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IPFS News Link • Economic Theory

Nudging: Should We Be Wary of the Latest Fad in Behavioral Economics?

• by Donovan Choy

Behavioral economics has gained plenty of traction in the past few decades. The concept of "nudging"—popularized in the 2008 bestselling book Nudge: Improving Decisions about Health, Wealth and Happiness by Richard Thaler and Cass Sunstein—is well known in the political sphere and even to non-economic students. With Thaler being awarded the 2017 Nobel Prize in Economics and Sunstein running a major regulatory unit in the Obama administration, it most definitely can be said that behavioral economics has successfully permeated the mainstream of the economics profession.

But for all its popularity, the concept of nudging has its flaws which largely go unmentioned. To explain why, I'll first briefly describe the foundations of behavioral economics.