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Showing papers by "Cass R. Sunstein published in 2018"


Journal ArticleDOI
09 Mar 2018-Science
TL;DR: The rise of fake news highlights the erosion of long-standing institutional bulwarks against misinformation in the internet age as discussed by the authors. But much remains unknown regarding the vulnerabilities of individuals, institutions, and society to manipulations by malicious actors.
Abstract: The rise of fake news highlights the erosion of long-standing institutional bulwarks against misinformation in the internet age. Concern over the problem is global. However, much remains unknown regarding the vulnerabilities of individuals, institutions, and society to manipulations by malicious actors. A new system of safeguards is needed. Below, we discuss extant social and computer science research regarding belief in fake news and the mechanisms by which it spreads. Fake news has a long history, but we focus on unanswered scientific questions raised by the proliferation of its most recent, politically oriented incarnation. Beyond selected references in the text, suggested further reading can be found in the supplementary materials.

2,106 citations


Journal ArticleDOI
TL;DR: The authors found strong majority support for nudges in all countries, with the important exception of Japan, and with spectacularly high approval rates in China and South Korea, and connect the findings here to earlier studies involving Denmark, France, Germany, Hungary, Italy, United Kingdom, and the United States.
Abstract: Nudges are choice-preserving interventions that steer people's behavior in specific directions while still allowing them to go their own way. Some nudges have been controversial, because they are seen as objectionably paternalistic. This study reports on nationally representative surveys in eight diverse countries, investigating what people actually think about nudges and nudging. The study covers Australia, Brazil, Canada, China, Japan, Russia, South Africa, and South Korea. Generally, we find strong majority support for nudges in all countries, with the important exception of Japan, and with spectacularly high approval rates in China and South Korea. We connect the findings here to earlier studies involving Denmark, France, Germany, Hungary, Italy, the United Kingdom, and the United States. Our primary conclusion is that while citizens generally approve of health and safety nudges, the nations of the world appear to fall into three distinct categories: (i) a group of nations, mostly liberal democracies, where strong majorities approve of nudges whenever they (a) are seen to fit with the interests and values of most citizens and (b) do not have illicit purposes; (ii) a group of nations where overwhelming majorities approve of nearly all nudges; and (iii) a group of nations that usually show majority approval, but markedly reduced approval rates. We offer some speculations about the relationship between approval rates and trust.

81 citations


ReportDOI
TL;DR: The use of algorithms can make it possible to more easily examine and interrogate the entire decision process, thereby making it far easier to know whether discrimination has occurred as discussed by the authors, which can also highlight, and make transparent, central tradeoffs among competing values.
Abstract: The law forbids discrimination. But the ambiguity of human decision-making often makes it extraordinarily hard for the legal system to know whether anyone has actually discriminated. To understand how algorithms affect discrimination, we must therefore also understand how they affect the problem of detecting discrimination. By one measure, algorithms are fundamentally opaque, not just cognitively but even mathematically. Yet for the task of proving discrimination, processes involving algorithms can provide crucial forms of transparency that are otherwise unavailable. These benefits do not happen automatically. But with appropriate requirements in place, the use of algorithms will make it possible to more easily examine and interrogate the entire decision process, thereby making it far easier to know whether discrimination has occurred. By forcing a new level of specificity, the use of algorithms also highlights, and makes transparent, central tradeoffs among competing values. Algorithms are not only a threat to be regulated; with the right safeguards in place, they have the potential to be a positive force for equity.

77 citations


Book
03 Aug 2018
TL;DR: Sunstein argues that government policy should not be based on public opinion, intuitions, or pressure from interest groups, but on numbers-meaning careful consideration of costs and benefits as mentioned in this paper.
Abstract: Why policies should be based on careful consideration of their costs and benefits rather than on intuition, popular opinion, interest groups, and anecdotes Opinions on government policies vary widely Some people feel passionately about the child obesity epidemic and support government regulation of sugary drinks Others argue that people should be able to eat and drink whatever they like Some people are alarmed about climate change and favor aggressive government intervention Others don't feel the need for any sort of climate regulation In The Cost-Benefit Revolution, Cass Sunstein argues our major disagreements really involve facts, not values It follows that government policy should not be based on public opinion, intuitions, or pressure from interest groups, but on numbers-meaning careful consideration of costs and benefits Will a policy save one life, or one thousand lives? Will it impose costs on consumers, and if so, will the costs be high or negligible? Will it hurt workers and small businesses, and, if so, precisely how much? As the Obama administration's "regulatory czar," Sunstein knows his subject in both theory and practice Drawing on behavioral economics and his well-known emphasis on "nudging," he celebrates the cost-benefit revolution in policy making, tracing its defining moments in the Reagan, Clinton, and Obama administrations (and pondering its uncertain future in the Trump administration) He acknowledges that public officials often lack information about costs and benefits, and outlines state-of-the-art techniques for acquiring that information Policies should make people's lives better Quantitative cost-benefit analysis, Sunstein argues, is the best available method for making this happen-even if, in the future, new measures of human well-being, also explored in this book, may be better still

