NeuroEconommics (What The Hell Is Mindfulness Anyways) PDF

I think its pretty apparent by now that elephant journal strives to share the mindful lifeso what the
hell
does that mean anyways?
First of all, I wont even begin to pretend that Im writing this article on elephant journals behalf because, obviously, Waylon Lewis is
perfectly capable of mindfully articulating himself and this mission better than I ever could.
Yet, for another, I also wont pretend that whats mindful to me is mindful to everyone else.
So lets take a look at what mindfulness meanswell, to this author at least.
Mindfulness looks a lot like appreciating every single bite of food that you place onto your tongue.
It sometimes looks like the stream of consciousness that flows out of a newly broken heart.
Occasionally, it resembles an article where the usage of shit instead of shoot is merited (or hell rather than heck).
Being mindful means being realistic about the weight of the celebrity voice in our increasingly media-saturated society.
And heres what this mindful life rarely means:
I dont think itgenerally speaking, of courselooks like arrogance and conceit.
What is mindful to me might not be mindful to you because, perhaps, you might be a vegan, whereas I, at this moment in my life, put
my stock in consuming only what my body needs; and then, from as many local and organic sources and farms as I can find it.
Mindful to you might be the concept of Buddhism or Christianity and, while I love and respect all religions, at this place on my path,
I dont want it in my daily life.
So I guess what it boils down to is that being mindful means exactly what it sounds like: you are thoughtfully analyzing both yourself and
the world around you and then youre making choices that benefit our world in its entirety to the best of your waking ability and
knowledgeand youre seeking out sites like elephant journal to increase this awareness.
You work hard at whatever you choose to do for a living.
You dream big and you then, mindfully, place one foot in front of the other on a patient and much smaller course.
You know that your kindness ripples out, and that your anger does too, so you try to use both at their appropriate times.
And maybe you think that there isnt a masculine enough voice in this particular (mindful) community, and if you do then I would
strongly urge you to, ahem, be a man and step up and share your own thoughts via article (because women also appreciate a
communicative man and other men might be able to see themselves within your words).
And thats the truly great part about elephant journal: its a community, not a dictatorship.
So, then, what the hell is mindfulness?
I guess that to some of us, on days when were feeling blue in the heart, it, thankfully, looks like animals on trampolines, but then on
other days when youre fired up and ready to go it looks like avoiding sweatshop purchases at all costs.
Because mindfulness is only as useful as the people behind it.
Any emotion, if it is sincere, is involuntary. ~ Mark Twain
Like The Mindful Life on Facebook.
Ed: Sara Crolick
{Photo: via auburnscs on pinterest}
Incorrect source, offensive, or found a typo? Email us (please put title in subject bar of email so we'll be able to fix). Or do you want to
write for Elephant?
{Waylon H. Lewis C Enterprises 2013: Use Rights in perpetuity. Ownership remains with author.}
About Jennifer S. White
Jennifer is a voracious reader, obsessive writer, passionate yoga instructor and drinker of hoppy ales. She's also a devoted mama and
wife (a stay-at-home yogi). She considers herself to be one of the funniest people that ever lived and she's also an identical twin. In
addition to her work on elephant journal, Jennifer has over 40 articles published on the wellness website MindBodyGreen and her yogathemed column Your Personal Yogi ran in the newspaper Toledo Free Press. She holds a Bachelor's degree in geology and absolutely no
degrees in anything related to literature. She's written one book that has yet to be published and is currently working on another. If you
want to learn more about Jennifer then make sure to check out her writing, as she's finally put her tendencies to over-think and over-share
to good use. Connect with her on Facebook, Twitter, Google+, Instagram and on her new website.
Read more from Jennifer S. White
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Why Nudges are

not enough
Thanks for the help
and input
Jeff French
Social Marketing a standard

tool to guide all:
Social Policy
Strategy
Tactics
Delivery
My thesis
Nudges should not be seen as the default solution
to social change
New understanding forces us to reassess the
exchange concept
Social marketing can add value to the selection
and design of all social interventions
Social Marketing is key to strategic analysis and
selection
A fundamental shift in approach?

Behavioural Economics
Richard
Thaler
Cass R.
Sunstein
This is an important
challenge to us
Do you know this book ?
Have you read it ?
Fallacy of the
Rational economic
man theory
Classical economics & Neo-classical economics

Rational Choice Theory
Maximising utility
Homo economicus Rational
Economic Man & woman!)
Adam
Smith
Jean-Baptiste
Say
1776
David
Richardo
Francois
Quesnay
Thomas Robert
Malthus
John Stuart
Mill
humans seen as:

rational &
narrowly
self-interested
actors
The rational exchange

Psychological cost
Social cost
Financial cost
Physical cost
Time cost
Psychological benefit
Social benefit
Financial benefit
Physical benefit
Time benefit
Incentives or disincentives to reduce or increase
BUT
95%
of thinking happens in
our unconscious
The neural tug of war
Choice Architecture
Mindless choosing
Nudges can be characterised as:

