Behavioral Welfare Economics, Libertarian Paternalism, and the Nudge Agenda

Abstract

Armed with a set of economic theories and a desire to influence policy and improve lives, behavioral economists have developed a doctrine variously referred to as libertarian, light/soft, or asymmetric paternalism, and a series of policy proposals collectively referred to as the nudge agenda. To its advocates, the nudge agenda allows us to improve people’s choices and thereby their well-being on their own terms at minimal cost and without interfering with their liberty or autonomy. To its critics, the nudge agenda represents an ineffective and dangerous intrusion into the sphere of personal decision-making by bureaucrats who may be no better at making decisions than the people whose choices they are trying to improve. This paper reviews what libertarian paternalism and the nudge agenda are, how their foundations differ (or not) from those of neoclassical economics, and what their promises and limitations might be.