70 citations


Journal ArticleDOI
TL;DR: In this article, the authors distinguish among three categories of cases: (1) those in which choosers have clear antecedent preferences, and nudges help them to satisfy those preferences (often by increasing "navigability" or "adaptability".
Abstract: Many nudges are designed to make people better off, as judged by themselves. This criterion, meant to ensure that nudges will increase people’s welfare, contains some ambiguity. It is useful to distinguish among three categories of cases: (1) those in which choosers have clear antecedent preferences, and nudges help them to satisfy those preferences (often by increasing “navigability”); (2) those in which choosers face a self-control problem, and nudges help them to overcome that problem; and (3) those in which choosers would be content with the outcomes produced by two or more nudges, or in which ex post preferences are endogenous to nudges, so that without additional clarification or work, the “as judged by themselves” criterion does not identify a unique solution for choice architects. Category (1) is self-evidently large. Because many people agree that they suffer self-control problems, category (2) is large as well. Cases that fall in category (3) create special challenges, which may lead us to make direct inquiries into welfare or to explore what informed, active choosers typically select.

45 citations


Journal ArticleDOI
TL;DR: In 2015, the United States government imposed 9.78 billion hours of paperwork burdens on the American people as discussed by the authors, and many of these hours are best categorized as "sludge", reducing access to important licenses, programs, and benefits.
Abstract: In 2015, the United States government imposed 9.78 billion hours of paperwork burdens on the American people. Many of these hours are best categorized as “sludge,” reducing access to important licenses, programs, and benefits. Because of the sheer costs of sludge, rational people are effectively denied life-changing goods and services; the problem is compounded by the existence of behavioral biases, including inertia, present bias, and unrealistic optimism. In principle, a serious deregulatory effort should be undertaken to reduce sludge, through automatic enrollment, greatly simplified forms, and reminders. At the same time, sludge can promote legitimate goals. First, it can protect program integrity, which means that policymakers might have to make difficult tradeoffs between (1) granting benefits to people who are not entitled to them and (2) denying benefits to people who are entitled to them. Second, it can overcome impulsivity, recklessness, and self-control problems. Third, it can prevent intrusions on privacy. Fourth, it can serve as a rationing device, ensuring that benefits go to people who most need them. In most cases, these defenses of sludge turn out to be more attractive in principle than in practice. For sludge, a form of cost-benefit analysis is essential, and it will often argue in favor of a neglected form of deregulation: sludge reduction. For both public and private institutions,“Sludge Audits” should become routine. Various suggestions are offered for new action by the Office of Information and Regulatory Affairs, which oversees the Paperwork Reduction Act; for courts; and for Congress.

34 citations


Journal ArticleDOI
TL;DR: In this article, the authors report the results of nationally representative surveys in Denmark, Hungary, Italy, and the United Kingdom and find that high controversy about system 1 and system 2 nudges tended to be associated with current public policy concerns, for example, meat consumption.
Abstract: Policy makers show an increasing interest in “nudges”—behaviorally motivated interventions that steer people in certain directions but maintain freedom of consumer choice. Despite this interest, little evidence has surfaced about which population groups support nudges and nudging. We report the results of nationally representative surveys in Denmark, Hungary, Italy, and the United Kingdom. Individual, household, and geographic characteristics served as predictors of nudge approval, and the count of significant predictors as measures of controversy. Less high approval rates of nudges in Denmark and Hungary were reflected in higher controversy about “System 1” nudges, whereas the United Kingdom and Italy were marked by higher controversy about “System 2” nudges, despite high approval rates. High‐controversy nudges tended to be associated with current public policy concerns, for example, meat consumption. The results point to means for effective targeting and increase knowledge about the types of nudges likely to obtain public support.

