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Nudging Concerns

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President Obama's nomination of law professor Cass Sunstein as the administration's regulatory chief this week could be the start of a running debate about the design of government programs.

Sunstein is co-author of the 2008 book Nudge: Improving Decisions About Health, Wealth and Happiness, which argues that programs can be crafted to encourage people to make better choices. Administration officials already employed that thinking as part of the economic stimulus package, signed into law in February.

In 2008, the Bush administration provided tax rebates as lump-sum checks of as much as $1,500. The administration hoped that people would spend that money to stimulate the economy, but subsequent analyses have found that people tended to save, rather than spend. So instead of issuing one-time checks, the Obama administration spread its Making Work Pay tax credits of up to $800 -- included in the February stimulus package -- throughout the year as a modest increase in people's take-home pay. Economist Richard Thaler, who teamed with Sunstein to write Nudge, says people are more likely to spend the money if they receive it in smaller installments doled out periodically, because then they view it as income rather than wealth. In other words, designing the program differently nudges people to spend rather than save, according to Thaler, who advised the Obama presidential campaign.

The regulatory system that Sunstein will oversee if he is confirmed affects the decisions people and businesses make across the spectrum of human activity. Regulations for the display of information on credit card bills, for example, can influence how much people pay each month on their outstanding balances. Health care regulations can change their decisions about how they deal with illnesses. Rules for energy usage could substantially alter the use of electricity in homes and workplaces.

"Unfortunately, we often choose poorly," Sunstein and Thaler explain on the Web site, www.nudges.org, on which they have a blog to discuss their theories. They contend that the design of both government and private sector programs often tempts people to make the wrong decisions. For example, lining check-out aisles in grocery stores with candy nudges people to eat junk food rather than healthier alternatives. Programs requiring employees to opt in to 401(k)s make it less likely that they will participate, while automatic enrollment would make it harder for them not to do so.

When Management Matters discussed Nudge last summer, many readers had a negative reaction, arguing that it smacked of Big Brother and heavy-handed government. Individuals should be free to make their own choices, rather than have Uncle Sam steer them in one direction or another, critics said.

With Sunstein's nomination, that debate is likely to become more central among federal managers.

Brian Friel covered management and human resources at Government Executive for six years and is now a National Journal staff correspondent.

 
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