principles are not new and have been developed by behavioral sciences for the last four decades. The major contribution of nudge theory was to aggregate and bring the concepts to the public debate and encourage its application by governments and policymakers in large-scale public policy.
1.2.1. Heuristics and systematic errors
Behavioral economics has developed over the last few decades in opposition to rational economics, which assumes that people rationally maximize self-interest. Humans are not homo economicus, who consistently use rational judgment, as defined by John Stuart Mill in the 19th Century in his Principles of Political Economy [MIL 48]. Rather, humans behave in surprising and irrational ways. Due to cognitive limitations, people use heuristics or rules of thumb to speed up the process of finding a satisfactory outcome and to ease the cognitive load of making a decision. These mental shortcuts are quick, effortless and work efficiently in routine decision-making, however, mental shortcuts do not work well all the time. Frequently, people are affected by cognitive bias as they process information and, consequently, act against their own self-interest [TVE 74]. And, they do so in ways that are systematic and predictable.
Daniel Kahneman, an influential psychologist – who was awarded the 2002 Nobel Prize in Economics for bridging economics and psychology – has distinguished two types of thinking that govern the decision-making process – System 1 (S1) and System 2 (S2). S1 is a fast, unconscious, effortless, automatic and error-prone system used in everyday decision-making (based on heuristics and rules of thumb). S2 is a slow, conscious, effortful, reliable system used for complex decision-making. S1 works quite well in routine decisions – most of the time. While S2 produces better decision-making, it makes heavy demands on our cognitive resources, and would therefore require an effort beyond what is humanly possible; humans cannot constantly be in S2 mode. Humans fluctuate between S1 and S2, and most often, rely on S1 [KAH 11]. Nudging can be very effective when used with the S1 way of thinking because nudging does not compete with this way of processing information. It respects S1 thinking and uses clues to influence a person’s choice. Nudges often seek either trigger or avoid the use of certain heuristics of S1.
1.2.2. Libertarian paternalism
Nudging is sometimes considered libertarian paternalism. A paternalist state, also denominated a nanny state, interferes with individuals excessively, in an effort to protect them by controlling several aspects of their behavior. The mandatory use of helmets, high taxes on junk food and road markings can be considered state paternalism. Although welcome in many cases, paternalism is frequently criticized in many others because it assumes that the state knows better than the individual and has the duty to protect people from themselves. Libertarian paternalism is a soft form of paternalism that rearranges the structure of choice so that it emphasizes and facilitates the so-called “best choice”, without mandatory regulation or reducing personal freedom of choice [SUN 03, THA 03]. Ethical limits to the use of nudging, and whether or not paternalistic libertarian interventions influence freedom of choice, are under examination, and in some cases, generate strong opposition to nudges. The discussion is rooted in the concept of liberty, as discussed by John Stuart Mill. In his essay “On Liberty” [MIL 59], he defines liberty – from a civil and social point of view – as the limits of the power that can be legitimately exercised by society on individuals. Governments must respect individuality and diversity of choice, and nudges generate choices that threaten that diversity.
1.2.3. Pro-self and pro-society nudges
In this respect, pro-self nudges addressing individual self-interest and private welfare generate better acceptance than pro-social nudges addressing social welfare. Thaler and Sunstein [THA 08] stress that the goal of a conscientious choice architect is to help people make better decisions “as judged by themselves”. Nudges addressing overall social welfare are more likely to be disapproved of by individualistic societies that may interpret the nudge as contrary to freedom of choice. Even if the intervention aims to benefit society, using nudges may depart from individual interest, and is the sum of those individual interests that produces desirable social welfare.
1.2.4. Nudging around the world
Nudging initiatives are increasingly widespread. They are used in varying ways and at different levels throughout the world. International governmental and non-governmental organizations are leading the dissemination of the design and implementing of a wide range of public policies, based on the understanding of individuals’ behavior biases and rationality boundaries. According to Whitehead et al. [WHI 14], a total of 51 states worldwide have developed policy initiatives using behavioral science insights. These are centrally orchestrated policies that are applied uniformly to the entire population of a state in a large range of areas such as health promotion, pension planning enrolment, tax payment initiatives, and opt-out organ donation policies. However, the way in which some nudging units work may produce loose and scattered interventions with very specific aims, instead of a systematic definition of politics.
The following are some breakthrough initiatives of nudging around the world.
1.2.4.1. The United States
In 2009, the Obama Administration appointed Cass Sunstein (President Obama’s friend and former colleague from the University of Chicago Law School) as the head of the Office of Information and Regulatory Affairs (OIRA). OIRA was established in 1980 and is, among other roles, responsible for reviewing the writing of regulations as well as developing and overseeing their implementation. Sunstein used his knowledge of behavioral and social sciences – particularly of nudging – to improve the effectiveness of policies. Sunstein worked with several national agencies to write rules that are clear and generate a consensus based on facts and evidence. The book Simpler [SUN 13] describes his experience during the four years he served in the Obama Administration and his vision of regulation based on a realistic, informed view (rather than a fanciful conception) on how people behave, to reduce complexity and increase effectiveness. Recognizing the benefits of this process, in 2015 President Obama established the White House Social and Behavioral Sciences Team and signed an executive order to make federal government agencies apply behavioral science insights to improve the effectiveness of their policies and to benefit the people.
1.2.4.2. The United Kingdom
In 2010, David Cameron established the Behavioural Insights Team (unofficially known as the Nudge Unit) led by David Halpern, which has been promoting initiatives related to public health, energy, financial fraud, and charitable contributions. “Since its formation, it has successfully designed several interventions” and, in 2012, it was estimated that the Nudge Unit would save over GBP 300 million in the next five years [BEH 11]. The Behavioural Insights Team is now independent of the UK government and works in partnership with local authorities, businesses, charities and governments in 31 countries. Areas of intervention cover a broad range, including education, equality, health, wellbeing, energy, environmentalism and sustainability [BEH 18].
1.2.4.3. The European Union
The European Union has also used behavioral insights in policy initiatives. The European Commission first used such insights to inform policymaking back in 2009 when it acknowledged the impact of default options. It approved a Directive on Consumer Rights that included a clause to limit the use of default options in consumer contracts. Thereafter, behavioral insights have been explored in several policy fields and, in 2014, the European Commission created the Foresight and Behavioural Insights Unit within its Joint Research Centre [LOU 16]. Several countries in the European Union, such as the Netherlands and Germany, have also developed and implemented national policy initiatives based on behavioral insights.
