1st Edition
Behavioural Economics and Regulation The Design Process of Regulatory Nudges
In recent years, the idea of "nudges" – small changes in individual choice architecture that do not involve incentives or coercion – has entered policy discourse and practice to address various problems ranging from energy usage to retirement savings. However, how nudges can be incorporated into regulatory practice, and whether the experimental methodologies used to design nudges are still appropriate when they are being used as a regulatory instrument is still an unexplored issue. As this book shows, the translation of ideas into the world of regulation is not so simple and straightforward.
By analysing the different experimental alternatives that regulators can use when designing nudges and through a close analysis of a real-world example – the case of the European Union tobacco warnings – this book proposes an alternative design process more in tune with the reality of regulation. The book explores the implications of iterative experimental methodologies and processes for regulators, concluding with a call for an alternative nudging’s design process tailored to the regulatory space.
This book is crucial for researchers and policy-makers interested in the incorporation of nudging into regulation and anyone interested in the implications of behavioural economics – and evidence more generally – for regulatory design.
Contents
List of tables
List of abbreviations
1. Introduction
1.1 Research questions
1.2 Relevance and contribution to Law and Economics
1.3 Approach
1.4 Limitations
1.5 Structure and summary
2. Nudging and Behavioural Economics
2.1 Introduction
2.2 Nudging: concept, main actors and policy transfer
2.2.1 Concept
2.2.2 Who is interested in nudging and the behavioural sciences? Main actors and recent developments
2.2.3 The policy transfer of nudging: from a book to policy and regulatory teams
2.2.3.1 Understanding the policy transfer of nudging
2.2.3.2 Nudging in the UK
2.2.3.3 From academia and policy to regulation
2.2.3.4 The emergence of nudging in regulation and the research questions of this book
2.3 From neoclassical economics to behavioural economics: new rationales for intervention
2.3.1 Behavioural biases: departing from revealed preferences
2.3.1.1 Departing from revealed preferences: different criteria
2.3.1.2 Learning about true preferences
2.3.1.3 Other approaches to learn about preferences
2.3.1.4 Behavioural welfare analysis: further difficulties
2.3.2 Behavioural biases interact with commercial and market practices: an additional rationale for intervention
2.3.2.1 Behavioural biases in isolation
2.3.2.2 Behavioural biases in context
2.3.3 The implications of behavioural findings: more intervention, or less intervention?
2.3.3.1 Biases affect policy-makers too
2.3.3.2 The market as a corrective mechanism
2.4 The full regulatory toolkit
2.4.1 The regulatory spectrum: interference with choice architecture
2.4.2 Solutions focused on the individual: further limitations
2.5 Nudges as a regulatory choice
2.5.1 The reasons behind the use of nudges: the advantages
2.5.2 Libertarian paternalism and the pitfalls of nudges: a normative debate
2.6 Conclusion
3. A Conceptual Framework: Private, Public and Regulatory Nudges
3.1 Introduction
3.2 Nudge design and implementation: making distinctions
3.3 Nudging intersects the law
3.4 Private nudges
3.4.1 Self-regulatory nudging
3.4.2 Nudge products
3.4.3 Other private nudges
3.4.4 A summary of private nudges
3.4.5 Challenges and solutions
3.5 Public nudges
3.5.1 Public nudges that do not surface the legal realm
3.5.1.1 Engaging citizens, nudging at the local level and external partners
3.5.1.2 The work of behavioural units: the Behavioural Insights Team
i. Administrative arrangements
ii. The BIT’s contribution to regulation
3.5.1.3 Goals of public nudges
3.5.2 A summary of public nudges
3.5.3 Challenges and solutions
3.6 Regulatory nudges
3.6.1 Examples of legislative and regulatory nudge initiatives
3.6.1.1 The United States
3.6.1.2 The European Union
3.6.2 Regulatory nudges and understanding adopted: clarifications
3.6.3 What makes nudging a novel concept?
3.6.3.1 Choice environments as an object of regulation
3.6.3.2 New tools and new goals
3.6.3.3 Materialisation of nudging as a regulatory tool
3.6.4 Design and other operational challenges
3.6.4.1 Regulator
i. Evidence and lack of knowledge
ii. Administrative costs
iii. Legal and institutional barriers
3.6.4.2 Consumer
i. Public acceptability, support and reactance
ii. Individual preferences
3.6.4.3 Business
i. Business rights and the risk of being challenged in court
ii. The risk of being operationally challenged
3.6.5 Solutions
3.7 Conclusion
4. In Search of Perfection: Can Regulators Pay the Price of the Perfect Nudge? Behind the Scenes of the Design Process of Nudging