1. Positive or only minor penalties
2. Avoidable
3. Passive, and easy, i.e. require little effort
4. Low cost, to both the person and to the
organisation utilizing them
Putting fruit at eye level

counts as a nudge.
Banning junk food does not.
The value/cost exchange matrix $ Primary Forms of intervention
Active
Decision
Conscious / Considered
Incentive
Disincentive
Reward
Punish
Nudge
Automatic / Unconscious
Passive
Decision
Examples
Default saving Schemes
Default: Organ Donation?
Opt in
Opt out
10
The current
context
for our work
Self evident failure in

some areas of policy
11
Complex messy societal challenges

climate
change
alcohol
recycling
theft
accidents
violence
inequality
poverty
obesity
pollution
HIV / Aids
smoking
drug use
sexual health
Get more from less
12
A dramatic transformation
Put your hands up generation LX

you are the Charmed Generation Typically, people born between1950 and 1970
You want it
how you
want it
13
The lead actor in the

film of your own life
A belief that people can make their own
history
A significant shift in the

way that people
perceive the role of the state
Our new
has new
mantra
Serve
theGovt
people
better
Relevant whatever the party, whatever the country
14
Democracy refreshed
MICHAEL SANDEL
A new politics of the common good
REITH LECTURES 2009: A NEW CITIZENSHIP
More demanding idea of what

it means to be a citizen
Governments
Nudged into Nudging

Some Governments like Liberal Paternalism and
Nudging because:
Simple concept
Promise of easy solutions
Low cost solutions
Light touch change
15
But there are

5 big problems
with this thinking
1. Top down and controlling (Paradox)

2. Does not engage or empower
3. Individualistic ,does not address causality
4. Driven by understanding but not insight

5. No account of other new understanding
16
Understanding
and knowledge
The New Landscape of success

New (And not so new) Thinking
Complex systems thinking
Social Design
Sustainable Development
Liberal Paternalism
Behavioural economics
Social Networking
Inequality / Spirit Level
Genetic markers for behaviour
Social Norming
Social Capital
Social Maths
Urban design
Crowd behaviour
Neural science, behaviour info processing
Duel Systems theory
Public Value
Corporate Social Value
Evolutionary psychology
Co creation
Process Reengineering
Behavioural Geography
Communications science
Neo Materialism V Psycho social theory of
inequality and harm
New (And not so new) Interventions

Health coalition building
Social Design
Integrated approaches to inequality reduction
Solutogenic analysis
Default options solutions
Policy integration, whole systems solutions
Assets Mapping and community asset building
Community planning and design
PROMS
Corporate Social Value
Peer support interventions
VFM, ROSI, CBA and Social Return on Investment SORI
Critical thinking schemes
Social media
Demarketing (Anti Marketing)
Social Proofing
Social Franchising
Co creation
Social design
Resilience development
Mindless choice solutions
Incentives and conditional cash payments
Neural Marketing
Viral Marketing
17
KIKI
BOOBA
18
Emotion
Empathy
Rules
and
Competition
rituals
Economic
Situation
Prompts
and
Priming
Engagement
Perceived
Vulnerability
and
Relevance
Physical
Social
Norms
Feedback
Knowledge
Ease of
Action
Reciprocity
Systems
and
Values
and
beliefs
Specificity
Incentives
and
Disincentives
Heuristics
& biases
processes
Authority
Liking and
Trust
Consistency &
Commitment
Critical
Consciousness
Environment
Salience
Pleasure
and ego
Genetics
Loss
Gain and
Physiology &
Morphology
Scarcity
OK so what should
we do ?
Can we use nudges?
19
The value/cost exchange matrix 4 Primary Forms of intervention

Active
Decision
Incentive
Disincentive
Reward
Punish
Passive
Decision
eg: Reward for not

smoking
Incentive
Active
Decision
Hug
eg: A Fine
Smack
Reward
Disincentive
Punish
Nudge
eg: A default
saving scheme
Shove
Passive
Decision
eg: Restrictions
on sale time and
age for alcohol
20
More than just Carrots and Sticks
Law Education
de-CIDES
influencing behaviour framework
5 primary Types of intervention

Control
Inform
Design
Educate
Support
21
The Social Change Intervention Matrix
Hug
Nudge
Shove
Smack
Control
Inform
Design
Educate
Support
Smack
Control
22
Hug
Support
Nudge
Design
23
Nudge
Design
Shove
Control
24
Shove Nudge Hug Smack

Control
Inform
Design
Educate
Support
Hug
Nudge
Shove
Smack
Control
Inform
Design
Educate
Support
25
Social Marketing
Traditional
Focus
Incentive
Active
Decision
Hug
Smack
Reward
Disincentive
Punish
Nudge
Shove
Passive
Decision
So should we be
worried by
behavioural
economics and
nudging ?
26
NO:
2011 a great year for Social Marketing!
Our 2nd dedicated Social Marketing Journal

