Exploring the Applications and Boundaries of ‘Nudge’ Economics

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Fifteen years ago, the Conservative party of Britain, while in opposition, recognized the potential of behavioural economics as a modern alternative to intrusive micromanagement. The book Nudge by Richard Thaler and Cass Sunstein was included in the Tories’ summer reading list in 2008. After coming into power, David Cameron established the Behavioural Insights Team at the core of the government.

Many other governments also formed their own “nudge units,” embracing Thaler and Sunstein’s concept of “libertarian paternalism” to steer citizens towards better choices in various areas such as pension enrolment and organ donation. However, it became evident that nudging alone couldn’t solve all complex policy issues. The FT cautioned against conflating nudges with a comprehensive political philosophy.

As of late, behavioural science’s reputation has suffered setbacks. Yet, the current danger lies in policymakers potentially abandoning a valuable complement to traditional legislative and regulatory actions when it can still offer much.

Doubts about the reliability of behavioural science started to emerge in the 2010s when it proved challenging to replicate certain attention-grabbing findings on a larger scale. For example, subsequent studies cast doubt on the research that initially suggested adopting a “power pose” could increase testosterone and reduce cortisol levels. Some of the effects of “priming,” which involves subconsciously influencing actions through prompts, have been discredited.

More recently, Francesca Gino, a prominent Harvard expert on dishonesty, faced accusations of fraud in her co-authored papers. She has filed a defamation suit against Harvard and the bloggers who made the allegations, firmly denying any misconduct. Another esteemed behavioural scientist, Dan Ariely, is currently under investigation by Duke University over concerns regarding his research on dishonesty. While he asserts his commitment to data integrity, the FT stresses the importance of investigating fraudulent findings, eliminating false positives through replication, and relying on robust results tested on a large scale.

It is crucial to differentiate between fraudulent findings, false positives that can be eliminated through replication, and robust results that have undergone extensive testing. Dismissing behavioural science as aspiring to reach the level of physics, as some critics have done, is unhelpful. Universities, academics, and scientific journals should enhance the quality of their output through measures like preregistration of hypotheses, sharing raw data, and addressing the publish-or-perish culture.

Furthermore, a distinction should be made between behavioural science and behavioural economics. Economists analyze the consequences, both intended and unintended, of the scientists’ findings. Policymakers who apply these findings have a greater responsibility than academics and the media to avoid sensationalizing experimental results. However, they possess the advantage of testing behavioural economic policies on a large scale, yielding more reliable results than laboratory experiments.

Understanding the limitations of behavioural economic policies is vital. The Behavioural Insights Team (BIT), which has spun out from the UK government, emphasizes humility in their recently published manifesto for applying behavioural science. They highlight that even seemingly universal cognitive processes are influenced by their context. Despite the caveats, behavioural science has expanded a field that previously placed excessive emphasis on the idea of humans as perfectly rational economic calculators. The revelation of human flaws within the discipline is oddly fitting, but it should not serve as a justification to entirely discard it.