Nudge: The Final Edition

by Richard H. Thaler

libertarian paternalists urge that people should be ‘free to choose.’2 We strive to design policies that maintain or increase freedom of choice. When we use the term libertarian to modify the word paternalism, we simply mean liberty-preserving. And when we say liberty-preserving, we really mean it. Libertarian paternalists want to make it easy for people to go their own way; they do not want to burden those who want to exercise their freedom.

The paternalistic aspect lies in the claim that it is legitimate for choice architects to try to influence people’s behavior in order to make their lives longer, healthier, and better. In other words, we argue for self-conscious efforts, by institutions in the private sector and also by government, to steer people’s choices in directions that will improve their lives. In our understanding, a policy is ‘paternalistic’ if it tries to influence choices in a way that will make choosers better off, as judged by themselves

A nudge, as we will use the term, is any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives. To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not mandates.

To qualify as Econs, people are not required to make perfect forecasts (that would require omniscience), but they are required to make unbiased forecasts. That is, the forecasts can be wrong, but they can’t be systematically wrong in a predictable direction.

consider what is called the ‘status quo bias,’ a fancy name for inertia. For a host of reasons, which we shall explore, people have a strong tendency to go along with the status quo or default option.

a nudge is any factor that significantly alters the behavior of Humans, even though it would be ignored by Econs.

This insight, first developed decades ago by two Israeli psychologists, Amos Tversky and Daniel Kahneman (1974), has changed the way psychologists (and eventually economists) think about thinking. Their original work identified three heuristics, or rules of thumb – anchoring, availability, and representativeness – and the biases that are associated with each.

When ‘availability bias’ is at work, both private and public decisions may be improved if judgments can be nudged back in the direction of true probabilities.

One of the causes of status quo bias is a lack of attention. Many people adopt what we will call the ‘yeah, whatever’ heuristic.