When Should Governments Invest More in Nudging? Revisiting Benartzi et al. (2017)
Review of Law and Economics (Forthcoming)
27 Pages Posted: 19 Aug 2022 Last revised: 10 Oct 2022
Date Written: August 12, 2022
Highly influential recent work by Benartzi et al. (2017) argues—based on comparisons of the respective effectiveness and costs of behavioral interventions (or nudges) versus traditional instruments—that nudges offer more cost-effective means than traditional interventions for changing individual behavior to achieve desirable policy goals. These authors further argue that nudges' cost-effectiveness advantage means that governments and other organizations should increase their investments in such instruments to supplement traditional interventions. Yet a closer look at Benartzi et al.’s (2017) own data and analysis reveals that they variously exclude and include key cost elements to the benefit of behavioral instruments over traditional ones and overstate the utility of cost-effectiveness analysis for policy selection. Once these methodological shortcomings are corrected, a reassessment of key policies evaluated by the authors reveals that nudges do not consistently outperform traditional interventions, neither under cost-effectiveness analysis nor under the methodologically required cost-benefit analysis. These illustrative findings demonstrate that governments should strive to conduct cost-benefit analyses of competing interventions, including nudges, to implement the most efficient of the available instruments.
Keywords: Behavioral regulation, cost-benefit analysis, cost-effectiveness analysis
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