Behavioural Economics and Government Policy: The Case of Autonomy

An Insight to Nudge Theory When Applied to the Development of Government Policy

A government’s responsibility to lead its taxpayers efficiently is often discussed and yet the tools required to do so are rarely understood. The principal instrument used to skew our everyday decisions lies in the enigmatic toolbox of behavioural economics, which can sometimes be deemed overly Machiavellian, despite its non confrontational and subdued nature. But does this practice undermine both the population and the individual’s autonomy? And most importantly is it effective?

The forefront concept of behavioural economics which inherently interlaces with government policy is nudge theory, the notion that by manipulating choice architecture one can alter people’s behaviour predictably, without coercion or restricting freedom of choice.

Nudge theory was first formulated and marketed in 2008 by Richard Thaler and Cass Sunstein in their co-written book, Nudge: Improving Decisions about Wealth, Health, and Happiness. The distinctive feature surrounding this anti-regulatory manner of achieving compliance is that the element of control remains in the hands of the individual, whereas in other more straightforward techniques such as enforcement, there is an authoritative figure which exercises their power. The ultimate goal of nudge policy is the reduction of “self and society - harming behaviours”, as put by behavioural economist Adam Oliver, and therefore it is the individual and its society which ultimately benefit from it. The use of this branch of behavioural economics in the making of government policy is growing considerably, extending to various countries around the world, as well as some international organisations. Among these are some noteworthy examples which have served as significant precedents for the use of nudge theory, such as David Cameron’s first nudge team of 2010, followed suit by U.S. President Barack Obama’s own nudge unit and more recently UK Prime Minister Boris Johnson’s efforts during the coronavirus outbreak.

So how does nudge theory actually work? The psychological framework which makes the use of nudges possible is called the impulsive or the automatic system, a component of the human nervous system which carries out involuntary actions and balances reflexive processes within the body, including instinctive decisions. It is much quicker than its twin - the reflective system - which by contrast draws on previous knowledge and facts in order to assess a given situation and to make informed decisions. If governments sought to toy with people’s reflective system it would be a direct attack on their rationality and the whole process would be impossible. The automatic system, however, is embedded with what are known as cognitive biases, upon which nudge theory hinges on. The five key biases outlined by Thaler and Sunstein vary from the anchoring effect, which is when the brain relies too much on a singular piece of information, to the most widely known and used bias, known as herd mentality. By tapping into these cognitive predispositions, nudge theory encourages beneficial decisions without the use of confrontation or economic incentives, ultimately allowing choice architects - namely governments in this case - to subtly direct individuals towards the most beneficial option.

Although the benefits of using nudges seem to outweigh the unpredictability of results, there are critics who question the ethics behind this theory. The paternalistic nature of nudge theory raises questions regarding the autonomy of taxpayers: to what extent will people allow governments to steer them in the right direction and at which decisions do we draw the line? In a government’s ideal world everyone would pay their taxes on time and donate to charity, but is it at organ donation that the use of nudges oversteps the line?

Despite its beginnings in the US, the implementation of nudge theory in policy making truly began with the coalition government of 2010, when David Cameron introduced the first Behavioural Insights Team, or ‘nudge unit’ with the aim of improving economic behaviour. The team’s objectives included encouraging small but consequential behaviours, such as getting people to pay taxes on time, becoming organ donors, avoiding smoking during pregnancy and donating to charity, all actions which have proved to save the taxpayer “tens of millions of pounds” says Katherine Bennholds of the New York Times. However, how can governments guarantee how individuals will react to these policies? And what is the allowed uncertainty before each person’s rationality catches up to the underlying redirection, could the consequences result in governmental mistrust?

In 2020 UK Prime Minister Boris Johnson was criticised by the media for purposefully abstaining from direct social distancing measures and, instead, using nudges to encourage herd immunity. Critics condemned his approach in comparison to other countries where schools were being shut down and people were bound to their homes, while in the UK the government’s response was to wash your hands and avoid shaking them. How are we to decide whether an informed citizen is better off than a ‘nudged’ citizen - could a more informed population have limited the spread of the virus or is it best to keep ‘the sheep’ in blissful, compliant ignorance?

In conclusion, governments and taxpayers alike should reflect on the use of nudge policies and the extent to which it is ethical to employ them. It must be considered whether nudges can truly uproot the significant challenges of our society or if they are a manipulation of the taxpayer’s freedom to choose.