Stumble, Predict, Nudge: How Behavioral Economics Informs Law and Policy

• Published in: Columbia Law Review Vol. 108; no. 8; pp. 2098 - 2137
• Main Authors: Amir, On, Lobel, Orly
• Format: Book Review Journal Article
• Language: English
• Published: Columbia University School of Law 01.12.2008
• Subjects: Administrative agencies; Behavioral economics; Behavioural economics; Book Review Essay; Choice architecture; Commercial regulation; Economic regulation; Governance; Government regulation; Industrial regulation; Legal theory; Libertarianism; Paternalism; Review articles
• ISSN: 0010-1958; 1945-2268

Research in the field of behavioral economics indicates that humans stumble in their decisionmaking in predictable ways that can often be corrected by a gentle nudge from the appropriate regulatory authority. Two new books--Dan Ariely's "Predictably Irrational" and Richard Thaler and Cass Sunstein's "Nudge"--recount the findings of behavioral research on predictable patterns in human decisionmaking and lay the foundation for regulation through choice architecture that recognizes these human stumbles. In this Review Essay, we provide a critical account of remaining gaps in behavioral economics research and suggest that some types of behavioral insights may be better translated into law and policy reforms than others. We further argue that "Nudge's" concept of "libertarian paternalism" both understates and exaggerates the jurisprudential and policy implications of regulatory innovation. While key insights from the behavioral field may lead to effective regulation systems with minimal intervention, these systems entail costs, have distributional effects, solve macro coordination problems, and are inevitably value driven. Moreover, policy nudges serve merely as a first stage of sequenced regulation where, inevitably, more coercive measures are required in later stages. The idea of choice architecture is then related to the growing body of regulatory studies collectively termed "new governance." We conclude with a call for a more nuanced account of the range of mechanisms as well as the limits, costs, and consequences of applying lessons from the field of behavioral economics to law.