Ralph Hertwig, Michael D. Ryall | The Economic Journal
Thaler and Sunstein (2008) advance the concept of “nudge” policies – non-regulatory and non-fiscal mechanisms designed to enlist people’s cognitive biases or motivational deficits so as to guide their behaviour in a desired direction. A core assumption of this approach is that policy makers make artful use of people’s cognitive biases and motivational deficits in ways that serve the ultimate interests of the nudged individual. We analyse a model of dynamic policy making in which the policy maker’s preferences are not always aligned with those of the individual. One novelty of our setup is that the policy maker has the option to implement a “boost” policy, equipping the individual with the competence to overcome the nudge-enabling bias once and for all. Our main result identifies conditions under which the policy maker chooses not to boost in order to preserve the option of using the nudge (and its associated bias) in the future – even though boosting is in the immediate best interests of both the policy maker and the individual. We extend our analysis to situations in which the policy maker can be removed (e.g., through an election) and in which the policy maker is similarly prone to bias. We conclude with a discussion of some policy implications of these findings.