Hostname: page-component-cd9895bd7-q99xh Total loading time: 0 Render date: 2024-12-23T06:02:21.508Z Has data issue: false hasContentIssue false

Putting nudges in perspective

Published online by Cambridge University Press:  31 May 2017

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]

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.

Type
Articles
Copyright
Copyright © Cambridge University Press 2017 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

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.Google Scholar
Agnew, J. (2013), ‘Australia's retirement system: Strengths, weaknesses, and reforms’, Center for Retirement Research Issue Brief, 13–5.Google Scholar
Allcott, H. (2015), ‘Site Selection Bias in Program Evaluation’, Quarterly Journal of Economics, 130(3): 11171165.Google Scholar
Allcott, H., Mullainathan, S. and Taubinsky, D. (2014), ‘Energy policy with externalities and internalities’, Journal of Public Economics, 112: 7288.CrossRefGoogle Scholar
Allcott, H., and Sunstein, C. R. (2015), ‘Regulating internalities’, Journal of Policy Analysis and Management, 34(3): 698705.Google Scholar
Ariely, D., Loewenstein, G. and Prelec, D. (2003), ‘“Coherent arbitrariness”: Stable demand curves without stable preferences’, Quarterly Journal of Economics, 118: 73106.CrossRefGoogle Scholar
Ariely, D., Loewenstein, G. and Prelec, D. (2006), ‘Tom Sawyer and the construction of value’, Journal of Economic Behavior and Organization 60(1): 110.Google Scholar
Bar-Gill, O. and Sunstein, C. R. (2015), ‘Regulation as delegation’, Journal of Legal Analysis, 7(1): 136.CrossRefGoogle Scholar
Barr, M. S., Mullainathan, S. and Shafir, E. (2009), ‘The case for behaviorally informed regulation’, New perspectives on regulation, 25: 4142.Google Scholar
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 Google Scholar
Bernheim, B. D. and Rangel, A. (2004), ‘Addiction and cue-triggered decision processes’, The American Economic Review, 94(5): 15581590.Google Scholar
Beshears, J., Choi, J. J., Laibson, D. and Madrian, B. C. (2013), ‘Simplification and saving’, Journal of economic behavior & organization, 95: 130145.Google Scholar
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.Google Scholar
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.Google Scholar
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.Google Scholar
Bubb, R. and Pildes, R. H. (2014), ‘How behavioral economics trims its sails and why’, Harvard Law Review, 127: 1329.Google Scholar
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.Google Scholar
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.Google Scholar
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).Google Scholar
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.CrossRefGoogle Scholar
Chetty, R., Looney, A. and Kroft, K. (2009), ‘Salience and Taxation: Theory and Evidence’, American Economic Review, 99(4): 1145–77.CrossRefGoogle Scholar
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.CrossRefGoogle Scholar
Conly, S. (2013), Against Autonomy: Justifying Coercive Paternalism, New York: Cambridge University Press.Google ScholarPubMed
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.CrossRefGoogle Scholar
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.Google Scholar
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.Google Scholar
Duesenberry, J. S. (1949), Income, Saving, and the Theory of Consumer Behaviour, Cambridge, MA: Harvard University Press.Google Scholar
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 Google Scholar
Finkelstein, A. (2009), ‘EZ-tax: Tax Salience and Tax Rates’, The Quarterly Journal of Economics, 124(3): 9691010.Google Scholar
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.CrossRefGoogle ScholarPubMed
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.Google Scholar
Frank, R. H. (1985), Choosing the right pond: Human behavior and the quest for status, Oxford, England: Oxford University Press.Google Scholar
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.Google Scholar
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).Google Scholar
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.Google Scholar
Gabaix, X. and Laibson, D. (2005), ‘Shrouded attributes, consumer myopia, and information suppression in competitive markets (No. w11755)’, National Bureau of Economic Research.Google Scholar
Goodall, C. (2016), The Switch: How Solar, Storage and New Tech Means Cheap Power for All, London, UK: Profile Books.Google Scholar
Gruber, J. and Köszegi, B. (2001), ‘Is Addiction “Rational”? Theory and Evidence’, The Quarterly Journal of Economics, 116(4): 12611303.Google Scholar
Grüne-Yanoff, T. and Hertwig, R. (2016), ‘Nudge Versus Boost: How Coherent are Policy and Theory?’, Minds and Machines, 26: 149183.Google Scholar
Halpern, D. (2015), Inside the Nudge Unit: How small changes can make a big difference, New York: Random House.Google Scholar
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.CrossRefGoogle ScholarPubMed
Heidhues, P., Kőszegi, B. and Murooka, T. (2016), ‘Exploitative Innovation’, American Economic Journal: Microeconomics, 8(1): 123.Google Scholar
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.Google Scholar
Herrnstein, R. and Prelec, D. (1992), ‘A theory of addiction’, in Loewenstein, G. & Elster, J. (eds.) Choice Over Time, Russell Sage Foundation, 331357.Google Scholar
Hertwig, R. and Ryall, M. D. (2016), Nudge vs. Boost: Agency Dynamics Under ‘Libertarian Paternalism’, Available at SSRN: http://ssrn.com/abstract=2711166.Google Scholar
