Nudge fever

Following Richard Thaler's speech here last week about his book Nudge I have had several calls from journalists. As is often the case with policy fads there is now something of a backlash as commentators realise that ‘nudging’ is really no more than a set of clever techniques and not quite the new paradigm implied in some quarters.

Following Richard Thaler's speech here last week about his book Nudge I have had several calls from journalists. As is often the case with policy fads there is now something of a backlash as commentators realise that ‘nudging’ is really no more than a set of clever techniques and not quite the new paradigm implied in some quarters.

The most widely touted example of a nudge proposal was George Osborne's advocacy of a recycling reward scheme modelled on Recycle Bank a highly successful US initiative.

Recycle Bank is an impressive scheme overseen by an NGO which works in partnership with local councils to pick up recyclable rubbish and then hand out reward vouchers redeemable in local stores to those who recycle. From what I can ascertain the scheme starts from the assumption that there is no existing municipal scheme so that any recycling that takes place is a direct consequence of the scheme.

This is important because were there to be any existing scheme – as there is in the vast majority of UK local authorities – then this example of ‘nudge’ comes up against a classic problem with policy based on financial incentives; the dead weight. Osborne asserts that the policy is redistributive because:

‘While the poorest households were previously the least likely to recycle, as soon as they start receiving a financial incentive for recycling, they typically become amongst the most likely households to recycle’

This may be true once the policy is in place but at the point of implementation the scheme would involve rewarding those who are already recycling.

If, as Osborne tells us, the current recyclers tend to be better off the first effect of implementing the scheme is to give middle class families a reward for something they were already doing for free. The dead weight problem doesn’t necessarily kill a policy. The Government’s Educational Maintenance Allowance to disadvantaged 16-18 year old who stay on at school has been seen as a success despite a huge dead weight cost.

Recycle Bank has the feel of a neighbourhood NGO initiative (albeit one that is taking place in hundreds of places), so arguably it’s not the kind of scheme people might be inclined to fiddle. But given how many people are hostile to any type of government, a local authority scheme would have to address another classic policy conundrum.

How do you get the incentive right; just big enough to change behaviour but not so big to encourage cheating (people nicking each other’s recycling or putting bricks at the bottom of their bin). If this sounds cynical, remember the ill-fated Individual Learning Accounts (ILAs) which foundered when rogue training companies were set up to farm people’s ILAs splitting the proceeds between the bogus trainers and bogus trainees.

I remain a fan of nudging but policy making is complex and policies that look clever on paper and work with college students can founder when they are taken up by citizens and those on the lookout for a quick buck.

In an echo of the strange world of quantum mechanics the moment a policy is implemented it changes the context for which the policy was devised and is therefore bound to produce unexpected and sometimes perverse outcomes.

To end with another issue with incentives; if everyone takes up the scheme they quickly come to see the ‘reward’ as an entitlement. And if they then are refused the reward because they fail to recycle they see this as a punishment. In other words, if the policy of rewarding is too successful is comes to feel like the policy of fining it was supposed to replace!

It is this complexity plus the importance of underpinning schemes like these with a high level of public buy-in that leads me to conclude that such ideas work much better at the local level. That’s why the Conservatives are arguing for their policy to be a council initiative. However English Council areas are so big that to many residents the town hall is as distant and oppressive as Whitehall.

Changing behaviour is hard. Nudging is a useful technique but it doesn’t abolish the classic dilemmas of policy making.