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Nudging Our Way to Oblivion…

March 4, 2016

Last week Eduardo Porter’s article on the economy in the NYTimes was understatedly titled “Nudges Aren’t Enough for Problems Like Retirement Savings”.  Porter’s article described the Obama administration’s notion of using behavioral concepts like “nudging” as a classic example of “…a belief that tweaks based on an understanding of people’s psychology could lead to a vastly improved society at little or no cost to taxpayers”… a belief that Porter believes is naive and ineffective.

Porter opens the article with some examples of where psychological ideas worked:

Sending text messages to low-income high school graduates about prematriculation requirements for college increased enrollment rates. Well-written emails increased the participation of military service members in the federal employees savings plan. They also bolstered enrollment in health insurance plans under Obamacare.

But the balance of the article underscored the limits of “nudging”. In areas like retirement saving, paying child support, drug abuse, diet, and healthy life styles nudges make no dent. Why? Porter notes that poverty is the underlying problem in all of these cases and— this just in— poor people need money more than they need nudges… and research proves this!

A recent study by George Loewenstein, a behavioral economist and noted critic of “nudges” from Carnegie Mellon University, with Cäzilia Loibl of Ohio State University and two other colleagues, also suggests that fancy cognitive tricks may fail to overcome the main obstacle faced by the poor: a lack of money.

They tried several behavioral techniques to persuade poor Americans to take advantage of individual development accounts, savings accounts topped off by the federal government at a rate of $2 for every $1 saved. That’s quite a deal.

But nothing worked. “People are not saving because they have such low incomes,” Professor Loewenstein concluded.

And non-custodial parents are behind on the support payments because they lack money… and people are buying cheap, fattening foods because they lack money… and people are deferring payments on their bills and going into debt because they lack money…

In the meantime, those WITH money are seeking fewer regulations, lower taxes, and blaming the trapped in poverty for their lot in life by noting that they fail to spend wisely. The poor spend what they have on what they need… and often what they need is an escape from reality so they spend on items that are deemed “frivolous” by people who own 10,000 square foot homes and $50,000 cars…. and here’s the sad reality: the poor cannot pull themselves up by the bootstraps when they can’t afford to buy boots.

Categories: Uncategorized
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