The inception of the Global Social Marketing Association
Australian Social Marketing Association
New UK Social Marketing National Strategy
Social Marketing in the US Healthy People 2020 strategy
2nd World Social Marketing Conference
Over twenty social marketing text books
Growing number of Social Marketing Conferences
Etc
NO
Social marketing a
multi disciplinary
transtheoretical applied field,
We use Nudges when the
ethics, insight evidence and
data indicate we should
27
SM concepts and
systematic planning =
Elegant solutions to
complex problems
Social marketing also adds

value in selecting and
designing all the elements
in social change
programmes
28
The Social Marketing Intervention Matrix
Hug
Nudge
Shove
Smack
Control
Inform
Design
Educate
Support
How it feels : They dont, but

the people do
the fatal
conceit
The State and
Experts know
best
29
Social marketing is a deeply

respectful, democratic, empowering
and compassionate way to work that
will be demanded by citizens
The power of the people is the

power of social marketing
30
The Toronto Nudge

You are all automatically enrolled
for the World Conference
April 2013 Toronto
We will bill you!
Only Joking
Professor Jeff French
PhD, MBA, MSc, Dip HE, BA, Cert.Ed
Strategic Social Marketing Ltd
Registered Company No : 6963216
www.strategic-social-marketing.org
Attabara, Conford , Hants, UK. GU307QW
Many
Thanks
31
Legal Studies Research Paper Series

Research Paper No. 09-006
January 2009
STUMBLE, PREDICT, NUDGE: HOW
BEHAVIORAL ECONOMICS INFORMS
LAW AND POLICY
On Amir
Orly Lobel
This paper can be downloaded without charge from the
Social Science Research Network Electronic Paper Collection:
http://ssrn.com/abstract=1327077
Electronic copy available at: http://ssrn.com/abstract=1327077
FOR EDUCATIONAL USE ONLY

108 Colum. L. Rev. 2098
Columbia Law Review
December, 2008
Book Review Essay
*2098 STUMBLE, PREDICT, NUDGE: HOW BEHAVIORAL ECONOMICS INFORMS
LAW AND POLICY
NUDGE: IMPROVING DECISIONS ABOUT HEALTH, WEALTH, AND HAPPINESS. By
Richard H. Thaler and Cass R. Sunstein. New Haven: Yale University Press, 2008. Pp. 293.
$26.00.
PREDICTABLY IRRATIONAL: THE HIDDEN FORCES THAT SHAPE OUR DECISIONS.
By Dan Ariely. New York: HarperCollins, 2008. Pp. 280. $25.95.
On Amir [FNa1]
Orly Lobel [FNaa1]
Copyright (c) 2008 Directors of The Columbia Law Review Association, Inc.; On Amir; Orly
Lobel
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.
Introduction
To stumble is human. With every choice we make, individual motivation interacts with
emotions, cognition, and social norms. Our decisionmaking stumbles are often the result of the
ways in which information is presented and choices are constructed before us. Finding patterns
of how we stumble and designing systems that can prevent common behavioral failures is the
subject of the new field of behavioral economics which *2099 attempts to incorporate the vast
knowledge accumulated by cognitive and social scientists into predictive models. The legal
community in recent years has focused on creating policies that take into account the limits of
human rationality. To do so, law has turned to developments in social science research because,
as Richard Epstein recently wrote, There is little doubt that the major new theoretical approach
to law and economics in the past two decades does not come from either of these two fields.
Instead it comes from the adjacent discipline of cognitive psychology, which has now morphed
into behavioral economics. [FN1]
By understanding the ways in which individuals are susceptible to biases and flawed
decisionmaking, law and policy can help improve individual and group behavior. Two new
books--Dan Ariely's Predictably Irrational and Richard Thaler and Cass Sunstein's Nudge--bring
together some of the most significant new research on human fallibility and lay the foundation
for laws and policies that reflect an understanding of where humans stumble.
The two books present the field of behavioral studies at its best and illuminate the many
questions that remain unanswered. The rich and diverse examples are the result of years of
research to identify patterns of human divergence from the rational agent model. Taking on a
broad range of daily life contexts, the books both demonstrate the limits of means-end rationality
and explain some of the features of behavioral biases. Predictably Irrational and Nudge thus
elucidate the systematic and pervasive nature of irrationality and can inform policy in every legal
field, ranging from consumer and environmental protection, through employment and health
policies, to tax and financial regulation. Moreover, the insights in the books can inform
decisionmaking processes in general and may have implications for the work of adjudicators,
legislators, and administrators. The two books are a call for policymakers to systematically study
and correct for fallibilities in individual and group choices.
This Review Essay links the two books to current developments in legal theory and practice,
highlighting the scholarly and programmatic efforts to rethink the role of law for the twenty-first
century. Part I of this Review Essay sets forth the main arguments developed in each of the
books and examines both the concrete and conceptual implications that follow from the field of
behavioral economics. Part II discusses the idea of debiasing through law, exploring various
policy choices that flow from the experiments described in the two books. The books share
optimism about the ability of strategic design to increase rational living, thereby improving
overall welfare. We aim to provide a critical account of what is still lacking in the experimental
field and which types of behavioral insights are best translated into law and policy reforms. We
also develop a distinction between Type 1 biases, which are sourced in our automatic *2100
systems and stem from reflexive or intuitive processes, and Type 2 biases, which are generated
from irrationalities in the reflective system meant to override our automatic responses, and argue
that cognitive errors are more readily corrected through policy when sourced in Type 1 biases.
Moving to the jurisprudential implications of debiasing lessons, Part III analyzes the vision of
gentle nudges and the concept of choice architecture, the idea that law should focus on the
organization of the context, process, and environment in which individuals make decisions. We
argue that these concepts are closely related to a growing body of regulatory studies that can be
grouped under the label new governance and fall between command-and-control regulation
and deregulated markets. [FN2] Part III also analyzes Thaler and Sunstein's concept of
libertarian paternalism. [FN3] We support the authors' call for a third-way mode of
government intervention, between command-and-control and deregulation in the broad range of
social and fiscal policy. We also accept as real their distinction between gentle nudges and
forceful shoves, and consider it key to liberal theory. At the same time, we view the term
libertarian paternalism and its substance as conceptually and normatively problematic. We
argue that, in an effort to appeal to a broad political audience, Nudge simultaneously overclaims
and understates the implications of behavioral economics for law and policy. Many of the key
implications of the behavioral field involve designing more effective and less interventionist
regulation systems than command-and-control, but these systems cannot be described as
libertarian. They too entail costs, have distributional effects, and are inevitably value driven.
Similarly, many of Nudge's proposals can be explained by better regulatory responses to thirdparty externalities and the need for central coordination, planning, and macropolicies rather than
paternalist goals.
Moreover, because of the limits of the corrective solutions to cognitive failures as well as
competing interests that coexist in any given policy field, it is important to identify those
challenges that cannot be addressed by new governance approaches and will continue to require
more traditional regulatory approaches. Frequently, policy nudges serve as a first stage of
sequenced regulation where, inevitably, more coercive measures are required in later stages. A
more nuanced account of the range of mechanisms as well as the limits, costs, and consequences
of debiasing *2101 efforts would strengthen Nudge's theoretical, explanatory, and practical
power.
I. Predicting and Nudging
A. The Odd World of Judgment and Decisionmaking

