Nudge Theory Analysis

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During the period of the development of traditional economics, researchers deducted the psychological nature of economic agents, thus, they created the model of homo economicus. Back in the 19th century, John Stuart Mills was the first who proposed the definition of the term (Persky 1995). According to Mill, homo economicus is '[…] solely as a being who desires to possess wealth, and who is capable of judging the comparative efficacy of means for obtaining that end’ (1844). Homo economicus, or economic man, is characterized by using rational thinking to avoid redundant actions and maximize his own economic welfare. The assumption of rationality became a fundamental premise for numerous economic theories, for example, rational choice theory…show more content…
Nudge is one of the tools of ‘choice architecture’, or the careful design of social, physical and psychological aspects of the context, environment, in which people make choices. Unlike in rational agent models and popular belief of leaders and authorities that people are completely logical and rational, nudge theory assumes that people think and decide instinctively and mostly irrationally. Thaler and Sunstein argue that challenges and pitfalls of traditional regulation such as high costs of procedures, low effectiveness, unwelcome outcomes, invasive choice regulation can be avoided with the use of nudges. Application of nudges, they claim, may benefit policy makers in many ways, in particular, influence people’s choices more effectively, with fewer costs and invasion. Moreover, it can even replace traditional regulation (Thaler & Sunstein 2008,…show more content…
Their main interest is to exploit behavioral insights through public policies. The use of certain nudges in public policies is justified by the authors on the basis of ‘libertarian paternalism’ (Thaler & Sunstein 2003) Libertarian paternalism implies using nudges that not only preserve freedom of choice but also benefit individuals, match their preferences and correct mental shortcuts (Thaler & Sunstein 2008). UK government was the first who applied Nudge theory to public policy and services. In 2010 David Cameron established the Behavioral Insights Team (BIT), also known as the ‘Nudge Unit’. A number of programs were implemented by the unit with the aim to help people make more beneficial choices for them. In particular, the group focused on such areas as taxes, welfare and health. Later, the same initiative was undertaken by governments of the US, Australia, Canada and the

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