Understanding the Value and Potential of Nudging: Improving Well-Being and Reducing Socio-Economic Dysfunctions

Abstract

The nudge concept developed by Richard Thaler and Cass Sunstein has turned out to be a very important one. The paper begins by considering the basic elements of the nudge concept as well as the philosophy of libertarian paternalism; it also considers later nudge writings, notably those by Sunstein. Based on this impressive foundation, the paper develops a number of important, novel insights related to the nudge concept. The purpose of nudges, of course, is to improve people’s well-being. To create nudges that are truly beneficial for a person or for a society is not a trivial task; it requires wisdom and intelligent reflection. Two kinds of nudges, educative and noneducative, create a number of kinds of human capital that are an essential part of an economy’s capacity. The human capital deriving from nudges contributes to a nation’s soft infrastructure which complements a nation’s hard infrastructure. Most nations suffer to some extent from severe socio-economic dysfunctions that derive from behavioral market failures and involve deeply embedded negative patterns. Advanced industrialized nations, for example, are particularly afflicted by high rates of obesity related to negative eating and lifestyle patterns associated with the advance of “civilization.” There is reason to believe that “higher level nudges” (along with more conventional policies) can play a key role in resolving and mitigating obesity as well as making an important contribution to overcoming other severe social problems and societal difficulties. Understanding these higher level and related nudges are a key to appreciating the full value and potential of nudges.