Humans stumble frequently because we are rather bad at predicting what will make us happy.
[FN4] Moreover, principled ideas about our desires and preferences are often at odds with our
immediate choices. Predictably Irrational, by Professor Dan Ariely of MIT's Sloan School of
Management, is a tour de force analysis of the field of judgment and decisionmaking. The book
presents the latest social science research on the various forces that drive irrational
decisionmaking in predictable patterns and is rich with concrete examples of how individuals
make poor decisions. Ariely shows that the context in which we appraise choice alternatives,
from shopping choices (pp. 14-15), through the selection of housing alternatives (pp. 30-31) and
potential mates (pp. 10-14), to judgments about the severity of a crime (pp. 224-26), has an
immense influence over the choice outcome. The experiments described in the book demonstrate
that the strong effects of context go beyond what is reasonable, beneficial, or adaptive, and that
individuals often have very little awareness of these effects (p. 243). [FN5] It appears, in some
instances, we are simply hardwired to stumble.
Predictably Irrational takes its readers on a whirlwind of demonstrations pertaining to fallacies of
supply and demand, and more broadly, to why people are unable to generate true prices for
experiences, which can lead to the failure of the efficient markets hypothesis. In contrast to
behavior suggested by classic notions of a direct relationship between value or utility and
monetary amounts, individuals actually use different types of information to generate seemingly
interchangeable judgments. Ariely describes research he has performed with colleagues showing
that people are unable to ignore the actual price of a good when considering *2102 the maximum
price they are willing to pay for the good (their reservation price) (pp. 23-48). [FN6] One's
reservation price should theoretically be independent of the actual price and correspond solely to
the utility level (or the value) one hopes to gain by consuming the good. Yet, Ariely and
colleagues found that even when it is in people's best interest to reveal their true reservation price
(i.e., the price elicitation procedure is incentive compatible [FN7]), they are still affected by the
actual price of the good (p. 28). Thus people do not act as the economic model would predict, but
instead, use other strategies to make their pricing decisions.
In particular, people base utility predictions on experiential cues, but use external market
information for monetary assessments (pp. 23-48). [FN8] Using different cues to determine one's
pricing, either on the demand or the supply side, is not necessarily wrong, but may indeed lead to
an unforeseen dependency between supply and demand. For example, the standard way to
consider the optimal price of a monopolist has to do with the intersection of the supply curve
(assumed to reflect various costs and capacities of production) with the demand curve (assumed
to reflect the true value consumers might extract from the good). If the psychology of consumers
is such that the value they extract from the good depends on its price, markets may become
inefficient with either overdemand for high-priced goods or underdemand for low-priced goods.
In essence, Ariely notes, the basic assumptions underlying the supply and demand model may
not hold true in real life (p. 45).
Several other experiments also illustrate the human tendency toward irrational valuation. For
example, Ariely found a placebo effect based on the price of drugs; consumers who bought cold
medicine at discount prices reported significantly worse medical outcomes than those who *2103
paid list price (pp. 181-84). [FN9] While placebo effects have long been shown to be pervasive,
[FN10] findings of pricing effects on physical ailments are relatively new. [FN11] More
generally, Ariely describes a series of studies in which he and his colleagues demonstrate a
strong top-down effect of expectation on experience (pp. 157-68). If one expects to taste
something bad, the actual experience will be worse than if there had been no biased expectation.
Recently, the connection between expectations and experience has been demonstrated at the
neural level as well. [FN12]
Another bias that affects rational pricing is the endowment effect. [FN13] Robust market
inefficiency is caused by the effect of ownership on individual valuing of an item. Ownership
causes individuals to request far more money when selling an item than nonowners are willing to
pay. Again, while this behavioral bias is not a new finding, Ariely and his colleagues have
further developed our understanding of the endowment effect.*2104 They demonstrate that
ownership causes sellers to focus on the benefits of possession (e.g., how nice it might look on
the shelf) while buyers seem to focus on the available alternatives given the price or the
opportunity costs of the purchase (pp. 127-38). [FN14] The pricing disparity that results from the
endowment effect causes less trade in the market than what might otherwise be efficient.
In addition to pricing irrationalities, Predictably Irrational discusses a broad range of social
behavior, human interactions, and identity formation. In a series of experiments, Ariely examines
seemingly irrational behavior surrounding dishonesty. For example, an average person allows
herself to steal office supplies or communal food, but will not steal the equivalent value of the
items in cash (pp. 195-97). Ariely seeks evidence about the workings of the human conscience
