The Critical and Problematic Role of Bounded Rationality in Nudging

Abstract

Nudging has become an increasingly popular policy tool on both sides of the Atlantic, even while scholars and commentators continue to debate its appropriate boundaries, efficacy, and legitimacy. The present chapter outlines a sympathetic, ‘internal’ critique of Nudge’s policy framework (Thaler and Sunstein 2008. Nudge: Improving decisions about health, wealth, and happiness. New Haven: Yale University Press) identifying a fundamental problem that has received little attention to date. Thaler and Sunstein define their key concept as the use of a particular toolkit (rationally-neutral behavioural interventions) to promote a specific policy goal (individuals’ self-judged well-being). To remain within the boundaries of these defining parameters, the chosen toolkit must nudge only by helping boundedly rational people better achieve their own ends. However, a closer look at this intuitively appealing approach reveals a fundamental problem of fit that should trouble even those who support Nudge’s mission. Namely, while the tools of nudging can sometimes promote its declared goals, other tools can often do so equally well or even more effectively. And the tools of nudging are equally suited to promoting goals that are excluded by Nudge’s own framework. This problem of fit causes some of Thaler and Sunstein’s own applications to breach the boundaries of what they define as legitimate nudges and, more significantly, obscures the broader potential of behaviourally-informed policies and the substantial trade-offs involved in their implementation.