Behavioural economists have enjoyed considerable popularity recently for their work on human irrationality. American economist Richard H. Thaler and legal scholar Cass R. Sunstein, joint authors of the popular 2008 book Nudge, have been at the forefront of this rise. Earlier, Israeli-American psychologists Daniel Kahneman and Amos N. Tversky made pioneering contributions to the field. According to these experts, human beings are far from rational when it comes to making choices as various biases lead them to make suboptimal choices that affect their well-being. This, experts believe, can be corrected by a benevolent government that quietly tinkers with the choices that individuals need to make each day.
A government that hopes to improve public health, for instance, might decide to impose food safety and nutrition standards on businesses that sell food products to the public. This would hopefully save consumers, who supposedly would not otherwise be able to arrive at wise decisions, from the ill-effects of low-quality junk food. Similar “nudges” can be used in a variety of other circumstances as well, including to steer uninformed consumers away from making financial decisions that coud harm them. “Nudging in an Evolving Marketplace: How Markets Improve their Own Choice Architecture”, a 2016 paper by Adam C. Smith and Todd J. Zywicki, takes a critical view of the policy to nudge consumers towards their own good.
The right choice
The authors argue that consumers do not need to be influenced to make the right decisions. This is not to say that consumers possess all the required information to make the right choices for themselves. Instead, the authors argue, even in the absence of a benevolent government, the marketplace evolves mechanisms to improve the choices available to consumers. For one, left to their own devices, consumers are likely to learn from their past mistakes to make better decisions in the future. Two, market competition forces businesses to offer better choices that make their customers happy. Three, there is a market for quality which is more responsive to the needs of the consumer than the government. This makes government nudges irrelevant.
Lastly, many choices that prima facie seem irrational to government officials and the general public might actually be rational from the point of view of the consumer. Smith and Zywicki offer a variety of examples to make their case.