Skip to main content
×
Home

Putting nudges in perspective

  • GEORGE LOEWENSTEIN (a1) and NICK CHATER (a2)
Abstract
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.

  • View HTML
    • Send article to Kindle

      To send this article to your Kindle, first ensure no-reply@cambridge.org is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about sending to your Kindle.

      Note you can select to send to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be sent to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

      Find out more about the Kindle Personal Document Service.

      Putting nudges in perspective
      Available formats
      ×
      Send article to Dropbox

      To send this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your Dropbox account. Find out more about sending content to Dropbox.

      Putting nudges in perspective
      Available formats
      ×
      Send article to Google Drive

      To send this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your Google Drive account. Find out more about sending content to Google Drive.

      Putting nudges in perspective
      Available formats
      ×
Copyright
Corresponding author
*Correspondence to: Social and Decision Sciences, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213, USA. Email: gl20@andrew.cmu.edu
References
Hide All
Abaluck J. (2011), ‘What Would We Eat if We Knew More: The Implications of a Large-Scale Change in Nutrition Labeling’, Massachusetts Institute of Technology Working Paper.
Agnew J. (2013), ‘Australia's retirement system: Strengths, weaknesses, and reforms’, Center for Retirement Research Issue Brief, 13–5.
Allcott H. (2015), ‘Site Selection Bias in Program Evaluation’, Quarterly Journal of Economics, 130(3): 11171165.
Allcott H., Mullainathan S. and Taubinsky D. (2014), ‘Energy policy with externalities and internalities’, Journal of Public Economics, 112: 7288.
Allcott H., and Sunstein C. R. (2015), ‘Regulating internalities’, Journal of Policy Analysis and Management, 34(3): 698705.
Ariely D., Loewenstein G. and Prelec D. (2003), ‘“Coherent arbitrariness”: Stable demand curves without stable preferences’, Quarterly Journal of Economics, 118: 73106.
Ariely D., Loewenstein G. and Prelec D. (2006), ‘Tom Sawyer and the construction of value’, Journal of Economic Behavior and Organization 60(1): 110.
Bar-Gill O. and Sunstein C. R. (2015), ‘Regulation as delegation’, Journal of Legal Analysis, 7(1): 136.
Barr M. S., Mullainathan S. and Shafir E. (2009), ‘The case for behaviorally informed regulation’, New perspectives on regulation, 25: 4142.
Behavioural Insights Team (2016), Update report. Behavioural Insights Team, 4 Matthew Parker St, Westminster, London SW1H 9NP. Available at: http://38r8om2xjhhl25mw24492dir.wpengine.netdna-cdn.com/wp-content/uploads/2016/09/BIT_Update_Report_2015-16-.pdf
Bernheim B. D. and Rangel A. (2004), ‘Addiction and cue-triggered decision processes’, The American Economic Review, 94(5): 15581590.
Beshears J., Choi J. J., Laibson D. and Madrian B. C. (2013), ‘Simplification and saving’, Journal of economic behavior & organization, 95: 130145.
Bjorklund A. and Freeman R. B. (1997), ‘Generating Equality and Eliminating Poverty, the Swedish Way’, in Freeman R. B., Topel R. and Swedenborg B. (eds.), The Welfare State in Transition: Reforming the Swedish Model, Chicago, University of Chicago Press.
Brownell K. D., Kersh R., Ludwig D. S., Post R. C., Puhl R. M., Schwartz M. B. and Willett W. C. (2010), ‘Personal responsibility and obesity: a constructive approach to a controversial issue’, Health Affairs, 29(3): 379387.