and demonstrates that dishonest behavior is influenced by internal checks much more than by an
external cost-benefit ratio. [FN15] One experiment demonstrates, for example, that in order to
curb cheating on an exam, it may be more efficient to manipulate the salience of one's standards
of honest conduct than to manipulate the probability of being caught (pp. 211-14). Conversely,
introducing a medium (such as poker chips) that enables people to distance themselves from their
dishonesty and to rationalize it as not pertaining to their honest identity may greatly increase
such dishonesty (pp. 220-22).
A final important area of human fallibility illuminated in Predictably Irrational is that of selfcontrol. In a series of experiments conducted by Ariely and collaborators, individuals
consistently underpredicted their interest in unusual sexual activities and their willingness to
engage in unsafe sex in an aroused state (pp. 96-97). While the notion of hot and cold states in
decisionmaking is not new, [FN16] the empathy gap found by *2105 Ariely and colleagues, that
is, the inability of people in one state to comprehend how it might feel in another state, is cause
for alarm, as policy does not regularly anticipate and correct for behavior in hot states. In other
words, neither our intuition nor the common practice market research does a good enough job
capturing the judgments people will make when in a hot state. For example, Ariely's results
suggest that market research will mistakenly indicate that most individuals plan to use condoms
when in real life hot states they will not do so (pp. 96-97). This may lead educators and
policymakers astray when they consider investment in education about condom use. Tax dollars
might be more wisely used in offsetting such problems of self-control.
Above and beyond highlighting a range of heuristics, mental shortcuts, and biases that affect our
cognitive processes in daily life, Predictably Irrational attempts to outline the systematic causes
of such erroneous judgments, opening the door to potential remedies for these failings. Research
suggests, for example, that signing an honor code can bring forth awareness of, or prime,
individual standards of honesty and can curb subsequent dishonesty. [FN17] The concrete
examples as well as the broader processes analyzed in the book are thought-provoking and
relevant to most any field of law. Predictably Irrational's focus on economic- and policy-relevant
behaviors, as well as its choice of empirical situations that pertain to well functioning markets,
organizations, and societies uniquely positions the analysis for legal discourse.
B. Helping Humans Improve Their Judgment
Predictably Irrational sets the stage for Nudge, the highly anticipated product of a longtime
collaboration between Richard Thaler and Cass Sunstein. Like Ariely, Thaler--described in the
academy as the founder of behavioral economics and behavioral finance--and Sunstein--often
described as the father of behavioral law and economics--are themselves the authors of many of
the studies demonstrating the human fallibility *2106 that is the subject of their book. In Nudge,
they introduce the theoretical creature, Econ, something like Dworkin's judicial Hercules,
[FN18] who (unlike Hercules) operates perfectly for its own gains rather than for the greater
jurisprudential good. [FN19] Thaler and Sunstein contrast this mythical creature Econ with the
real Human and--building on the wealth of recent behavioral research findings--compare the
theoretical actions of Econs with those of Humans in many policy related situations.
The Econ/Human contrast aims to show the Nudge reader that, while many existing policies may
be perfectly suited for Econs, they are far less so for the regular Humans with respect to both
meeting specific policy goals and maximizing overall market welfare. For example, forcing
lenders to disclose various interest schemes under one term (i.e., APR [FN20]) in order to
facilitate ease of comparison does little for those who do not readily understand the formula, or
for those who are not adept at searching for all other noninterest-related fees or discounting the
formula according to the lenders' ability to change contractual terms over time. Nudge suggests
offering software to consumers that can provide comparable, processed, and digested data, so
that Humans can make intelligent financial decisions in situations as varied as buying a car,
shopping for student loans, or using and paying off credit card debt (pp. 138, 141, 144).
Similarly, while Econs would know to slow down in a dangerous road curve, Humans may be
preoccupied and fail to do so. Nudge suggests that a simple, well-known visual illusion (e.g.,
driving over lines which get closer and closer makes it seem like one is driving faster) could be
used to slow down the traffic in such a dangerous area (p. 38). Helping real people realize that
they are driving too fast by painting the road appropriately has the potential to prevent accidents
to everyone's benefit. Nudge suggests that policymakers should concentrate on such simple
*2107 steps aimed at maximizing welfare by taking into account the irrationalities of Humans.
Unlike Ariely, Thaler and Sunstein sail rather quickly through many robust differences between
the behavior of Econs and their real counterparts with the purpose of focusing the book on
potential reforms and remedies. Nudge brings together many behavioral studies and concrete
