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Nudges for Thee, But Not for Me

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Tags Calculation and KnowledgeEntrepreneurshipInterventionism

04/07/2017

The New York Times recently ran a fascinating piece on the innovative management practices used by sharing-economy firms like Uber, AirBNB, and TaskRabbit. These firms match riders with drivers, house guests with building owners, homeowners with plumbers, and so on. The challenge for the platform owners is that the providers are independent contractors, not employees, and must therefore be incentivized to provide services. Sharing-economy firms do this with the same kinds of techniques we're familiar with from our own online activities, such as tracking participation levels, awarding badges and other prizes, gently "nudging" providers to keep participating rather than logging off, and so on.

This being the Times, these practices are depicted with a dark tone: "How Uber Uses Psychological Tricks to Push Its Drivers' Buttons." (A follow-up in New York Magazine called them "creepy.") Indeed, the practices used by Uber are carefully crafted and continually refined, drawing on the latest research findings in behavioral social science. Imagine playing a game and, when attempting to log off, getting a prompt, "Are you sure you want to quit? You're just 200 points from your goal!" As the Times explains, Uber uses similar techniques to encourage drivers to stay on the platform, experimenting with "video game techniques, graphics and noncash rewards of little value that can prod drivers into working longer and harder." To most observers, this sounds like clever management techniques. To the Times, it sounds like exploitation: "By mastering their workers' mental circuitry, Uber and the like may be taking the economy back toward a pre-New Deal era when businesses had enormous power over workers and few checks on their ability to exploit it." 

Geoff Manne at Truth on the Market has done a masterful job rewriting the Times piece to make it neutral and objective. And Uber itself has pointed out some basic errors in the article (particularly the graphic purporting to show that Uber's algorithms encourage drivers to remain idle while unpaid). 

The biggest irony is that the mainstream media has been wildly enthusiastic for years about behavioral social science and the use of clever "nudges" to change people's behavior — as long as the government is doing the nudging. Cass Sunstein and Richard Thaler, the two most prominent public intellectuals in this area and authors of the widely praised Nudge, are media darlings. (Sunstein also headed the Office of Information and Regulatory Affairs under Obama, where he was tasked with putting behavioral nudges into place.) The Times itself ran a glowing profile in 2015 of the behaviorists and the need to use psychological tricks — in the writer's words, "a year-old effort by the Obama administration to apply academic research on human behavior to the business of running a government" — to exploit people's irrational biases. When state actors nudge, the results are presumably good for society; when private actors nudge, the results are exploitation.

David Gordon has written excellent reviews of Sunstein and Thaler's original book and Sunstein's follow-up, which describes governmental nudges, oxymoronically, as "libertarian paternalism." David wisely quotes Mises's response to J. E. Cairnes’s critique of free markets:

Let us for the sake of argument accept the way in which Cairnes presents the problem and in which he argues. Human beings are fallible and therefore sometimes fail to learn what their true interests would require them to do. … It is very unfortunate that reality is such. But, we must ask, is there any means available to prevent mankind from being hurt by people’s bad judgment and malice? Is it not a non sequitur to assume that one could avoid the disastrous consequences of these human weaknesses by substituting the government’s discretion for that of the individual citizens?

Indeed, I'm fine with private companies like Uber — which must compete for the voluntary patronage of both riders and drivers — experimenting with behavioral nudges. Giving the power to nudge to the state, however, is an entirely different matter.

Peter G. Klein is Carl Menger Research Fellow of the Mises Institute and W. W. Caruth Chair and Professor of Entrepreneurship at Baylor University's Hankamer School of Business.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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