UCL Institute for Sustainable Resources


What is the role of nudges in economics and society, and how do they affect freedom of choice?

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Written by Sulaimon Olaniyonu

In order to properly answer this question, we must first better our understanding of the bracket of economics that nudges fall into. Behavioural economics relates to the study of psychology and its involvement in economic decisions and processes. An ideal world would consist of perfectly rational individuals who make optimal decisions all the time (homo economicus or economic man). This entirely rational person is unmoved by external factors and has complete self-control. Unfortunately, such people do not exist, and so behavioural economics is important at improving our understanding of economic decisions individuals make.

Nudges are small changes in the environment put in place by choice architects which attract the attention of individuals and subsequently influence their behaviour. For example, if the manager of a supermarket were to place the more expensive packet of crisps at eye level whilst the cheaper packet is at the top of the shelf, customers are more inclined to choose the packet of crisps that is easily available. This is a nudge. Nudges are not to be confused with mandates however, as nudges are preferably easy to avoid and hard to notice and so banning the cheaper brand of crisps from being sold does not count as a nudge. This highlights a common misconception of nudges, which is that they limit choice, if this were to be true then whatever the action may be cannot be a nudge. There is widespread use of nudges in everyday life, the best of which are so subtle that most people do not even acknowledge their existence. The use of a nudge is determined by choice architects whose aim is to organize the context in which individuals make decisions. Choice architects are vital to promoting products and services and contributing to competitive markets. In this respect nudges put in place by choice architects can have a positive affect by widening consumer choice. If a nudge was put in place to increase consumers’ exposure to a new product, how can it be argued that it has negative effects? Nudges put in place by corporate choice architects often follow this agenda, which is to widen consumer choice to maximise sales, reduce hidden information and contribute to better market conditions.

Choice Architects are paternalistic. They act to make people’s lives better off, as judged by themselves. A Libertarian may argue that this intervention limits an individual’s freedom of choice, instead they advocate that people should be able to do whatever they please without any external intervention. A nudge is a perfect balance of these two ways of thinking, falling under the bracket of libertarian paternalism. Libertarian paternalism is branded as a soft form of paternalism mainly because of the minimal intrusion, allowing the freedom to choose. This form of paternalism leaves people free to make their own choices in the belief that they could make those choices better than any third party could whilst also leaving nudges to guide those who choose to use them. This way people can choose to be nudged as easily as they can choose to ignore them.

Libertarian paternalism is an action that choice architects have been forced into. It eventually becomes unavoidable as choice architects (governments cannot allow individuals to repeatedly make damaging decisions and expect no repercussions). Due to this, it has become inevitable for nudges to be put in place as there is simply no argument for individuals to be allowed to run themselves into the ground through poor choices. There is overwhelming evidence that, through nudges and other such subtle actions, society has had much to benefit. This behaviour is most evident in combating obesity and unbalanced lifestyles as architects now design buildings with fewer lifts to encourage the use of the stairs. Note how the option to use the lift is still available however the accessibility of the lift is reduced making the stairs a more viable option. Who can argue against this? The option to use the lift remains however instead of the majority of an office’s inhabitants using the lift every day, a portion of them now take part in 5 minutes of exercise every day, an unquestionably better life choice.

The subject of libertarian paternalism is often one clouded with confusion and uncertainty, highlighted by the common misconception that the word itself is an oxymoron. Despite the initial indication suggesting that these two words directly oppose each other, as shown in previous paragraphs, it is perfectly viable to have an institution affect an individual’s decision (or more appropriately, the decision making process) whilst having their freedom of choice unaffected. As discussed before, there are those that oppose the idea of choice architecture and the manipulation of one’s decision making process, despite this however there are certain situations when the involvement of choice architects is unavoidable and of mutual benefit to everyone involved.

Considering this we can conclusively decide that nudges as a form of choice architecture, can have benefits to society such as encouraging exercise and a healthy lifestyle and that the notion that they limit choice is incorrect as nudges are put in place as a balance between libertarianism and paternalism to ensure people’s freedom of choice is not limited whilst subtly affecting decisions.