Brynjolfsson E. and McAfee A. (2014), The second machine age: Work, progress, and prosperity in a time of brilliant technologies, New York: W. W. Norton & Company.
Bubb R. and Pildes R. H. (2014), ‘How behavioral economics trims its sails and why’, Harvard Law Review, 127: 1329.
Camerer C., Issacharoff S., Loewenstein G., O'Donoghue T. and Rabin M. (2003). ‘Regulation for Conservatives: Behavioral Economics and the Case for “Asymmetric Paternalism”’, University of Pennsylvania Law Review, 151(3): 12111254.
Carroll G. D., Choi J. J., Laibson D., Madrian B. and Metrick A. (2005), ‘Optimal defaults and active decisions (No. w11074)’, National Bureau of Economic Research.
Centers for Disease Control and Prevention. (2012), ‘Trends in current cigarette smoking among high school students and adults, United States, 1965–2011’, Atlanta, GA: Centers for Disease Control and Prevention. Available at: http://www.cdc.gov/tobacco/data_statistics/tables/trends/cig_smoking/ (accessed 21 October, 2016).
Chetty R., Friedman J. N., Leth-Petersen S., Nielsen T. and Olsen T. (2014), ‘Active vs. Passive Decisions and Crowd-out in Retirement Savings Accounts: Evidence from Denmark’, Quarterly Journal of Economics, 129(3): 11411219.
Chetty R., Looney A. and Kroft K. (2009), ‘Salience and Taxation: Theory and Evidence’, American Economic Review, 99(4): 1145–77.
Choi J. J., Laibson D., Madrian B. C. and Metrick A. (2004), ‘For better or for worse: Default effects and 401 (k) savings behavior’, in Wise D. A. (ed.) Perspectives on the Economics of Aging, Chicago, IL: University of Chicago Press, 81126.
Conly S. (2013), Against Autonomy: Justifying Coercive Paternalism, New York: Cambridge University Press.
Convery F., McDonnell S. and Ferreira S. (2007), ‘The most popular tax in Europe? Lessons from the Irish plastic bags levy’, Environmental and Resource Economics, 38(1): 111.
Cutler D. M., Glaeser E. L. and Shapiro J. M. (2003), ‘Why have Americans become more obese?’, The Journal of Economic Perspectives, 17(3): 93118.
Downs J. S., Wisdom J. and Loewenstein G. (2015), ‘Helping consumers use nutrition information: Effects of format and presentation’, American Journal of Health Economics, 1(3): 326344.
Duesenberry J. S. (1949), Income, Saving, and the Theory of Consumer Behaviour, Cambridge, MA: Harvard University Press.
Executive Office of the President National Science and Technology Council (2016), Social and Behavioral Sciences Team 2016 Annual Report, National Science and Technology Council, Washington, D.C. 20502 (September 15, 2016). Available at: https://sbst.gov/download/2016%20SBST%20Annual%20Report.pdf
Finkelstein A. (2009), ‘EZ-tax: Tax Salience and Tax Rates’, The Quarterly Journal of Economics, 124(3): 9691010.
Finkelstein E. A., Trogdon J. G., Cohen J. W. and Dietz W. (2009), ‘Annual medical spending attributable to obesity: payer-and service-specific estimates’, Health Affairs, 28(5): w822w831.
Flegal K. M., Graubard B. I., Williamson D.F. and Gail M. H. (2005), ‘Excess deaths associated with underweight, overweight, and obesity’, Journal of the American Medical Association, 293(15): 18611867.
Frank R. H. (1985), Choosing the right pond: Human behavior and the quest for status, Oxford, England: Oxford University Press.
Frank R. H. and Cook P. J. (1995), The Winner-Take-All Society: Why the Few at the Top Get So Much More Than the Rest of Us, New York: Penguin Books.
Frey C. B. and Osborne M. A. (2013), ‘The future of employment: how susceptible are jobs to computerisation’, Oxford Martin School, University of Oxford. http://www.oxfordmartin.ox.ac.uk/downloads/academic/The_Future_of_Employment.pdf (retrieved 15 October 2016).
