The topic of behavioural economics is very fashionable. But many economists remain rather sniffy about it, arguing that it often does not really add to what the discipline already knows. But one of its most distinctive and strongest results from a policy perspective is its emphasis on what is called the “architecture of choice”.
Economists love jargon phrases. But this particular one is in essence very simple. In any given context, the rules which are drawn up for the process of choice can have an absolutely decisive impact on the actual decisions.
For example, before the referendum the government struggled against opposition in the Lords to get through a bill on trade union political funds. At present, the costs of any political fund operated by a union are automatically deducted from a member’s dues. A member has to positively opt out if he or she does not want to pay it. The proposal was to make all members “opt in” so they would only pay into the fund if they take action to do so. The government has partially backed down on the measure, and it will now only apply to new members.
The reason the opposition has been so bitter is because how the choice is put will have a dramatic effect on the outcome. The “architecture of choice” will determine whether most union members pay the political levy or whether most do not. From a purely rational perspective, the only additional cost under “opting in” is trivial. It is the few minutes it would take to fill the form in. But in practice under “opt in”, most people would not bother.
The UK faces a crucial architecture of choice problem with the now notorious Article 50 of the EU’s Lisbon Treaty. In order to leave the EU, a member state has to invoke the article. Once this is done, there is a period of two years under which the terms of exit are negotiated. When the two years are up, the deal is simply what it is at the time. In theory further changes can be made, but since these would require the unanimous consent of all EU member states, it would be highly unlikely to happen.
So once we invoke Article 50, the EU has us over a barrel. The French, say, could simply sit there stalling for time and blocking all our proposals. Of course, they would never stoop so low. But if some other country did, we would just have to take what the EU gave us at the end of the two years. This is why we have to have extensive informal negotiations before Article 50 is triggered, which EU leaders say mustn’t happen. The Swiss drew up their first treaty with the EU in 1972 and are still negotiating.
The only alternative is to adopt the strategy of Molotov, Stalin’s right-hand man, at the United Nations in the middle of the last century. He simply said “no” to virtually everything. Until we get informal talks, we turn up at the Council of Ministers and veto every proposal on any subject whatsoever, regardless of its merit. A suitable job for Michael Gove, perhaps.
As published in CITY AM on Wednesday 6th July 2016
Image: LC-USZ62-135316 by National Museum of the U.S. Navy is licensed under CC 1.0