29 citations


Journal ArticleDOI
TL;DR: Exposing people to a new policy through implementation could increase public support for that policy by increasing perceived effectiveness and by prompting conversations about the policy.
Abstract: Understanding factors that influence public support for “nudging” policies, like pictorial cigarette pack warnings, may offer insight about how to increase such support. We sought to examine factors that influence smokers’ support for requiring pictorial warnings on cigarette packs. In 2014 and 2015, we randomly assigned 2149 adult US smokers to receive either pictorial warnings or text-only warnings on their cigarette packs for 4 weeks. The outcome examined in the current study was support for a policy requiring pictorial warnings on cigarette packs in the US. Support for pictorial warnings was high at baseline (mean: 3.2 out of 4). Exposure to pictorial warnings increased policy support at week 4 (β = .05, p = .03). This effect was explained by increases in perceived message effectiveness (p < .001) and reported conversations about policy support (p < .001). Message reactance (i.e., an oppositional reaction to the warning) partially diminished the impact of pictorial warnings on policy support (p < .001). Exposing people to a new policy through implementation could increase public support for that policy by increasing perceived effectiveness and by prompting conversations about the policy. Reactance may partially weaken the effect of policy exposure on public support.

23 citations


Posted Content
01 Jan 2018
TL;DR: Nudges always respect, and often promote, human agency; because nudges insist on preserving freedom of choice, they do not put excessive trust in government; they are generally transparent rather than covert or forms of manipulation; many nudges are educative, and even when they are not, they tend to make life simpler and more navigable; and some nudges have quite large impacts as mentioned in this paper.
Abstract: Some people believe that nudges are an insult to human agency; that nudges are based on excessive trust in government; that nudges are covert; that nudges are manipulative; that nudges exploit behavioral biases; that nudges depend on a belief that human beings are irrational; and that nudges work only at the margins and cannot accomplish much. These are misconceptions. Nudges always respect, and often promote, human agency; because nudges insist on preserving freedom of choice, they do not put excessive trust in government; nudges are generally transparent rather than covert or forms of manipulation; many nudges are educative, and even when they are not, they tend to make life simpler and more navigable; and some nudges have quite large impacts.

16 citations


Journal ArticleDOI
TL;DR: This paper found that learning about the majority's opinion causes a significant shift toward support for or opposition to particular policies, and that when people’s views are fixed and firm, they are unlikely to conform to the majority view and that they might even show reactance.
Abstract: Social norms have been used to nudge people toward specified outcomes in various domains. But can people be nudged to support, or to reject, proposed government policies? How do people’s views change when they learn that the majority approves of a particular policy, or that the majority opposes it? To answer these questions, we conducted a series of experiments. We find that in important contexts, learning about the majority’s opinion causes a significant shift toward support for or opposition to particular policies. At the same time, we find that when people’s views are fixed and firm, they are unlikely to conform to the majority’s view and that they might even show reactance. We show this pattern of results with respect to people’s support for or opposition to governmental policies in a wide range of substantive areas — and also to the use of paternalistic tools, such as nudges or bans.

14 citations


Journal ArticleDOI
TL;DR: In a recent study, the authors found that people prefer option A to option B when they evaluate the two separately, but prefer option B to option A when they compare them jointly.
Abstract: In important contexts, people prefer option A to option B when they evaluate the two separately, but prefer option B to option A when they evaluate the two jointly. In consumer behavior, politics, ...

Journal ArticleDOI
TL;DR: In this article, the authors show that people prefer option A to option B when they evaluate the two separately, but prefer option B to option A when they evaluated the two jointly, and that the particular contrast between joint options distorts people's judgments.
Abstract: In important contexts, people prefer option A to option B when they evaluate the two separately, but prefer option B to option A when they evaluate the two jointly. In consumer behavior, politics, and law, such preference reversals present serious puzzles about rationality and behavioral biases. They are often a product of the pervasive problem of "evaluability." Some important characteristics of options are difficult or impossible to assess in separate evaluation, and hence choosers disregard or downplay them; those characteristics are much easier to assess in joint evaluation, where they might be decisive. But in joint evaluation, certain characteristics of options may receive excessive weight, because they do not much affect people's actual experience or because the particular contrast between joint options distorts people’s judgments. In joint as well as separate evaluation, people are subject to manipulation, though for different reasons. It follows that neither mode of evaluation is reliable. The appropriate approach will vary depending on the goal of the task – increasing consumer welfare, preventing discrimination, achieving optimal deterrence, or something else. Under appropriate circumstances, global evaluation would be much better, but it is often not feasible. These conclusions bear on preference reversals in law and policy, where joint evaluation is often better, but where separate evaluation might ensure that certain characteristics or features of situations do not receive excessive weight.


