Question

Do you think the use of behavioral nudges should be expanded? Suppose an economic analysis determined the efficient choice for the average consumer, what are the pros and cons of making the average efficient choice for the population a default that consumers would have to override?

Answer 1

Nudge is a concept in Behavioral science, political theory and behavioral economics which proposes positive reinforcement and indirect suggestions as ways to influence the behavior and decision making of groups or individuals.

A nudge makes it more likely that an individual will make a particular choice, or behave in a particular way, by altering the environment so that automatic cognitive processes are triggered to favour the desired outcome.

An individual’s behaviour is not always in alignment with their intentions. It is common knowledge that humans are not fully rational beings; that is, people will often do something that is not in their own self interest, even when they are aware that their actions are not in their best interest.

Behavioural nudges are an alternative to using taxes and subsidies to influence choices and many have been or are being applied in public policy-making both in the UK and in a growing number of countries.

Behavioural Nudges have its cons too,

1. Behavioural economics may encourage government to become too paternalistic in their policies attempting to nudge behaviour.

2. Behavioural economics focuses too heavily on people’s vulnerability to fall for fallacies and their psychological biases – it can give the impression that consumers are dumb.

3. There are clear limits to the application of nudge theory – it may be useful in changing minor behaviours in a modest way but not in changing deep rooted psychological problems such as alcoholism, drug dependency and street violence.

4. Conventional policy interventions such as taxes, subsidies and regulations are often just as effective as nudges because price remains an important determinant of choices in markets