Skip to main content Accessibility help
×
Home
Hostname: page-component-559fc8cf4f-6pznq Total loading time: 0.367 Render date: 2021-03-03T21:26:19.675Z Has data issue: true Feature Flags: { "shouldUseShareProductTool": true, "shouldUseHypothesis": true, "isUnsiloEnabled": true, "metricsAbstractViews": false, "figures": false, "newCiteModal": false, "newCitedByModal": true }

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
Corresponding
E-mail address:

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.

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.CrossRefGoogle 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.CrossRefGoogle 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.CrossRefGoogle 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.CrossRefGoogle Scholar
Beshears, J., Choi, J. J., Laibson, D. and Madrian, B. C. (2013), ‘Simplification and saving’, Journal of economic behavior & organization, 95: 130145.CrossRefGoogle ScholarPubMed
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.CrossRefGoogle ScholarPubMed
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.CrossRefGoogle 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.CrossRefGoogle 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.CrossRefGoogle 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.CrossRefGoogle 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.CrossRefGoogle 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.CrossRefGoogle Scholar
Grüne-Yanoff, T. and Hertwig, R. (2016), ‘Nudge Versus Boost: How Coherent are Policy and Theory?’, Minds and Machines, 26: 149183.CrossRefGoogle 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 Scholar
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.CrossRefGoogle 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.CrossRefGoogle 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 Scholar
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.CrossRefGoogle ScholarPubMed
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.CrossRefGoogle 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.Google 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.CrossRefGoogle Scholar
Mannix, B. F. and Dudley, S. E. (2015), ‘Please don't regulate my internalities’, Journal of Policy Analysis and Management, 34(3): 715718.CrossRefGoogle 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.CrossRefGoogle 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.CrossRefGoogle 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.CrossRefGoogle 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.CrossRefGoogle Scholar
Oliver, A. (2015), ‘Nudging, shoving, and budging: behavioural economic-informed policy’, Public Administration, 93(3): 700714.CrossRefGoogle 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.CrossRefGoogle ScholarPubMed
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.CrossRefGoogle 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.CrossRefGoogle ScholarPubMed
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.CrossRefGoogle ScholarPubMed
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.CrossRefGoogle 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.CrossRefGoogle Scholar
Tasic, S. (2009), ‘The Illusion of Regulatory Competence’, Critical Review, 21(4): 423436.CrossRefGoogle 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.CrossRefGoogle Scholar
Thaler, R. H. and Sunstein, C. R. (2003), ‘Libertarian paternalism’, The American Economic Review, 93(2): 175179.CrossRefGoogle 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.CrossRefGoogle Scholar

Altmetric attention score

Full text views

Full text views reflects PDF downloads, PDFs sent to Google Drive, Dropbox and Kindle and HTML full text views.

Total number of HTML views: 774
Total number of PDF views: 4030 *
View data table for this chart

* Views captured on Cambridge Core between 31st May 2017 - 3rd March 2021. This data will be updated every 24 hours.

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. 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 <service> 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 <service> account. Find out more about sending content to Google Drive.

Putting nudges in perspective
Available formats
×
×

Reply to: Submit a response


Your details


Conflicting interests

Do you have any conflicting interests? *