Fryer R. G. Jr, Levitt S. D., List J. and Sadoff S. (2012), ‘Enhancing the efficacy of teacher incentives through loss aversion: A field experiment (No. w18237)’, National Bureau of Economic Research.
Gabaix X. and Laibson D. (2005), ‘Shrouded attributes, consumer myopia, and information suppression in competitive markets (No. w11755)’, National Bureau of Economic Research.
Goodall C. (2016), The Switch: How Solar, Storage and New Tech Means Cheap Power for All, London, UK: Profile Books.
Gruber J. and Köszegi B. (2001), ‘Is Addiction “Rational”? Theory and Evidence’, The Quarterly Journal of Economics, 116(4): 12611303.
Grüne-Yanoff T. and Hertwig R. (2016), ‘Nudge Versus Boost: How Coherent are Policy and Theory?’, Minds and Machines, 26: 149183.
Halpern D. (2015), Inside the Nudge Unit: How small changes can make a big difference, New York: Random House.
Hanks A. S., Just D. R. and Wansink B. (2013), ‘Smarter lunchrooms can address new school lunchroom guidelines and childhood obesity’, The Journal of Pediatrics, 162(4): 867869.
Heidhues P., Kőszegi B. and Murooka T. (2016), ‘Exploitative Innovation’, American Economic Journal: Microeconomics, 8(1): 123.
Herrnstein R., Loewenstein G., Prelec D. and Vaughan W. (1993), ‘Utility maximization and melioration: Internalities in individual choice’, Journal of Behavioral Decision Making, 6: 149185.
Herrnstein R. and Prelec D. (1992), ‘A theory of addiction’, in Loewenstein G. & Elster J. (eds.) Choice Over Time, Russell Sage Foundation, 331357.
Hertwig R. and Ryall M. D. (2016), Nudge vs. Boost: Agency Dynamics Under ‘Libertarian Paternalism’, Available at SSRN: http://ssrn.com/abstract=2711166.
Homonoff T. A. (2012), ‘Can Small Incentives Have Large Effects? The Impact of Taxes versus Bonuses on Disposable Bag Use’, Proceedings. Annual Conference on Taxation and Minutes of the Annual Meeting of the National Tax Association, 105: 6490.
Imas A. (2014), ‘Working for the “warm glow”: On the benefits and limits of prosocial incentives’, Journal of Public Economics, 114: 1418.
‘IRA Withdrawal Rules’, n.d. Charles Schwab & Co., Schwab Brokerage. Available at: http://www.schwab.com/public/schwab/investing/retirement_and_planning/understanding_iras/traditional_ira/withdrawal_rules (accessed 21 October, 2016).
John L. K., Loewenstein G., Troxel A. B., Norton L., Fassbender J. E. and Volpp K. G. (2011), ‘Financial incentives for extended weight loss: a randomized, controlled trial’, Journal of General Internal Medicine, 26(6): 621626.
Johnson D. (2016), ‘Twilight of the nudges’, New Republic, 27 October, 2016. https://newrepublic.com/article/138175/twilight-nudges
Jue J. J. S., Press M. J., McDonald D., Volpp K. G., Asch D. A., Mitra N., Stanowski A. C. and Loewenstein G. (2012), ‘The impact of price discounts and calorie messaging on beverage consumption: a multi-site field study’, Preventive medicine, 55(6): 629633.
Laibson D. (1997), ‘Golden eggs and hyperbolic discounting’, The Quarterly Journal of Economics, 443477.
Levmore S. (2014a), ‘Internality Regulation Through Public Choice’, Theoretical Inquiries in Law, 15(2): 447470.
Levmore S. (2014b), ‘From Helmets to Savings and Inheritance Taxes: Regulatory Intensity, Information Revelation, and Internalities’, University of Chicago Law Review, 81: 229249.
Lind M. (2016), ‘Can you have a good life if you don't have a good job?’, New York Times. Available at: http://www.nytimes.com/2016/09/18/opinion/sunday/can-you-have-a-good-life-if-you-dont-have-a-good-job.html?_r=0 (accessed 21 October, 2016).