examples in order to suggest various practical solutions to core regulatory problems as well as to
propose an overarching theory of the role of government policy. Thaler and Sunstein argue that if
behavioral economics teaches us that we do not always act in our best interest, then policymakers
must rethink the tools of regulatory command to change behavior and better align our immediate
choices with our deeper, truer preferences. To accomplish this, Nudge urges policymakers to
design policies that improve people's well-being through gentle nudges rather than through
coercive measures (p. 6).
Nudge is unabashedly a highly prescriptive book. Thaler and Sunstein build on and further
develop their previous work in which they argued that libertarian paternalism is not an
oxymoron. [FN21] According to Nudge, choices can be presented in a manner that will help
individuals act in their own interest without restricting their choices. The book's motto,
[c]hoosers are human, so designers should make life as easy as possible (p.13), is the basis for
Nudge's idea of choice architecture (p. 81-83). Thaler and Sunstein--using the acronym
NUDGES--propose six subtle methods for devising a good choice architecture: iNcentives,
Understanding mapping, Defaults, Giving feedback, Expecting errors, and the Structuring of
complex choices (pp. 81-100). These principles, again, build on the notion that while Econs are
not prone to error, Humans are. As such, when designing policy (or anything for that matter), one
must take into account that Humans will frequently make judgment errors to their own detriment.
For example, with respect to the method of setting defaults, Thaler and Sunstein note that most
people end up staying with the preset default option in situations ranging from savings decisions,
organ donations, and privacy choices, to the onset time of one's screensaver (p. 34). In many of
these situations, law inevitably must provide a default. Because one of the foremost roles of the
central planner is to supply defaults, [FN22] policymakers should consider which default will be
the most sensible. The prototypical example of changing defaults as a way of correcting
behavioral failures involves a public pension system or an employer who runs a 401(k) plan (pp.
103-17). The administrator of the *2108 program can act paternalistically, but not coercively, by
designing the plan as an opt-out policy. Because people are generally prone to accept the
default and are too overloaded with decisions and information to opt out, many more people will
save for the future under an opt-out scheme. Similarly, if the organ donation default is set to
donor, many more people will be donors (pp. 178-79). According to Nudge, since this is only
default rule design, it does not interfere with employee or donor preferences even as it produces
significant economic and social gains (pp. 11-13). In other words, law can contribute to people's
happiness and wealth without reducing their freedoms.
Feedback, another of Thaler and Sunstein's six methods, promotes important learning in the
formation of preferences, but understanding how to translate (or map) these preferences to a
valid choice may require structural aids. That is, even if a person knows what she needs (e.g., I
need a laptop that can run Microsoft Office and connect to the Internet), she may still have a hard
time translating between her needs and the choice set (e.g., what is the appropriate CPU speed,
RAM amount). Thaler and Sunstein use consumer credit choices as a central example of the
possible benefits of a decisionmaking aid (pp. 142-44). As mentioned above, credit cards are
characterized by fees of all sorts and one may need to spend quite a long time discriminating
between them to determine whether a particular card fits her situation and preferences. With the
help of software that can take as input all the different terms that characterize credit card offers
and translate them into a meaningful and comparable representation of their implications,
Humans could make decisions that would more closely mirror the decisions that Econs would
make with the opaque information now provided by credit card companies.
In illustrating the possible methods of choice architecture, including smart defaults and feedback
systems, Nudge develops a vision of how policymakers can steer people toward better decisions
about their health, financial investments and savings, environments, and happiness--all without
imposing views from above. Rather, policymakers can serve as the architects of choices,
supporting, but not mandating, those choices that are wealth-maximizing, or at the very least,
commanding user friendliness or transparency for Humans as opposed to Econs.
Ariely's understanding of human irrationalities and their responses are largely in line with those
of Thaler and Sunstein. By describing the range of ways that industry attempts to direct people's
choices, Predictably Irrational implies that policymakers should also be able to do the same.
Moreover, Nudge's idea of libertarian paternalism is largely consistent with Ariely's view of the
macro picture. Ariely writes: If I were to distill one main lesson from the research described in
this book, it is that we are pawns in a game whose forces we largely fail to comprehend (p.
243). If the game in which we are pawns is that of human decisionmaking, then *2109 surely
providing a better game design does not reduce the pawns' freedom but rather empowers them.
II. From Predicting to Nudging: System 1, System 2, and the Legal System
A. Intuition, Cognition, and Irrationality

