Economy

Nudge – A Tool for Driving Change or a Weapon Towards Authoritarianism?

In 2008, researchers Cass Sunstein and Richard Thaler published a book that soon came to revolutionize the field of behavioural economics. ‘Nudge: Improving decisions about health, wealth and happiness’, became a global bestseller and served as a rich source of insights for policymakers and businesses alike. The principles detailed in the nudge theory have since been applied in multiple spheres, from policymaking and businesses to architecture. Before moving forward with the potential of this tool, let us first breakdown what ‘nudge’ actually means.

A nudge, as used in simple English is to push gently as a way of alerting someone, usually depicted as an elbow nudge. Much like this meaning is its application in theory. Nudge as defined by Thaler and Sunstein, is ‘any aspect of the choice architecture that alters people’s behaviour, in a predictable way without forbidding options or significantly changing their economic incentives’. On removing the jargon, this essentially means a subtle push towards making a specific decision, while not taking away the choice within the hands of citizens or consumers. A simple example, as detailed in the book is that of laying fruit at eye level in a supermarket, which would be characterized as a nudge. The banning of junk food, on the other hand, would not be a nudge.

‘Nudge’ and its Philosophy

‘Libertarian Paternalism’, an oxymoron of sorts, is the primary philosophy behind the phenomenon of nudging. This contradictory phrase essentially implies an ideology that supports the idea of the possibility of public and private institutions being able to influence a society, which forms the paternalistic aspect of the philosophy; at the same time, the freedom of choice is still reserved in the hands of the recipients, which makes up the libertarian aspect of the philosophy.

This ideology has, however, come under the lens of a lot of critiques owing to the selective nature of the two ideologies, that of libertarianism and paternalism, combined. Advocates for the libertarian philosophy have critiqued the philosophy for being too vague in their use of the libertarianism, where the principle of freedom of choice is used in a rather broad sense. Opponents of this philosophy believe that autonomy is taken away from the individual.

The rationale behind these arguments is that even if the freedom of choice rests with the individuals, another entity is still dictating what lies in that individual’s best interest which is libertarian in any sense. That being said, it is perhaps the combination of two philosophies – libertarianism and paternalism that allows for nudging to exist within this sweet spot which enables the balance between welfare maximization and individuality, that serves to be extremely significant in policymaking today.

Nudging as a Tool for Policy Making

Mainstream economics has long relied on the assumption of rationality which believes that individuals are utility-maximizing, innately rational actors who make decisions that solely lie in their self-interest. The emergence of behavioural economics has, however, brought to the forefront the reality that individuals, in fact, operate under biases and more often than not, don’t make the most rational decisions. This discipline within which the concept of nudging was birthed thus, enabled policymakers to think in terms of how policies can have better outcomes when these cognitive biases among people are recognized.

Governments all over the world have set up ‘nudge units’ dedicated to creating policies using nudge techniques. In fact, recent research on the cost-effectiveness of using nudge policies has suggested that in terms enrolment rates, vaccination use and retirement savings these policies have proven to yield more a desirable output at lesser costs compared to traditional policies interventions like monetary incentives (Benartzi et al, 2017). That being said, it is important to note that when it comes to nudging, it is better to think of it as complementary to traditional policies like certain mandates, fines and prohibitions rather than as a means of doing away with traditional policy-making tools who bear their own advantages.

An Ethical Take on Nudging

Nudging in its most elementary sense can bear with it, problematic notions of choice. Although nudges are supposed to be designed in a way that doesn’t take away the freedom of choice from people. In directing towards the ‘better’ choice are we not in an essence manipulating their choices? I believe the answer to this critique lies in the definition. Let’s take another look at the definition of nudging with key phrases that could provide answers to this critique – “…alter people’s behaviour in a predictable way”. ‘Predictable’, here is the operative word where, we have to understand people’s wants, which is without a doubt an arduous task.

Another critique of nudging lies in tricky examples of having no ‘opt-out options’ in subscription-based operations. In this, I take a strong stand to say that once again the critique lies in the lack of understanding what a nudge truly is, in the widely used Thaler and Sunstein’s take on it. The example I have just described is what we call a ‘sludge’ and not truly a nudge. Sludging is a phenomenon that emerged as a disguised nudge policy; however, I use the word ‘disguised’ to accurately describe what it doesn’t truly embody the characteristics of a nudge in one or the other way, making it no longer a welfare-maximizing tool.

De-biasing the Nudger

Nudges are indeed a powerful tool for driving change. However, as the saying goes, “with great power, comes great responsibility”, and this responsibility lies in the nudger, i.e., the policymaker. Political theorists have argued that nudging has a dangerous risk of leaning towards authoritarianism. As we have already discussed, nudges are not truly liberal in every sense. Advocates for this line of thinking have argued that nudges are in fact more conservative in their approach and democratic governments should stay wary of it. The main reason being nudges are implemented on the principle that an external entity (your policymaker) truly knows what’s best for you as an individual.

The trope of the benevolent dictator thus arises in this critique of nudging, where a discipline that places high importance on the fact that humans embody inherent cognitive biases within them, yet may fail to overlook the detail that the human implementing these policies are also biased. An effective nudge then would mean one that could hedge this bias and implement a change. However, this again points to a larger question that in an essence then, all policies, not merely bear this critique of whether we are right in thinking, our leaders know best. In my opinion, the solution to this would be in representation where a representative of the target population must be involved in the decision-making process.

To sum it up, we can conclude through the findings that nudges are indeed an innovate, inexpensive and effective tool in driving change, yet one that needs to be used with caution. The person handling this tool must truly understand what a nudge means in every nuance of the definition and make a conscious effort to not violate it. In addition to this, the decision-maker must also be conscious of their biases and try to correct them by implementing more diversity in the nudge units making policies as well as conscientiously follow guidelines in implementing said policies.

Picture Credits: harbingerlearning.com



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