4.1 Introduction
4.2 Nudging and experimental evidence
4.3 The emergence of iterative experimentation requirements in the regulatory dimension of nudging
4.3.1 Policy and academic actors involved in the dissemination of nudging
4.3.2 Developments in regulatory discourse
4.3.3 The problems of relying on existing evidence
4.4 Behind the scenes of nudge design: the cost and challenges of iterative experimental testing
4.4.1 What is iterative experimental testing?
4.4.1.1 Trial-and-error: the first dimension of iterative experimentation
4.4.1.2 Renewal or rotation: the second dimension of iterative experimentation
4.4.2 A note on regulatory impact assessment, the regulatory cycle and iterative experimental testing: similarities
4.4.2.1 RIA’s goals and methodical approach
i. RIA’s goals
ii. RIA’s methodology
4.4.2.2 The regulatory cycle
4.4.2.3 RIA and the regulatory cycle: a summary
4.4.3 Design choices
4.4.3.1 Initial set of nudges and iterations: a trade-off
4.4.3.2 The laboratory vs. the field: the costs of lowering uncertainty
4.4.4 Laboratory experiments
4.4.4.1 A note on online experiments
4.4.4.2 Disadvantages of laboratory and online experiments
4.4.5 Experiments reliant on firms’ efforts
4.4.5.1 The problems of relying on firms for experimentation
4.4.5.2 Is this option realistic?
4.4.6 Experimental regulation
4.4.6.1 Advantages of experimental regulation
4.4.6.2 Disadvantages of experimental regulation
i. Political, moral, welfare and legal limitations
ii. Methodological concerns
A. From working "there" to working "here"
B. Implementation costs for businesses and administrative costs for regulators
C. Added difficulty for iterative testing
4.4.7 Legislative and regulatory processes as experimental platforms
4.4.7.1 Advantages of experimenting through the legislative or regulatory process
4.4.7.2 Disadvantages of experimenting through the legislative or regulatory process
i. Legal certainty
ii. Features of regulation and legislative and regulatory processes
A. Provision of nudging with other measures, ex post assessment and relying on firms for actual implementation
B. Time frames of legislative and regulatory processes
4.5 Legislators or regulators: who is in a better place to design nudges?
4.6 Nudge provision: the role of legislators
4.7 Conclusion
5. An Iterative Design Process Meets the Real World: The Case of EU Tobacco Warnings
5.1 Introduction
5.2 What makes EU tobacco warnings an interesting case study?
5.3 The EU’s legislative process and the rationales for delegating nudge design
5.3.1 The EU’s legislative process
5.3.2 Delegation to the European Commission and its rationales
5.3.3 Delegation of warning design and revision to the European Commission and other provision rules
5.4 Public health and tobacco intervention at EU level
5.4.1 Public health and harmonisation
5.4.2 Tobacco intervention
5.4.2.1 Information, warnings and other labelling provisions
5.4.2.2 Advertising and marketing restrictions
5.5 The process of nudge design and nudge dynamism: from static diversity to yearly rotation
5.5.1 The 1989 and 1992 Directives
5.5.2 The 2001 Tobacco Products Directive
5.5.2.1 A note on voluntary pictorial warnings
5.5.2.2 Commission Directive 2012/9/EU
5.5.3 The 2014 Revised Tobacco Products Directive: a new approach to warning design and revision
5.5.4 Design, rotation and revision approaches: evolution and summary
5.6 What are the novel provision aspects introduced in 2014?
5.7 A note on the incorporation of nudging into regulation: questioning ideas
5.8 The implications of the 2014 warning design, rotation and revision approach on EU businesses, regulator and consumers
5.8.1 What does the new approach mean for businesses?
5.8.2 What does the new approach mean for the European Commission?
5.8.2.1 Initial process of nudge design: the use of laboratory and online experiments and other costs
5.8.2.2 A new approach to rotation and revision: dynamism requirements
5.8.3 What does the new approach mean for the consumer?
5.8.3.1 Strengthening persuasive intent: pictorial warnings and expectations of behavioural effectiveness
i. The impact of pictorial warnings on (imperfect) proxies of behaviour
ii. Expectations of behavioural effectiveness: considerations of nature and timing
5.8.3.2 Yearly warning rotation
i. The impact of warning dynamism
ii. The dynamism dimension of an iterative design process: an erroneous borrowing of ideas from marketing?
5.9 A note on the inconsistency between the pursuit of warnings’ behavioural effectiveness and broader policy choices
5.10 Conclusion
6. Adapting the Process of Nudge Design to the Regulatory Space
6.1 Introduction
6.2 Why adapt nudging’s design process to the regulatory space? Additional reasons: the opportunity costs of iterative experimentation and nudging’s expected behavioural effects
6.2.1 Additional costs of iterative experimentation: opportunity costs
6.2.1.1 The danger of dismissing other solutions
6.2.1.2 The danger of failing to embrace behavioural science
6.2.2 Nudging in regulation: (expected) behavioural effects
6.2.3 Behavioural effects in the regulatory domain: a note on defaults
6.3 Why have iterative experimental testing aspirations persisted in the regulatory domain?
6.4 Adapting the design process of nudging to regulation
6.4.1 Setting realistic goals to assess nudge performance in the regulatory space
6.4.2 Embracing other methodologies
6.4.3 Gathering evidence on the problem of interest, its behavioural components and potential nudges
6.4.4 Assessing the views of stakeholders
6.4.5 Iteration: for what?
6.4.6 Actual design, integrating nudge design in stages of broader regulatory design and other considerations about nudging’s design process
6.4.7 Shifting design costs to firms?
6.5 Concluding remarks
6.6 Future research
Index
Biography
Maria C. de Campos has a background in economics and she holds a PhD in Law & Economics awarded by Erasmus University Rotterdam, the University of Hamburg and the University of Bologna. She is interested in the implications of the behavioural sciences for policy and regulation. She currently works at the Portuguese Central Bank.
