The implications of behavioural economics for law and regulation have been extensively discussed by Professor Cass Sunstein. His paper Empirically Informed Regulation (2011) is a particularly useful overview of the issues involved and we will discuss this in depth during the lecture. The more accessible account Simpler recounts Sunstein's time as a lead regulator within the Obama Administration.
Benefits of incorporating empirical findings into the development of regulation.
Can small inexpensive policy initiatives have large and highly beneficial effects?
I. FINDINGS AND CONCERNS
Four key findings: 1. Inertia and Procrastination; a) default effects b) negative effects of procrastination c) giving information about how adds to effect of just giving information. 2. Framing and Presentation a) people influenced by presentation and framing b) Vivid and salient information matters more c) Framing as losses and gains matters. 3. Social Influences a) peer effects b) more cooperation than predicted by standard theory. 4. People have difficulties assessing probability: a) unrealistic optimism b) heuristics and biases c) emotion triggering probability neglect.
Three key concerns: 1. Are predictions possible? 2. Markets versus governments 3. Incomplete information
II. DISCLOSURE AS A REGULATORY TOOL
A. Actually informing choices: 1. Examples. a. Credit Cards. b. Tires c. Nutrition d. Health care. 2. Importance of Mechanism (how not just whether). "A good rule of thumb is that disclosure should be concrete, straightforward, simple, meaningful, timely, and salient." 3. Testing Disclosure 4. Avoiding confusion (e.g. food plate rather than pyramid). 5. Promoting competition.
B. Summary versus full disclosure. Open government. Use of machine readable data and support websites.
C. Disclosure and Regulatory Impact Analysis.
III. DEFAULT RULES AND SIMPLIFICATION
A. Autoenrolment: Savings. Healthcare. School Meals. Payroll Statements. Childhood obesity. B. Mechanisms and Complexities. 1. Explanations 2. Which default rules? 3. Risks 4. Personalised default rules 5. Nonsticky default rules C. Active Choices D. Simplification E. Structuring Choices.
IV INCREASING SALIENCE
V. SOCIAL NORMS