Nudge, Coming To a Theater Near You

Ezra Klein analyzes Cass Sunstein’s appointment as head of the Office of Information and Regulatory Affairs:

The point of all this is that OIRA is quiet, but important. It’s the chokepoint of the entire federal regulatory apparatus. If used wisely, it facilitates the flow, provides welcome analysis and judgment, and aids in implementation…

It’s worth remembering that Sunstein has recently achieved great fame for Nudge, a book which basically argues that we need to apply the insights of behavioral economics to the construction of regulation. And Director of the Office of Information and Regulatory Affairs is the ultimate staging ground for those ideas.

This is a huge pick.

In Nudge, Sunstein discusses the standard behavioral economics example: 401(k) plans.  Companies generally have opt-in policies, where workers are forced to fill out paperwork to enroll in the plan.  One of behavioral economics’ axioms is that people tend to stick with the default; therefore, the majority of people never take advantage of their 401(k)s.

Say you make a minor tweak.  Switch the 401(k) from opt-in to opt-out, meaning employees are automatically enrolled in the program.  A CBO study shows that this nearly doubles participation rates (going from ~45% to ~85%).  For employees making under $30,000, participation nearly quadruples.

As head of OIRA, Sunstein could implement this nudge as well as a passel of other ones outlined in his book.  They’re subtle adjustments in “choice architecture” that deliver outsized benefits.

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