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.Google Scholar
Imas, A. (2014), ‘Working for the “warm glow”: On the benefits and limits of prosocial incentives’, Journal of Public Economics, 114: 1418.Google Scholar
‘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).Google Scholar
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.CrossRefGoogle ScholarPubMed
Johnson, D. (2016), ‘Twilight of the nudges’, New Republic, 27 October, 2016. https://newrepublic.com/article/138175/twilight-nudges Google Scholar
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.Google Scholar
Laibson, D. (1997), ‘Golden eggs and hyperbolic discounting’, The Quarterly Journal of Economics, 443477.CrossRefGoogle Scholar
Levmore, S. (2014a), ‘Internality Regulation Through Public Choice’, Theoretical Inquiries in Law, 15(2): 447470.Google Scholar
Levmore, S. (2014b), ‘From Helmets to Savings and Inheritance Taxes: Regulatory Intensity, Information Revelation, and Internalities’, University of Chicago Law Review, 81: 229249.Google Scholar
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).Google Scholar
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.CrossRefGoogle Scholar
Loewenstein, G. and Schwartz, D. (2010), ‘Nothing to Fear but a Lack of Fear: Climate Change and the Fear Deficit’, G8 Magazine, 6062.Google Scholar
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).Google Scholar
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.Google Scholar
Mannix, B. F. and Dudley, S. E. (2015), ‘Please don't regulate my internalities’, Journal of Policy Analysis and Management, 34(3): 715718.Google Scholar
Mansfield, E. (1983), ‘Long Waves and Technological Innovation’, American Economic Review, 73(2): 141145.Google Scholar
Marshall, G. (2015), Don't even think about it: Why our brains are wired to ignore climate change, New York: Bloomsbury.Google Scholar
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).Google Scholar
McCaffery, E. J. and Baron, J. (2006), ‘Thinking about tax’, Psychology, Public Policy, and Law, 12(1): 106135.Google Scholar
Modigliani, F. (1966), ‘The Life Cycle Hypothesis of Saving, the Demand for Wealth and the Supply of Capital’, Social Research, 33(2): 160217.Google Scholar
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).Google Scholar
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).Google Scholar
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.Google Scholar
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).Google Scholar
O'Donoghue, T. and Rabin, M. (1999), ‘Doing it now or later’, American Economic Review, 89(1): 103124.Google Scholar
O'Donoghue, T. and Rabin, M. (2003), ‘Studying Optimal Paternalism, Illustrated by a Model of Sin Taxes’, The American Economic Review, 93(2): 186191.Google Scholar
O'Donoghue, T. and Rabin, M. (2006), ‘Optimal Sin Taxes’, Journal of Public Economics, 90(10–11): 18251849.CrossRefGoogle Scholar
Oliver, A. (2013), ‘From Nudging to Budging: Using Behavioural Economics to Inform Public Sector Policy’, Journal of Social Policy, 42(4): 685700.Google Scholar
Oliver, A. (2015), ‘Nudging, shoving, and budging: behavioural economic-informed policy’, Public Administration, 93(3): 700714.Google Scholar
Oliver, A. and Ubel, P. (2014), ‘Nudging the obese: a UK–US consideration’, Health Economics, Policy and Law, 9(03): 329342.CrossRefGoogle ScholarPubMed
Polivy, J. and Herman, C. (2002), ‘If at first you don't succeed: False hopes of self-change’, American Psychologist, 57(9): 677689.Google Scholar
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).Google Scholar
Rick, S. and Loewenstein, G. (2008), ‘Intangibility in intertemporal choice’, Philosophical Transactions of the Royal Society B: Biological Sciences, 363: 38133824.Google Scholar
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.CrossRefGoogle Scholar
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.Google Scholar
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.Google Scholar
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/ Google Scholar
Slovic, P. (ed.). (2001), Smoking: Risk, perception, and policy, Sage publications.CrossRefGoogle Scholar
Stern, N. H. (2007), The economics of climate change: The Stern review, Cambridge, UK: Cambridge University Press.CrossRefGoogle ScholarPubMed
Sugden, R. (2008), ‘Why incoherent preferences do not justify paternalism’, Constitutional Political Economy, 19(3): 226248.Google Scholar
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).Google Scholar
Sunstein, C. R. (2014), Why nudge?: The politics of libertarian paternalism, Yale University Press.Google Scholar
Sunstein, C. R. (2016), The ethics of influence, Cambridge, UK: Cambridge University Press.Google Scholar
Tasic, S. (2009), ‘The Illusion of Regulatory Competence’, Critical Review, 21(4): 423436.Google Scholar
Thaler, R. H. and Benartzi, S. (2004), ‘Save more tomorrow™: Using behavioral economics to increase employee saving’, Journal of political Economy, 112(S1): S164S187.Google Scholar
Thaler, R. H. and Sunstein, C. R. (2003), ‘Libertarian paternalism’, The American Economic Review, 93(2): 175179.Google Scholar
Thaler, R. H. and Sunstein, C. R. (2008), Nudge: Improving Decisions About Health, Wealth, and Happiness, New Haven, CT: Yale University Press.Google Scholar
“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).Google Scholar
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.Google Scholar
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.Google Scholar