A central contribution of behavioral economics to law and policy concerns the work of
regulators. Using results from behavioral economics research, administrative agencies can
provide better, more useful information to corporations, consumers, employees, students, and
citizens in areas such as health, consumption, schooling, and finance. Consumer protection laws
are one case in which decisions by such agencies can serve to check processes through which
consumers buy things they do not need or overpay for things they do need. [FN23] Ariely's
findings about the placebo effects of price information are highly relevant to the ongoing policy
debate about the cost of drugs and the competition between generics and brand names, as well as
to broader issues of healthcare reform. [FN24] Predictably Irrational and Nudge also provide
new understandings about problems of self-control and intertemporal decisionmaking (i.e., the
lack of consistency between our current decisions and the long-term beneficial outcomes),
including the overvaluation of opportunities and options. Again, regulators must consider these
phenomena when directing individual financial decisionmaking, such as when designing 401(k)
retirement programs.
Neoclassical economics, while generally averse to regulation, allows that under certain
conditions of imperfect information, regulation may be an appropriate response. [FN25] The
behavioral insights enormously expand the world of imperfect information. Once one accepts
that many of our decisions are based on imperfect, biased, and inaccurate calculations of
expected benefits and costs, then it becomes clear that market failure *2110 is pervasive. The
question of whether policy can and should strive to correct for imperfect decisions, however,
depends on the prior question of whether and how behavioral biases can be subject to corrective
measures. Observing the many deviations from rational behavior, often referred to as biased
behavior, we argue that appropriate corrective measures must consider that the various biases
have unique origins and thus must be counteracted in different ways.
A vast body of research in psychology, neuroscience, and decisionmaking focused on
determining the types of mechanisms that may generate biases points to two types of biases:
those that stem from reflexive or intuitive processes governing behavior unchecked (Type 1
biases derived from System 1 processes), and those that arise precisely because of processes that
are meant to control, monitor, and override the intuitive responses (Type 2 biases derived from
System 2 processes). [FN26] In lay terms, one may think about this as a distinction between
biases that are caused by people not thinking carefully and those that are caused by people
thinking, or indeed thinking too much. Nudge describes System 1 induced biases as cases in
which our automatic system induces us to continue making the wrong choices even after we
cognitively know about the bias (pp. 19-22). According to Thaler and Sunstein, debiasing can
occur in such cases when our reflective system disciplines the automatic system (p. 234). The
distinction between System 1 and System 2 failures traces a plethora of dual-processes cognitive
models, such as automatic-controlled, emotional-cognitive, reflexive-reflective, and many others,
but the logic that manifests in all of them with respect to overcoming biases is almost the same.
[FN27]
Type 1 biases caused by intuitive/reflexive reactions may be easy to correct; correction, in fact,
may rely simply on asking people to think carefully or allowing them time to do so. [FN28] For
example, consider the *2111 attraction effect, caused by asymmetric dominance mentioned by
Ariely at the outset of his book (pp. 11-14). [FN29] This effect surfaces in situations (illustrated
in Figure 1) in which three alternatives are given, {a, b,a'}, and the third alternative {a'} is
dominated by--or in layman's terms, is clearly worse than--one of the other choices, {a}. In such
situations, the number of people that choose the dominating alternative, {a}, ends up being larger
than the case in which the third dominated alternative, {a'}, was not in the choice set. Thus,
adding a third alternative increases the choice share of one of the existing options, which violates
regularity. [FN30] It has been shown that the addition of the dominated alternative makes the
dominating one seem much better; that is, at an intuitive perceptual level the dominating
alternative, {a}, becomes better and is thus chosen more often. [FN31] This attraction effect
disappears when people think carefully about their choices, [FN32] or when no intuitive tradeoff
exists. [FN33]
Figure 1: The Attraction Effect and the Compromise Effect
a
a'
b
c
*2112 In order to prevent Type 1 biases, one must only think carefully about the problem and
consider the tradeoffs. Often, simply asking people to do so is sufficient to activate System 2,
which overrides the Type 1 biases. [FN34] The scope of Type 1 biases also extends to decisions
that have a normative or even moral nature to them: Behaviors people follow because they feel
like they are the right thing to do may be the result of overlearned rules, i.e., rules that become
