talking about investment have both shown RSA audiences how diversity can be beneficial

Also today George Osborne is in the Guardian singing the praises of behavioural economist Richard Thaler (who is here on Thursday). The media are fascinated by the Conservatives' interest in Thaler's argument; which is that small clever messages and incentives can have a significant effect on human behaviour. Osborne claims that the Conservatives interest in behavioural economics shows they are 'the Party of ideas in British politics'.

So it is an irony that Harman's Bill can easily be portrayed as being made up of just the kind of small nudges Thaler advocates. Rather than positive discrimination which is heavy handed and controversial Harman argues for positive action which is subtle and - properly explained - publicly acceptable. Rather than crude pay levelling Harman advocates using information transparency as away of encouraging employers to be more self-aware and accountable.

Some commentators suggest 'nudging' as an alternative to legislation but of the three nudges Osborne advocates this morning in the Guardian two require new national regulation and one new local rules. Nudging is not a brand new technique that avoids the problems of all the other techniques, such as perverse outcomes, bad implementation or cheating. It is simply - as Thaler and Sunstein make clear in their book - an alternative frame for policy making involving a more subtle evidence-based way of thinking about human behaviour, rather than relying on the mythical figure of the entirely rational, self interested, perfectly informed subject of economic theory (and of the world of Jamie Whyte).

The issue is not 'to nudge or not to nudge' it is how to nudge well. When the Government tries to nudge it is lambasted. When the Conservatives suggest something similar they are hailed as brilliant. This may be unfair but so is life. Successful nudging can rely on credibility and legitimacy. It may not be that the Conservatives have better ideas just that they are cleverly exploiting being in Opposition. While the public wouldn't share a park bench with Gordon Brown they seem relaxed at the idea of a nudge from David Cameron.