Behavioral economics has been getting some bad press ever since news of Bloomberg’s proposed ban on the sale of sugary drinks in NYC restaurants (in portions larger than 16oz) caught the nation’s attention last week. The frothing debate over portion limiting in restaurants has served up a fundamental matter of contention in the public conversation, namely the question of how government should behave toward those it governs.
For those who haven’t heard about this proposed regulation, I’ll sum up the facts. Bloomberg wants to eliminate the 24 and 32-oz soft drink options from restaurant menus beginning as soon as next March. This would not apply to diet drinks, those with a high dairy or juice content, or to grocery stores, etc. People will still be allowed to buy as much sugary beverage in one purchase as their thirsty little hearts desire, but at restaurants and concession stands, the largest cup would be 16-oz. So, if you want a 32-oz drink, you’ll need to buy 2 16-oz cups to quench your thirst.
The major impetus behind this proposed regulation has its roots in behavioral economics. Essentially, what we have learned over the past 30 years of researching how humans are predictably irrational is that when you are in a position of presenting choices to people, the way in which you present the options will influence the decisions made, no matter how hard you try not to interfere. Some are accusing the mayor of turning NYC into a ‘nanny state,’ but when I read about it, all I could think was that Bloomberg must have read the book, Nudge.
In Nudge, the authors describe a situation where someone is in charge of how the food is laid out in a public school cafeteria. Extensive research (cited in the preceding link) shows that the order in which food is set out in a cafeteria changes the choices kids make about what they eat. There is no way to avoid having food set out in some particular order. Desserts first? Veggies first? Entree first? No matter how you choose to arrange the food, you will be subconsciously affecting the way those kids pick their lunch that day. In no way will you be limiting their choices, but you will have an influence.
Anyone who has an affect on how people make choices – whether directly or indirectly, consciously or subconsciously, is what we call a choice architect. What mayor Bloomberg is doing with this regulation is an attempt to make people more conscious about the health choices they are making. If you want a 32-oz serving of soda, you’ll have to order two drinks instead of one. The marketers behind the 32-oz cups have been silently influencing the choices of customers for years, and nobody called them Nanny-Cola for nudging consumers toward larger cup sizes and larger bellies. The fact that the 32-oz costs less per ounce is a subtle marketing ploy that has become quite popular among restaurants because the appearance of a deal entices many bargain-savvy customers to buy more soda than they might actually want. This makes more money for the restaurants, and for Nanny-Cola, but hey, they’re job creators, so we’ll cut them some slack.
Libertarian paternalism, which mayor Bloomberg seems to believe in quite strongly, is the view that people who influence the choices of others should make the ‘default option’ one that is in the best interest of the consumer. Imagine your company institutes a new retirement plan for its employees. The ‘default option’ is the thing that happens when an employee does nothing and ignores every notice and email about the retirement plan altogether. Libertarian paternalism says that the employee who does nothing is automatically enrolled in the plan at the minimum contribution level. The freedom to opt out of the plan is still there. No limits have been placed on freedom. The libertarianism is in the freedom to choose. The paternalism comes in the form of the default option.
Some critics of this idea have legitimate concerns about paternalism in policy. Others simply don’t understand. One blogger had this to say about the proposed change in portion sizes:
“There’s nothing wrong with making the ‘default option’ healthy. If you ordered a combo meal, and it came with orange juice by default, instead of soda, that’s fine IF the option to have soda instead is there. The problem is, these assholes want to make the ‘healthy’ choice be the default – while limiting all other choices to nothing.” see article
Ahem. Let me set something straight. Nobody will be limited in how much soda they can buy at once. The only change is the size of the container it will come in, but you will still be free to buy as many of them as you like. In Bloomberg’s words, “Your argument, I guess, could be that it’s a little less convenient to have to carry two 16-ounce drinks to your seat in the movie theater rather than one 32 ounce…I don’t think you can make the case that we’re taking things away.” (See Article)
You might wonder what economics has to do with any of this, and I wouldn’t blame you for being confused. The fact is that in this country the health of the general public is directly related to our tax burden. When people are subconsciously lulled into a 32-oz sugar coma by Nanny-Cola, and end up with any one of these sugar-related diseases, if they don’t have health insurance, taxpayers foot the bill for their care.
Okay, so why not just tax sugary drinks, as this clearly unresearched MotherJones editorial suggests? Actually, Bloomberg tried that, but the measure was blocked in Albany (see article). Hmmm…well then, maybe we should just focus on those who probably don’t have health insurance? Oh, right, he did that, too, when he tried to take soda off the list of things you can buy with food stamps, but that failed, as well (article).
Like Bloomberg or hate him, he sees that the restaurants are choice architects, and that smaller servings – without a limit on the number of them you can order – could very well help consumers be more conscientious about portion control. The idea is solidly grounded in science. The only thing I take umbrage with in the matter is Bloomberg’s jurisdiction as mayor to enact this kind of policy. It seems to me that the FDA would be more appropriate.
*Or maternalistic depending, I suppose, on who is in office…and on how you define parental roles.
” should make the ‘default option’ one that is in the best interest of the consumer”
But what defines best interest? Value is subjective. It may well be in the best interest of the consumer to buy a 32oz cup if the utility from that transaction outweighs any negative health risk. Think about a cancer patient who might have a week to live- the soda is not going to kill him before the cancer, but the soda might bring him temporary joy. It may well be in his best interest (and almost indisputably) to splurge and go for the unhealthier option.
And limiting it to 16oz cups is still limiting the options. Yes, they can buy two, but they cannot buy 1 32oz cup. I think a better way to go about something like this would be to make a Pigovian argument that the health risks are a negative externality and in turn to apply a Pigovian tax on the bigger sized cups without eliminating that option. I am not undecided on if I would be on board with such a tax, but it is a better way to go about this and I would certainly lean more in favor of that than banning 32oz cups altogether.
I agree that this would be a more appropriate approach to dealing with the problem. Bloomberg tried and failed to get a tax through, but a tax on the cups themselves would most likely result in the restaurants passing the added cost on to customers – eliminating the ‘value effect’ of the larger portions. I think it’s the most logical solution. Apparently, Bloomberg didn’t want to try something he’d already failed at, but if he did a better job of informing voters and policy makers about the reasoning behind the tax, he might be able to get it through.
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