Behavioral Economics and Obama

Here's a great short interview in the WSJ with Richard Thaler, which lends some real insight into how behavioral economics is behind some of the thinking of the Obama campaign. I pointed out in an earlier post that Thaler's ideas are very compatible with Obama economics advisor Austan Goolsbee's approach. It turns out this is no coincidence. Highlights:

University of Chicago Graduate School of Business economist Richard Thaler has spent his career arguing that people are less-than-rational when they make economic decisions. As a leading figure in behaviorist economics, he’s long argued that policymakers need to guide people where they’re prone to fail.

In his new book, “Nudge,” written with University of Chicago Law School professor Cass Sunstein, he looks at how policymakers might go about doing that. He and Mr. Sunstein make an argument for policies that guide people toward making optimal decisions while not depriving them of their ability to make a choice....

WSJ: You and Cass Sunstein have both advised Barack Obama, and your friend and colleague Austan Goolsbee is Sen. Obama’s chief economic advisor. Do you see ways in which the Obama platform employs nudges?

Thaler: There are several ways in which the Obama campaign employs nudges. For example, the idea of automatic enrollment is used in several domains such as his health-care plan, and of course, his reluctance to have a mandate is in line with our philosophical approach. More generally, Obama has embraced the idea of improving the interface between citizens and the government by employing better choice architecture. Obama refers to these ideas as creating an “Ipod government,” meaning that interacting with the government would be as easy to use as the Ipod. One example is Goolsbee’s idea to offer people with no outside income or itemized deductions a prepared tax return they can simply sign and return. This would save tax payers lots of time and money.

Also, the campaign has adopted some of our ideas on improving the Medicare Prescription Drug program. The designers of that program missed the essential point that simply offering people lots of choices (there are 50 more plans per state to choose from) does not make people better off if they are unable to do a good job of picking among the plans. It would be easy to offer participants suggestions that would save both the beneficiaries and the government lots of money. Finally, the campaign has adopted some of our ideas on making the terms of credit card and mortgages easier to understand and more transparent.