Journal ArticleDOI
TL;DR: The willingness-to-pay criterion has been used to evaluate the welfare effects of information by reference to cost-benefit analysis as mentioned in this paper, which has been shown to be ineffective. But it has also been shown that people may lack the information that would permit them to say how much they would pay for (more) information, and their tastes and values may shift over time, in part as a result of information.
Abstract: Some information is beneficial; it makes people’s lives go better. Some information is harmful; it makes people’s lives go worse. Some information has no welfare effects at all; people neither gain nor lose from it. Under prevailing executive orders, agencies must investigate the welfare effects of information by reference to cost-benefit analysis. Federal agencies have (1) claimed that quantification of benefits is essentially impossible; (2) engaged in “breakeven analysis”; (3) projected various endpoints, such as health benefits or purely economic savings; and (4) relied on private willingness-to-pay for the relevant information. All of these approach0es run into serious objections. With respect to (4), people may lack the information that would permit them to say how much they would pay for (more) information; they may not know the welfare effects of information; and their tastes and values may shift over time, in part as a result of information. These points suggest the need to take the willingness-to-pay criterion with many grains of salt, and to learn more about the actual effects of information, and of the behavioral changes produced by information, on people’s experienced well-being.

Journal ArticleDOI
TL;DR: For example, the authors show that consumers choose between climate-friendly products or services and alternatives that are potentially damaging to the climate but less expensive, depending on the default rule that they choose.
Abstract: Careful attention to choice architecture promises to open up new possibilities for reducing greenhouse gas emissions – possibilities that go well beyond, and that may supplement or complement, the standard tools of economic incentives, mandates, and bans. How, for example, do consumers choose between climate-friendly products or services and alternatives that are potentially damaging to the climate but less expensive? The answer may well depend on the default rule. Indeed, climate-friendly default rules may well be a more effective tool for altering outcomes than large economic incentives. The underlying reasons include the power of suggestion; inertia and procrastination; and loss aversion. If well-chosen, climate-friendly defaults are likely to have large effects in reducing the economic and environmental harms associated with various products and activities. In deciding whether to establish climate-friendly defaults, choice architects (subject to legal constraints) should consider both consumer welfare and a wide range of other costs and benefits. Sometimes that assessment will argue strongly in favor of climate-friendly defaults, particularly when both economic and environmental considerations point in their direction. Notably, surveys in the United States and Europe show that majorities in many nations are in favor of climate-friendly defaults.

Journal ArticleDOI
TL;DR: This paper found that the median willingness to pay to use Facebook for a month was $1.59, while the willingness to accept to stop using Facebook was $59, indicating that people are expressing protest answers, signaling their intense opposition to being asked to pay for something that they had formerly enjoyed for free.
Abstract: There has been a great deal of discussion of the welfare effects of digital goods, including social media. The discussion bears on both private practice and potential regulation. A pilot experiment, designed to monetize the benefits of Facebook use, found a massive disparity between willingness to pay and willingness to accept. The median willingness to pay to use Facebook for a month was $1. By contrast, the median willingness to accept to cease using Facebook for a month was $59. The sheer magnitude of this disparity – a “superendowment effect” – suggests that in the context of the willingness to pay question, people are giving protest answers, signaling their intense opposition to being asked to pay for something that they had formerly enjoyed for free. Their answers are expressive, rather than reflective of actual welfare effects. There is also a question whether the willingness to accept measure tells us much about the actual effects of Facebook on people’s lives and experiences. It may greatly overstate those effects. In this context, there may well be a sharp disparity between conventional economic measures and actual effects on experienced well-being.

Journal ArticleDOI
TL;DR: Chevron v NRDC may well be the most important case in all of administrative law, and it establishes a general principle that agencies may interpret ambiguous statutory provisions, so long as their interpretations are reasonable as mentioned in this paper.
Abstract: Chevron v NRDC may well be the most important case in all of administrative law. It establishes a general principle, which is that agencies may interpret ambiguous statutory provisions, so long as their interpretations are reasonable. That principle is now under serious pressure. If the Court abandoned it, how would Chevron itself be decided? There are five possible approaches: (1) textualism; (2) purposivism; (3) resort to canons of construction; (4) use of Skidmore deference; and (5) validation of the agency’s decision, on the ground that no statutory provision prohibited it. In the context of Chevron, (1) and (2) run into serious problems, but (3), (4), and (5) are promising. The discussion suggests some general lessons for statutory interpretation and administrative law, and offers some cautionary notes for those who want to abandon the Chevron framework. Abandoning that framework would introduce high levels of confusion in the lower courts and the Supreme Court itself, and in all probability, the framework that would ultimately replace it would turn out to look a fair bit like that in Chevron itself.

