Nudge, Choice Architecture, and Libertarian Paternalism

Abstract

In Nudge, Cass Sunstein and Richard Thaler describe how public and private institutions can improve on individual choices by nudging individuals into making selections that are right for them. Rejecting the Econ-101 caricature of the rational utility maximizer as inaccurate, Sunstein and Thaler apply the insights of behavioral economics to show how institutions can improve the delivery of services. Moving beyond attempts to remedy individual cognitive errors, Sunstein and Thaler also argue for "libertarian paternalism" - which they herald as the "Third Way." This Review assesses their claims critically, finding their development of "nudge" and "choice architecture" to be welcome additions to public-policy analysis, but ultimately concluding that "libertarian paternalism" is a politically impoverished vision.

Keywords: Behavioral Economics, Libertarian Paternalism, Choice Architecture, Nudge, Cognitive Errors, Sunstein, Thaler, Asymmetric Paternalism

JEL Classification: A10, A11, D70, D73, H10, H11, K10, Z1