06.27.13

Nudging one’s way to a healthy lifestyle – A look at regulations in health through the lens of behavioral economics

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nudgingThis post was written by Mengyi Xu, O’Neill Institute Summer Intern, Princeton University ’14.  Any comments or questions about this post can be directed to mxu@princeton.edu.

To regulate or not to regulate, that is always the question. On the opening day of the O’Neill Institute’s Summer Program on NCDs and law, Professor Alberto Alemanno from HEC School of Management in Paris introduced to the participants a refreshing way of thinking about government regulation in health.

Despite ideological differences towards the idea of government regulation, the dominant argument today remains that it is the government’s responsibility to intervene when “utility-maximizing individuals are likely to expose others to risks the expected cost of which are not fully borne by those creating them”. In other words, the government should implement appropriate regulatory measures when the internalization of the negative externalities becomes necessary. Of course, determining appropriateness and necessity is no easy task. In the case of NCDs, questions such as what qualifies as negative externalities and who should be responsible for the absorptions of these externalities further complicate the issue.

For instance, it is easy to place the entire blame on the notorious fast food chains like McDonalds or soft drink giants like Coca-Cola for the increasing prevalence of obesity worldwide, but the fact of the matter is, consumer demand is what is sustaining these businesses. Arguments certainly can be made about how the food, alcohol, and tobacco industries, among others, are very good at manipulating consumer psychology to stimulate demand, and thus, they should be the ones subject to government regulation. But if you think about it, people like you and me are the ones responding to their cues: externalities are produced by no other than your next door neighbor who decided to taste a Marlboro cigarette in college just out of curiosity and has been smoking ever since, by the stressed-out young professional working eighty hours a week sitting in front of a computer screen for what seems to be an eternity, and by the single mother juggling between three jobs and two hungry school-aged children, arriving home just in time to give them some fast food that she picked up on the way home. Yes these are cliché examples but they are also common experiences. These are choices of discovery and convenience but they are also choices of non-choice.

A potential regulatory breakthrough for NCDs rests in the extent to which we (by we, I mean, policy-makers or future-policy-makers) can really understand how people make choices in reality and what “the industry” has known about how people make choices for a long time. Our ability to creatively translate this understanding into nudges, aligning the interests and incentives of actors on either side of the “healthy lifestyle market” might be key to regulatory solutions to NCDs.

Consumer choices are always extremely personal. They are sensitive to the context in which they are made; they also reflect a given’s individual’s prior experiences and future expectations, and are subject to various mental shortcuts. Based on these decision-making variables, Professor Alemanno pointed to three key concepts that can serve as the basis of regulatory innovation.

First, there is the question of framing. Suppose the doctor presented you with “two” surgery options: Option A – 90% of the patients will recover with no side-effect; Option B- 10% of the patients will experience some form of side-effect. Which one would you choose? While identical in nature, most people tend to perceive A as the better option. A study has shown that the placement of dessert in the cafeteria (at the beginning or at the end) resulted in 25% fluctuation in people’s consumption of sugary foods. Therefore, an effective intervention for NCD needs to take framing seriously and be framed right.

Secondly, default matters. The drastic discrepancy between organ donation registration rates between otherwise similar European countries has been attributed to the way their respective registration form is created. In countries where the “Yes” box was checked by default and “No” was the “other” option had much higher rate of participation compared to the contrary design. Making the healthier choice the indisputable default, making the small portion the norm and the extra-large the anomaly, is key.

Then, there is the power of social influence. By virtue of being human, our decision-making mechanics are extremely susceptible to peer pressure. One is likely to make healthier choices, if his or her peers are also actively doing so. Many healthy lifestyle movements have already been in vogue but how can policymakers leverage these resources to design targeted regulatory measures so that the two can be mutually reinforcing? How can the government create environments that extend the reach of these social movements and diffuse such influence to all strata of the society?

Many other key concepts from the field of behavioral economics may also prove to be valuable, including anchoring, confirmation bias, zero-risk bias, information cascades, and the consequences of proliferations of options. These aspects of consumer psychology have been at the core of industries’ marketing strategies for a long time. Unfortunately, the same cannot be said about the policy field.  It is about time for “us” to rise up to “their” level. In the words of Alberto Alemanno, the government should nudge the public into making better decisions about their health and happiness.

Is this paternalism? Perhaps. Given the urgency and severity of NCDs, Professor Alemanno argues, perhaps this is necessary or even essential. In fact, in a 2003 article in the American Economic Review, behavioral economist Richard Thaler and legal scholar Cass Sunstein coined the term “Libertarian Paternalism”. They explain that this approach is about influencing choices in a way that make choosers better off (thus paternalism) while preserving the option to opt-out (thus libertarianism). If our goal is to create conducive environments that can accurately depict the NCD risk factors, setting healthy food and lifestyle choices as the default through food labeling laws and the like, and encourage people to adopt the default at their own, then maybe this kind of paternalism (or whatever one wishes to call it) is not necessarily a bad framework of action. Debiasing through law, as Alemanno says.

As with any regulatory approach, nudging is not without its own set of limitations. While it takes into account the complex interaction between consumers and their environment, it rests on the simplified assumption that people respond to environments in a uniform manner. In changing the environment in which the choice is made, the approach is by definition non-transparent and can become intrusive, which raises important ethical concerns. Most crucially, it will certainly take some time before people start to accept the legitimacy of this approach. For this to take off, evidence of its impact needs to be monitored through in-depth analysis of changes in consumer behavior.

Finally, just some food for thought – consider the example of the Stockholm Piano Stairs. It leverages people’s curiosity to nudge them away from making the convenient escalator choice. It shows immense creativity but also understanding of how people make choices. Such innovations and out-of-box thinking might well be pointing to a promising direction for policymakers in devising the next regulatory solution for the fight against NCDs.

To nudge or not to nudge, this is no longer the question. How to effectively nudge consumers towards making healthier lifestyle choices while not overstepping the boundaries of government regulation is the new question.

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