Wednesday, December 9, 2020

Thaler and Twitter on Auctions and Nudges


Richard Thaler has an essay in the New York Times about Covid shots in which he advocates a combination of auctions and “nudges.” As always there are interesting responses on Twitter. I saw several people suggesting that it was affine illustration of the evils of modern economics. I have a hard time seeing that.


First, lets start with the auction part. Thaler starts from the position that markets should not be used to allocate the shots. In the market solution, the shots would those who have the greatest willingness and ability to pay. He says that obviously that shouldn’t be done, but he notes that if market prices are not used to ration the limited number of shots then some other means of rationing must be found. He seems to want a distribution plan something like I have seen advocated elsewhere: those most at risk, elderly and health care workers, go first. After them others are generally prioritized in terms of their risk and their role in providing for public health and safety. So far, hard to see the evil. Its also hard to see the economics. The premise that markets should not be used to allocate the good is generally not one associated with economics. Economics does appear in the observation that with a price that is below the market equilibrium there will be shortage. The quantity of shots demanded will exceed the quantity of shots supplied. But it hardly seems controversial or evil to note that there is going to be a shortage of shots for the first few months.


The evil appears to arise from his suggestion that a small number of shots should be auctioned off to the highest bidder and the money used to benefit those who have been harmed by the virus. But what is Thaler’s argument for this plan. He suggests that the rich will find a way to obtain the shots, but if you auction them to the highest bidder that the money the rich are paying will go to the government and then to needy people in society. This argument is actually similar to one that has been made for elite colleges. Auction off places at Harvard, Yale, etc. to the highest bidder and use the money for scholarships to benefit low income students. The alternative seems to be that places are auctioned off to the highest bidder for the benefit of fencing, tennis, and crew coaches. You can, of course argue with multiple parts of his argument, but the claim that wealthy people are going to find a way to get the shots one or another doesn’t seem that controversial, and the suggestion that had might as well benefit from that hardly seems evil.


If there is a part that I do disagree with it is my usual complaint about Thaler: nudges are just old wine in new bottles.

What should we do to ensure that most people eventually get the shot?

Traditional economist: Lower the cost and increase the benefit of getting the shot.

Thaler: No. You should nudge them?

Traditional economist: Nudge them?

Thaler: Yes, make it easier for them to get the shot and give them some reward when they do.

Traditional economist: Isn’t that what I said?

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