Nudges vs. Shoves

Abstract

Behavioral findings, demonstrating human errors, have led some people to favor choice-preserving responses (“nudges”), and others to favor mandates and bans. If people’s choices lead them to err, it might seem puzzling, or even odd, to respond with solutions that insist on preserving freedom of choice. But mandates have serious problems of their own, even in the face of behavioral market failures. Mandates might not be able to handle heterogeneity; they might reflect limited knowledge on the part of public officials or the interests of powerful private groups; and they override freedom, potentially producing welfare losses and insulting individual dignity. It is true that in some cases, a behavioral market failure (such as a self-control problem) might justify a mandate on social welfare grounds, but on those very grounds, it makes sense to begin by examining choice-preserving approaches, which are far less intrusive and often highly effective.

Keywords: libertarian paternalism, nudges, behavioral market failures, present bias

JEL Classification: D02, D03, D73, D87, D91, K00, K20