Dmitry Taubinski, UC Berkeley

When Do “Nudges” Increase Welfare?

Abstract

“Nudges,” such as simplified information disclosure and warning labels, have become increasingly popular policy instruments. Much of the public discussion and empirical work focuses on whether these instruments produce large average changes to behavior at low implementation cost, instead of more economically-founded metrics of social welfare. We lay out a theoretical framework to understand the effects of “nudges” on social surplus in the presence of imperfect competition, externalities, and consumer bias. A key lesson is the importance of targeting: whether the intervention has the largest effects on the most biased consumers, relative to the variance of treatment effects. Even if the intervention has no implementation cost and moves behavior in the “right” direction on average, the intervention can still generate significant efficiency losses if it is poorly targeted. Interventions that are not well-targeted—including those that strictly increase the quality of consumer decision-making but in highly unequal ways—are imperfect substitutes for traditional corrective policies such as taxes. We combine the theory with two randomized experiments to evaluate fuel economy labels on cars and health warning labels on sugary drinks. In both experiments we find that even though the labels reduce over-consumption in the aggregate, they are poorly-targeted and are imperfect substitutes for standard tax policy tools.

Dmitry Taubinski is assistant professor at UC Berkeley.

His research Expertise and Interest are are behavioral economics, tax policy, soda taxes, payday loans, household consumption and portfolio choice, energy policy and health.

Dmitry Taubinsky applies insights from behavioral economics to questions about public policy, using a combination of theory, experiments, and observational data.  He studies topics such as people's (in)attention to not-fully-salient taxes; (mis)understanding of tax incentives such as those present in the income tax code; energy policy for consumers inattentive to the energy costs of durables; optimal "sin taxes" on sugary drinks; the welfare effects of social recognition; financial decision-making by low income populations such as payday loan borrowers; and policies aimed at improving savings decisions.

You can read more about Dmitry Taubinsky and his research here

Contact: Christina Gravert & Patrick Moran