Nudge, Boost, or Design? Limitations of behaviorally informed policy under social interaction

Abstract

Nudge and boost are two competing approaches to applying the psychology of reasoning and decision making to improve policy. Whereas nudges rely on manipulation of choice architecture to steer people towards better choices, the objective of boosts is to develop good decision-making competences. Proponents of both approaches claim capacity to enhance social welfare through better individual decisions. We suggest that such efforts should involve a more careful analysis of how individual and social welfare are related in the policy context. First, individual rationality is not always sufficient or necessary for improving collective outcomes. Second, collective outcomes of complex social interactions among individuals are largely ignored by the focus of both nudge and boost on individual decisions. We suggest that the design of mechanisms and social norms can sometimes lead to better collective outcomes than nudge and boost, and present conditions under which the three approaches (nudge, boost, and design) can be expected to enhance social welfare.