Journal ArticleDOI
TL;DR: The concept of concept creep as mentioned in this paper has been applied to shifting understandings of such concepts as abuse, bullying, mental illness, and prejudice, and it has been shown that stigmatization by categorization can intensify the process by which formerly unobjectionable behavior becomes regarded as abhorrent.
Abstract: How do judgments about law and morality shift? Why do we come to see political or other conduct as acceptable, when we had formerly seen it as unacceptable, immoral, or even horrific? Why do shifts occur in the opposite direction? Why accounts for the power of “the new normal”? A clue comes from the fact that some of our judgments are unstable, in the sense that they are an artifact of, or endogenous to, what else we see. This is true of sensory perception: Whether an object counts as blue or purple depends on what other objects surround it. It is also true for ethical judgments: Whether conduct counts as unethical depends on what other conduct is on people’s viewscreens. It follows that conduct that was formerly seen as unethical may come to seem ethical, as terrible behavior becomes more common, and also that conduct that was formerly seen as ethical may come to seem unethical, as good behavior becomes more common. In these circumstances, law (and enforcement practices) can have an important signaling effect, giving people a sense of what is normal and what is not. There is an important supplemental point, intensifying these effects: Once conduct comes to be seen as part of an unacceptable category – abusiveness, racism, lack of patriotism, microaggression, sexual harassment – real or apparent exemplars that are not so egregious, or perhaps not objectionable at all, might be taken as egregious, because they take on the stigma now associated with the category. Stigmatization by categorization can intensify the process by which formerly unobjectionable behavior becomes regarded as abhorrent. There is a relationship between stigmatization by categorization and “concept creep,” an idea applied in psychology to shifting understandings of such concepts as abuse, bullying, mental illness, and prejudice. The idea of “concept creep” has large and insufficiently explored implications for law and politics.

Journal ArticleDOI
TL;DR: The #MeToo movement can be seen as such a cascade, marked by preference falsification on the part of rebels or revolutionaries, diverse thresholds for revolutionary activity, and social interactions that do or do not trigger the relevant thresholds as mentioned in this paper.
Abstract: Why do revolutions happen? Why are they so difficult to anticipate? Some of the most instructive answers point to three factors: (1) preference falsification on the part of rebels or revolutionaries; (2) diverse thresholds for revolutionary activity; and (3) social interactions that do or do not trigger the relevant thresholds. Under conditions of actual or perceived injustice or oppression, true preferences and thresholds are probably impossible to observe; social interactions are impossible to anticipate. Even if we could observe (1) and (2), the challenge of anticipating (3) would make it essentially impossible to foresee revolutions. For all their differences, and with appropriate qualifications, the French Revolution, the Russian Revolution, the fall of Communism, and the Arab Spring were unanticipated largely for these reasons. And in light of (1), (2), and (3), it is hazardous to think that the success of successful revolutions is essentially inevitable. (The same is true for the failure of unsuccessful revolutions.) History is only run once, so we will never know, but small or serendipitous factors might have initiated (or stopped) a revolutionary cascade. The #MeToo movement can be seen as such a cascade, marked by (1), (2), and (3). For that movement, as for successful revolutions, we might be able to point to some factors as necessary conditions, but hindsight is hazardous. It is also important to note that in revolutions, as in #MeToo, preferences and beliefs are not merely revealed; they are also transformed. Revolutionary activity, large or small, puts issues about preference falsification, experience falsification, and adaptive preferences in a new light.

Journal ArticleDOI
TL;DR: In this paper, the authors ask and answer a question pressing in democratic and non-democratic nations alike: What do citizens actually think about behaviorally informed policies, i.e., what do they think about behaviourally informed public policies?
Abstract: On the basis of data from many nations, our forthcoming book asks and answers a question pressing in democratic and nondemocratic nations alike: What do citizens actually think about behaviorally informed policies?