Loewenstein G. and Haisley E. (2008), ‘The economist as therapist: Methodological issues raised by “light” paternalism’, in Caplin A. and Schotter A. (eds.), “Foundations of Positive and Normative Economics,” volume 1 in the Handbook of Economic Methodologies, Oxford, England: Oxford University Press.
Loewenstein G. and Schwartz D. (2010), ‘Nothing to Fear but a Lack of Fear: Climate Change and the Fear Deficit’, G8 Magazine, 6062.
Loewenstein G. and Ulbel P. (2010), ‘Economics behaving badly’, The New York Times, 14. Available at: http://www.nytimes.com/2010/07/15/opinion/15loewenstein.html?_r=1 (accessed 21 October, 2016).
Madrian B. C. and Shea D. F. (2001), ‘The Power Of Suggestion: Inertia In 401(k) Participation And Savings Behavior’, Quarterly Journal of Economics, 116(4): 11491187.
Mannix B. F. and Dudley S. E. (2015), ‘Please don't regulate my internalities’, Journal of Policy Analysis and Management, 34(3): 715718.
Mansfield E. (1983), ‘Long Waves and Technological Innovation’, American Economic Review, 73(2): 141145.
Marshall G. (2015), Don't even think about it: Why our brains are wired to ignore climate change, New York: Bloomsbury.
Martin B. (2016), ‘Job fears mount as businesses unite to fight UK sugar tax’, Daily Telegraph, August 16, 2016. http://www.telegraph.co.uk/business/2016/08/15/job-fears-mount-as-businesses-unite-to-fight-uk-sugar-tax/ (downloaded 2 October, 2016).
McCaffery E. J. and Baron J. (2006), ‘Thinking about tax’, Psychology, Public Policy, and Law, 12(1): 106135.
Modigliani F. (1966), ‘The Life Cycle Hypothesis of Saving, the Demand for Wealth and the Supply of Capital’, Social Research, 33(2): 160217.
Morrison R. (2013), ‘How a small nudge is helping people save for their retirement’, Civil Service Quarterly Blog, https://quarterly.blog.gov.uk/2013/10/22/how-a-small-nudge-is-helping-people-save-for-their-retirement/ (downloaded 2 October 2016).
Morrissey M. (2016), ‘The state of American retirement: how 401k(s) have failed most American workers’, Available at: http://www.epi.org/publication/retirement-in-america/#charts (accessed 21 October, 2016).
Nachmany M., Fankhauser S., Davidová J., Kingsmill N., Landesman T., Roppongi H., Schleifer P., Setzer J., Sharman A., Singleton C. S, Sundaresan J. and Townshend T. (2015), The 2015 Global Climate Legislation Study A Review of Climate Change Legislation in 99 Countries , Grantham Research Institute on Climate Change and the Environment.
O'Connor A. (2015), ‘Coca-cola funds scientists who shift blame for obesity away from bad diets’, New York Times, 9. Available at: http://well.blogs.nytimes.com/2015/08/09/coca-cola-funds-scientists-who-shift-blame-for-obesity-away-from-bad-diets/ (accessed 21 October, 2016).
O'Donoghue T. and Rabin M. (1999), ‘Doing it now or later’, American Economic Review, 89(1): 103124.
O'Donoghue T. and Rabin M. (2003), ‘Studying Optimal Paternalism, Illustrated by a Model of Sin Taxes’, The American Economic Review, 93(2): 186191.
O'Donoghue T. and Rabin M. (2006), ‘Optimal Sin Taxes’, Journal of Public Economics, 90(10–11): 18251849.
Oliver A. (2013), ‘From Nudging to Budging: Using Behavioural Economics to Inform Public Sector Policy’, Journal of Social Policy, 42(4): 685700.
Oliver A. (2015), ‘Nudging, shoving, and budging: behavioural economic-informed policy’, Public Administration, 93(3): 700714.
Oliver A. and Ubel P. (2014), ‘Nudging the obese: a UK–US consideration’, Health Economics, Policy and Law, 9(03): 329342.
Polivy J. and Herman C. (2002), ‘If at first you don't succeed: False hopes of self-change’, American Psychologist, 57(9): 677689.
