Simplify Choices, Disclose More to Alter Public Behavior, White House Says
The White House’s Office of Management and Budget (OMB) will push government to look at regulation in a new light and reassess how the choices regulators make affect the choices the public makes, according to a new memorandum sent to federal agencies.
The June 18 memo from Cass Sunstein, administrator of the White House Office of Information and Regulatory Affairs (OIRA), discusses the concepts of disclosure and simplification in a regulatory context and instructs agencies to consider whether those concepts can improve regulatory outcomes. OIRA is an office within OMB.
The memo is Sunstein's first major, formal directive to agencies describing his vision for federal regulatory policy. Since taking office in September 2009 after a protracted confirmation process, Sunstein's comments on rulemaking have mainly come in speeches and through more narrowly focused memos.
The first portion of the memo details principles for rules requiring the disclosure of information. Disclosure can help the public make choices that serve people better, the memo says.
The memo distinguishes between summary disclosure and full disclosure. "With summary disclosure, often required at the point of purchase, agencies highlight the most relevant information in order to increase the likelihood that people will see it, understand it, and act in accordance with what they have learned," the memo says, such as nutrition labeling or tobacco warnings. Full disclosure involves data or other detailed information, the memo says.
Principles for summary disclosure include simplicity, accuracy, timeliness, and proper placement. For full disclosure, the memo emphasizes the use of the Internet to make information available and usable. "The central goals of full disclosure are to allow individuals and organizations to view the data and to analyze, use, and repackage it in multiple ways," the memo says.
The second part of the memo describes Sunstein's desire to advance the concept of simplification as a means to achieve regulatory goals. Agencies should consider using "default rules" to simplify public choices, the memo says.
"In the domain of savings for retirement, for example, private and public employers might create an 'opt in' system, in which employees do not reserve any of their salary for savings unless they affirmatively elect to do so," the memo says. "Alternatively, employers might create an 'opt out' system, in which a certain amount of salary is placed in a retirement plan unless employees affirmatively elect not to participate in the plan." The latter would lead to greater enrollment and therefore greater savings, the memo implies.
When default rules are inappropriate, the memo advocates for the use of "active choosing" where the government does not set a default but does require consumers or other end users to make an explicit choice or state a preference among options.
The memo is consistent with Sunstein's past writings, including his book Nudge: Improving Decisions About Health, Wealth, and Happiness, which he co-authored with economist Richard Thaler before Sunstein entered government. Drawing on theories in behavioral sciences and behavioral economics, Nudge undercuts the traditional rational actor theory of economics, arguing instead that human foibles sometimes cause people to make poor economic or social decisions. To solve the dilemma, the authors say, people can be incentivized, or nudged, into making better choices if they are provided with better and more relevant information and circumstances. That nudge can often come from government – a philosophy Sunstein has brought with him to his White House post.
Sunstein's memo may signal the death of more official efforts to overhaul the regulatory process. Many expected the principles outlined in the memo to be included in an overdue executive order on regulatory review.
Advocates for improved regulation, including OMB Watch, as well as industry representatives, had been anticipating a broader and more formal declaration of policy from President Obama. In a Jan. 30, 2009, memo, Obama asked OMB to recommend within 100 days changes to the regulatory process. Obama said he would use the recommendations to develop a new executive order. The current process is governed by E.O. 12866, signed by President Clinton in 1993.
OMB then solicited public comment on changes to the process in February 2009, a highly unusual but welcomed approach. Since closing the comment period in April 2009, the White House has not given the public any indication as to the status of the order or its plans to reform the process.
Obama's 2009 memo specifically mentioned "the role of the behavioral sciences in formulating regulatory policy," a nod to Sunstein's theories. It is unclear why the administration may have chosen to address these issues through the Sunstein memo, rather than through executive order.
Sunstein's memo lacks specificity in certain areas, raising questions about its intent and scope. For example, the memo's instructions would seem to be most appropriate for consumer regulation. The examples used throughout the memo refer to consumer issues, such as nutrition labels and retirement accounts. However, the memo is written broadly enough that agencies could potentially apply it to any type of regulation.
It is also unclear how, or whether, the memo will be strictly enforced. Throughout the memo, Sunstein tells agencies what they "should" do but refrains from using words like "must" or "shall."
OIRA's review of agency regulations will likely serve as the mechanism for enforcement. Under E.O. 12866, agencies must submit to OIRA drafts of significant proposed and final rules before releasing those rules to the public. OIRA then reviews the drafts and circulates them to other federal agencies. Agencies often alter rules in response to the comments from OIRA and other agencies. The changes – and more importantly, the origin of the comments that prompted the changes – are not typically disclosed to the public.
When planning to impose disclosure or simplification requirements, the memo instructs agencies to analyze the impacts of several alternatives. "To the extent feasible, and when existing knowledge is inadequate, agencies should consider several alternative methods of disclosure and test them before imposing a disclosure requirement" and "should adopt disclosure requirements only after considering both qualitative and quantitative benefits and costs." The memo includes companion language for default rules. E.O. 12866 imposes similar requirements for regulations generally.
OMB Watch will continue to analyze the memo and monitor its effects. Readers are encouraged to leave their own impressions of the memo in the comment section below this article.