Nudge Theory: improving outcomes, but at what cost?
Nudge theory is often seen as a novel way to improve policy outcomes, using insights from behavioural science to encourage people to make decisions in their own best interest, without restricting their freedom to choose. But presenting nudge-informed policies as uncontroversial in this way hides the fact that they can be used to further a partisan ideological agenda.
The recent announcement that the 2017 Nobel prize in economics will go to economist and specialist in behavioural finance Richard Thaler makes this an interesting time to reflect on the impact of behavioural economics on policymaking.
The rise of nudge theory
Thaler is co-author of Nudge, the 2008 book which popularised the idea that small policy changes, which take into account the fact that people often act irrationally, could alter behaviour to bring about significant positive impact. At the request of then Prime Minister David Cameron, he advised on the creation by the UK government of the Behavioural Insights Team (popularly known as the BIT, or the ‘Nudge Unit’) within the Cabinet Office, which has existed since 2010.
Theresa May’s recent announcement of a planned switch from an opt-in to an opt-out, or ‘presumed consent’ organ donation scheme in England is a policy proposed by Thaler and Sunstein in Nudge. By avoiding the inertia which means that many people who intend to sign up as an organ donor fail to do so, it is hoped that the policy will dramatically reduce waiting times for organ transplants. The Behavioural Insights Team’s recently-published annual report describes how nudge theory has been used to improve a wide range of policy outcomes. For example, trialling ‘a pop-up prompt in the GP referral system’ led to ‘a 38 per cent reduction in patient referrals to over-booked hospitals’, an innovation which is now being expanded across the NHS (BIT Update Report 2016-17: 4).
This model has since spread internationally, and with significant influence on policy. The BIT has worked on projects to address social issues as diverse as the lack of pension planning in the United States and domestic violence in Aboriginal communities in Australia. Cass Sunstein, co-author of Nudge, also held a position in the Obama administration in the United States.
An excuse for inaction?
The rapid growth in popularity of nudge theory is partly due to its apparent simplicity – often the policy changes it proposes are very small but can have significant impact on outcomes. This seems like a win-win situation – the government can act to improve social outcomes without the normal trade-offs associated with policymaking, such as higher taxes to fund social spending. However, policymakers may use these small changes as an excuse not to take more drastic action necessary to address deeper social problems. Katherine Curchin argues that it is no coincidence that nudge theory has become associated with promoters of austerity, like David Cameron’s Coalition Government, since it offers new policy options for governments which are ideologically opposed to high levels of state intervention (Curchin, 2017).
Furthermore, libertarian paternalism, the ideology behind Cass and Sunstein’s nudge theory, ‘encourages individuals to take more responsibility for their own actions, while also seeking to curtail any overbearing influence by the state’ (Jones et al, 2013: 59). Thus, the use of behavioural insights fits into a broader trend in policymaking towards a focus on individual responsibility. However, this is a potentially regressive policy, since ‘in poverty, there are narrow margins for error, and the same behaviours […] can lead to worse outcomes’ (Bertrand et al, 2006: 8). Curchin explains that ‘everyday purchasing decisions made on tighter budgets are more cognitively demanding as they involved difficult trade-offs’ (Curchin, 2017: 237). Governments have been quick to use behavioural insights to encourage individual responsibility and shape decision-making, but have failed to appreciate other behavioural research which suggests that good decision-making is much more difficult under the conditions of hardship faced by those living in poverty. Whilst nudge theory may help to steer people towards choices which are believed to be in their best interests, it does not guarantee better outcomes. Yet, the focus on individual responsibility puts additional pressure on people who are already vulnerable.
A lasting legacy
Regardless of our overall judgement on nudge policies, we have to credit the Behavioural Insights Team for encouraging an evidence-based approach to policymaking. This model has been hugely successful – having begun life as part of the Cabinet Office, the BIT is now a limited company, with offices in Manchester, New York, Singapore and Sydney. Academic debate over the ideology underlying nudge-style interventions may continue, but the influence of behavioural economics on policymaking is here to stay.
References
Behavioural Insights Team. (2017). Update Report 2016-17. [online].
Available at: http://www.behaviouralinsights.co.uk/s=aboriginal&post_type=bit_publication [Accessed 26 October 2017]
Bertrand, M., Shafir, E., and Mullainathan, S. (2006). Behavioural Economics and Marketing in Aid of Decision Making Among the Poor. Journal of Public Policy and Marketing, 25(1), [online] pp. 8-23. Available at: https://dash.harvard.edu/handle/1/2962609 [Accessed 26 October 2017]
Curchin, K. (2017). Using Behavioural Insights to Argue for a Stronger Social Safety Net: Beyond Libertarian Paternalism. Journal of Social Policy, [online] 46(2), pp. 231-249.
Available at: https://www.cambridge.org/core/journals /journal-of-social-policy/article/using-behavioural-insights-to-argue-for-a-stronger-social-safety-net-beyond-libertarian- paternalism/304A1A9AAD7C1 22AFD51AFF393EB3D68 [Accessed 25 October 2017]
Independent. (2017). Theresa May's shift towards presumed-consent organ donation praised by charities and patients. Independent. [online]. Available at: http://www.independent.co.uk/news/uk/politics/theresa-may-organ-donation-policy-praised-transplants-presumed-consent-opt-out-system-conservative-a7984021.html.u [Accessed 25 October 2017]
Jones, R., Pykett, J., and Whitehead, M. (2013). The Geographies of Policy Translation: How Nudge Became the Default Policy Option. Environment and Planning C: Government and Policy, [online] 32(1), pp. 54-69. Available At: http://ezproxy-prd.bodleian.ox.ac.uk:7216/doi/abs/10.1068/c1252 [Accessed 26 October 2017]
Partington, R. (2017). Nobel Prize in economics awarded to Richard Thaler. The Guardian, [online]. Available at: https://www.theguardian.com/world/2017/oct/09/nobel-prize-in-economics-richard-thaler [Accessed 25 October 2017]
Thaler, R., and Sunstein, C. (2009). Nudge: Improving Decisions About Health, Wealth and Happiness. London: Penguin Books.
Image Source: FreeImages.com/Svilen Milev
About the Author
Holly Metcalf is a graduate student reading for the MSc in Comparative Social Policy at the Department of Social Policy and Intervention, University of Oxford. She has a Bachelor's degree in Philosophy, Politics and Economics from the University of Oxford.