Journal ArticleDOI
TL;DR: The authors found that people are especially likely to consult and learn from those whose political views are similar to their own, thus creating a risk of echo chambers or information cocoons on political questions, and that the tendency to prefer knowledge from the politically like-minded generalizes to domains that have nothing to do with politics even when evidence indicates that person is less skilled in that domain than someone with dissimilar political views.
Abstract: On political questions, many people are especially likely to consult and learn from those whose political views are similar to their own, thus creating a risk of echo chambers or information cocoons. Here, we test whether the tendency to prefer knowledge from the politically like-minded generalizes to domains that have nothing to do with politics, even when evidence indicates that person is less skilled in that domain than someone with dissimilar political views. Participants had multiple opportunities to learn about others’ (1) political opinions and (2) ability to categorize geometric shapes. They then decided to whom to turn for advice when solving an incentivized shape categorization task. We find that participants falsely concluded that politically like-minded others were better at categorizing shapes and thus chose to hear from them. Participants were also more influenced by politically like-minded others, even when they had good reason not to be. The results demonstrate that knowing about others’ political views interferes with the ability to learn about their competency in unrelated tasks, leading to suboptimal information-seeking decisions and errors in judgement. Our findings have implications for political polarization and social learning in the midst of political divisions.

Journal ArticleDOI
TL;DR: This paper found that there is a massive disparity between willingness to pay and willingness to accept on social media, suggesting that people are giving protest answers, signaling their intense opposition to being asked to pay for something that they had formerly enjoyed for free.
Abstract: There has been a great deal of discussion of the welfare effects of digital goods, including social media. The discussion bears on both private practice and potential regulation. A national survey, designed to monetize the benefits of a variety of social media platforms (including Facebook, Twitter, Youtube, and Instagram), found a massive disparity between willingness to pay and willingness to accept. The sheer magnitude of this disparity – a “superendowment effect” – suggests that in the context of the willingness to pay question, people are giving protest answers, signaling their intense opposition to being asked to pay for something that they had formerly enjoyed for free. Their answers are expressive, rather than reflective of actual welfare effects. There is also a question whether the willingness to accept measure tells us much about the actual effects of social media on people’s lives and experiences. It may greatly overstate those effects. In this context, there may well be a sharp disparity between conventional economic measures and actual effects on experienced well-being.

Journal Article
TL;DR: The European Commission has been a front-runner in applying behavioural insights to its policy making over the past decade as discussed by the authors, focusing on interventions that preserve freedom of choice, but that also steer people in certain directions.
Abstract: One of the most discussed contemporary ideas in policy making is Richard Thaler and Cass Sunstein’s proposal to infl uence people’s choices without coercing them by improving the “architecture” of their choices. Many governments have implemented behaviourally informed policies, focusing on “nudges” – interventions that preserve freedom of choice, but that also steer people in certain directions. In many countries, behavioural science has become fundamental to policy choices in areas that include consumer protection, health care, environmental protection, tax policy, poverty, retirement and much more. The European Commission has been a front-runner in applying behavioural insights to its policy making over the past decade. What are the opportunities and challenges presented by the application of behavioural insights to policy at a supranational regulating body? What does it mean to apply behavioural insights to policy making? When it comes to consumer legislation, could behavioural economics be used as a tool for bringing the EU closer to its citizens? What do citizens actually think about behaviourally informed policies? Is this method of infl uencing choices ethically acceptable? Finally, should the fi ndings of behavioural economics be alarming to normative economists, in that they threaten the grounds upon which economists evaluate alternatives? If preferences, especially as shown in the choices people actually make, do not reliably indicate what is good for individuals, then normative economics requires a drastic rethinking.

Posted Content
TL;DR: In the face of the evident epistemic difficulties, sometimes the best that agencies can do is to engage in breakeven analysis, by which they explore what the benefits would have to be in order to justify the costs as mentioned in this paper.
Abstract: Federal regulators have often required environmental labels, which may be designed to help consumers to save money or to reduce externalities. Under prevailing executive orders, regulators are required to project the benefits and costs of such labels, and also to show that the benefits justify the costs. These projections can be extremely challenging, partly because of the difficulty of knowing how consumers will respond to labels, partly because of the challenging of converting behavioral changes into monetary equivalents. The benefits of environmental labels should include (1) the monetary value of the reduced externalities and (2) the monetary benefit to consumers, measured by willingness to pay. It may be difficult for regulators to know (1), and even if they can figure out (2), willingness to pay may not capture the welfare benefit to consumers, at least if consumers are not adequately informed (or if they suffer from some kind of behavioral bias). In principle, agencies should include, as part of (2), the moral convictions of people who care about environmental goods, at least if those convictions are backed by willingness to pay. In the face of the evident epistemic difficulties, sometimes the best that agencies can do is to engage in breakeven analysis, by which they explore what the benefits would have to be in order to justify the costs. Technical as they might seem, these claims raise fundamental questions about valuation of environmental goods and the possible disconnect between willingness to pay and welfare.