Rhee N. (2013), ‘The retirement savings crisis: Is it worse than we think?’, National Institute on Retirement Security. Available at: http://www.nirsonline.org/storage/nirs/documents/Retirement%20Savings%20Crisis/retirementsavingscrisis_final.pdf (accessed 21 October, 2016).
Rick S. and Loewenstein G. (2008), ‘Intangibility in intertemporal choice’, Philosophical Transactions of the Royal Society B: Biological Sciences, 363: 38133824.
Rogelj J., den Elzen M., Höhne N., Fransen T., Fekete H., Winkler H., Schaeffer R., Sha F., Riahi K. and Meinshausen M. (2016), ‘Paris Agreement climate proposals need a boost to keep warming well below 2 C’, Nature, 534(7609): 631639.
Schofield H., Loewenstein G., Kopisc J. and Volpp K.G. (2015), ‘Comparing the effectiveness of individualistic, altruistic, and competitive incentives in motivating completion of mental exercises’, Journal of Health Economics, 44: 286299.
Schultz P. W., Nolan J. M., Cialdini R. B., Goldstein N. J. and Griskevicius V. (2007), ‘The constructive, destructive, and reconstructive power of social norms’, Psychological Science, 18(5): 429434.
Schwartz B. (2014), ‘Why Not Nudge? A Review of Cass Sunstein's Why Nudge’, The Psych Report, April 17, 2014. Available at: http://thepsychreport.com/essays-discussion/nudge-review-cass-sunsteins-why-nudge/
Slovic P. (ed.). (2001), Smoking: Risk, perception, and policy, Sage publications.
Stern N. H. (2007), The economics of climate change: The Stern review, Cambridge, UK: Cambridge University Press.
Sugden R. (2008), ‘Why incoherent preferences do not justify paternalism’, Constitutional Political Economy, 19(3): 226248.
Summers N. (2013), ‘In Australia, retirement saving done right’, Bloomberg, Available at: http://www.bloomberg.com/news/articles/2013-05-30/in-australia-retirement-saving-done-right (accessed 21 October, 2016).
Sunstein C. R. (2014), Why nudge?: The politics of libertarian paternalism, Yale University Press.
Sunstein C. R. (2016), The ethics of influence, Cambridge, UK: Cambridge University Press.
Tasic S. (2009), ‘The Illusion of Regulatory Competence’, Critical Review, 21(4): 423436.
Thaler R. H. and Benartzi S. (2004), ‘Save more tomorrow™: Using behavioral economics to increase employee saving’, Journal of political Economy, 112(S1): S164S187.
Thaler R. H. and Sunstein C. R. (2003), ‘Libertarian paternalism’, The American Economic Review, 93(2): 175179.
Thaler R. H. and Sunstein C. R. (2008), Nudge: Improving Decisions About Health, Wealth, and Happiness, New Haven, CT: Yale University Press.
“The future of retirement: A balancing act” (2015), HSBC Holdings plc, London, U.K. Available at: https://www.hsbc.ca/1/PA_ES_Content_Mgmt/content/canada4/pdfs/personal/for-balancing-act-global-report.pdf (accessed 21 October, 2016).
Viscusi W. K. and Gayer T. (2015), ‘Behavioral Public Choice: The Behavioral Paradox of Government Policy’, Vanderbilt Law and Economics Working Paper Number 15–2. Retrieved March 29, 2015, from http://ssrn.com/abstract=2559408.
Volpp K. G., Pauly M. V., Loewenstein G. and Bangsberg D. (2009), ‘P4P4P: an agenda for research on pay-for-performance for patients’, Health Affairs, 28(1): 206214.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Behavioural Public Policy
  • ISSN: 2398-063X
  • EISSN: 2398-0648
  • URL: /core/journals/behavioural-public-policy
Please enter your name
Please enter a valid email address
Who would you like to send this to? *
×

Metrics

Altmetric attention score

Full text views

Total number of HTML views: 251
Total number of PDF views: 2025 *
Loading metrics...

Abstract views

Total abstract views: 2420 *
Loading metrics...

* Views captured on Cambridge Core between 31st May 2017 - 24th November 2017. This data will be updated every 24 hours.