Behavioral economics and austrian economics: Lessons for policy and the prospects of nudges

Abstract

This paper draws on Austrian Economics contributions and its criticism of interventionist policies and programs to assess the prospects of Behavioral economics nudges and libertarian paternalism in a world where fallible knowledge is pervasive. We go on to argue that one of the main problems underlying behaviorally informed regulations and nudging in the real world is epistemic. This is largely so because policy makers tend to underestimate “the importance of the knowledge of the particular circumstances of time and place” and their own cognitive limitations. It concludes with two advices to policy makers and regulators. One is that decisions over nudging are to be made on a case-to-case basis. Another is that it is worthwhile to dig deeper into specificities of institutional environments suggesting under which conditions nudges can(not) deliver what they promise.