In the traditional economic model, people have well-defined preferences and pursue them consistently and selfishly. According to this model wellbeing is efficiently promoted by the free market except for various problems, the biggest of which is ’externality’. This is the way in which people affect other people without their agreement.

However there are in fact many other problems. People often lack self-control (e.g., over drugs, alcohol, and gambling). They often do not realise how much they will adapt to change, and they put effort into new acquisitions which make less difference to them than they expect. They are hugely affected by how decisions are framed. People are hugely loss-averse which often makes desirable changes much more difficult. And, on the other side, they often help each other without expecting anything in return.

These complexities mean that government intervention or nudges are often needed to produce efficient outcomes. These arguments become even stronger when we consider the many pervasive ’externalities’ affecting our experience: We benefit if we live in a trustworthy society; we get many of our norms and tastes from society; because of rivalry we lose wellbeing if others are more successful.