Behavioral economics: an excuse for policymakers not to implement better but more difficult policies?

I’ve come to the view that behavioral economics solutions are often being used as a substitute for more fundamental efforts. British Prime Minister David Cameron is a big fan of behavioral economics and gave a talk in which he said, “The best way to get someone to cut their electricity bill is to show them their own spending, to show them what their neighbors are spending, and then show them what an energy-conscious neighbor is spending.”

This idea plays on Bob Cialdini’s research documenting the impact of social norms on behavior. It’s a great idea, and leads to reductions in energy use of a few percent, but showing someone their neighbor’s bill is not the best way to get them to cut their own bill. The best way is to charge an amount that reflects the true cost of the electricity, including social costs from importing oil, pollution, climate change, and so on. Behavioral economics has a lot of great insights to contribute to public policy, but it will be unfortunate if it substitutes tried-and-true approaches involving taxes and regulation.

That is George Loewenstein, quoted by Will Wilkinson.