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Putting nudges in perspective

Published online by Cambridge University Press:  31 May 2017

GEORGE LOEWENSTEIN  and
NICK CHATER
GEORGE LOEWENSTEIN*
Affiliation:
Carnegie Mellon University, USA
NICK CHATER
Affiliation:
Warwick Business School, UK
*
*Correspondence to: Social and Decision Sciences, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213, USA. Email: [email protected]
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Abstract

Conventional economic policy focuses on ‘economic’ solutions (e.g. taxes, incentives, regulation) to problems caused by market-level factors such as externalities, misaligned incentives and information asymmetries. By contrast, ‘nudges’ provide behavioural solutions to problems that have generally been assumed to originate from limitations in human decision making, such as present bias. While policy-makers have good reason for exploiting the power of nudges, we argue that these extremes leave open a large space of policy options that have received less attention in the academic literature. First, there is no reason that solution and problem need have the same theoretical basis: there are promising behavioural solutions to problems that have causes that are well explained by traditional economics, and conventional economic solutions often offer the best line of attack on problems of behavioural origin. Second, there is a wide range of hybrid policy actions with both economic and behavioural components (e.g. framing a tax or incentive in a specific way), and there exist many societal problems – perhaps the majority – that arise from both economic and behavioural factors (e.g. firms’ exploitation of consumers’ behavioural biases). This paper aims to remind policy-makers that behavioural economics can influence policy in a variety of ways, of which nudges are the most prominent but not necessarily the most powerful.

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Articles
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Behavioural Public Policy , Volume 1 , Issue 1 , May 2017 , pp. 26 - 53
Copyright
Copyright © Cambridge University Press 2017 

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