second nature and are followed automatically. [FN35] Such rules are often followed without
consideration of the particular case, and may easily be overridden by consideration of the facts at
hand. [FN36] Finally, in a similar vein, recent evidence suggests that well-established biases
such as reference dependence--the tendency to judge things not in absolute value, but rather in
relative terms as compared to some focal level (the reference point)--may also be of Type 1
nature: When people are restricted to reliance on simplistic processing they are far more likely to
exhibit reference dependence than when they are unrestricted. [FN37] A common method to
change the reference point is to frame the decision situation in a different way (e.g., meat can
either be 93% lean or 7% fat). Consistent with this, a large literature indicates that choices can be
influenced if they are framed by well-chosen reference points. [FN38]
By contrast, biases that are caused by controlled processes generated through System 2 (Type 2
biases) may not be as easy to correct. Consider what, at first glance, appears to be a relative of
the attraction effect--the compromise effect (Figure 1). [FN39] The effect is caused when in a
three alternatives choice set {a,b,c}, two {a,c} bracket the third {b}, causing it to be the
compromise alternative. That is, in the tradeoff between several dimensions, the middle option
{b} does not excel on any one in particular, but delivers a middling level on all. In such cases
people tend to choose the middle alternative more often even though adding the third alternative
({c} for example) to the choice set should not increase the relative share between the other two
in favor of the one closest to it ({b} in this case). This result again violates regularity. However,
in this case, the bias, unlike the attraction effect, is a Type 2 bias. It is caused by considering the
alternatives and the tradeoffs of the alternatives carefully and resolving to choose the
compromise. This effect grows *2113 when one is accountable for the choice, [FN40] and
disappears if people are restricted to simplistic processing. [FN41] This conforms with the
expectation that a Type 2 bias would only increase if people were asked or allowed to think more
carefully about the decision. [FN42]
TABULAR OR GRAPHIC MATERIAL SET FORTH AT THIS POINT IS NOT
DISPLAYABLE
Another example that reveals irrational inconsistency due to a Type 2 bias is the special case of
intransitivity. Transitivity describes a preference structure such that if {a} is preferred to {b},
and {b} is preferred to {c}, then this implies that {a} is preferred to {c}. [FN43] Transitivity is a
special case of consistency, which is a fundamental requirement of rationality. Unlike lay
perceptions, recent evidence suggests that greater reliance on the cognitive system and careful
consideration of alternatives may actually increase intransitivity. [FN44] This is because, in
contrast to our automatic affective reactions that are quite consistent, our cognitive processes are
often inconsistent in valuing different aspects of the choice alternatives. Such inconsistent
weights generate stochastic noise and increase inconsistency. In a classic example, people who
were asked to choose a poster by thinking carefully about all the aspects of all the choice
alternatives ended up less likely to like their choice (as measured by the likelihood*2114 they
would actually hang the poster on the wall) than those who chose more intuitively. [FN45] The
experiment illustrates that those thinking carefully about their choices may make inferior
decisions to those who simply rely on intuitive processes. Clearly, it is much more challenging to
correct such errors that occur when people think too much (Type 2 biases).
These examples suggest that while methods for debiasing Type 1 biases may be readily
available for policymakers, it may be extremely hard to correct Type 2 biases. In the latter cases,
it might be simpler to consider rebiasing choices, i.e., manipulating outcomes without
eliminating (but rather using) the source of the bias, if a more appropriate direction is agreed
upon. [FN46]
B. Debiasing, Rebiasing, and the Limits of Regulation in Correcting Certain Decisions
Regardless of the designation of the corrective measure, the distinction between different biases
based on the type of mechanism that produces them is critical when examining choice
architecture. As Thaler and Sunstein suggest in Nudge, in every possible situation a choice
architecture already exists (p. 3). Therefore, one must begin by asking whether such architecture
is appropriate, beneficial, or even optimal. A first step in this inquiry must include the
identification of the type of mechanism underlying potential biases. The second step is to
identify what mechanism the proposed solution should employ. Some choice architecture
solutions can be classified as attempts to correct or eliminate an unconscious human bias, while
other choice architecture solutions can be classified as attempts to harness such a bias and use it
to channel individuals toward the best decisions.
Choice architecture solutions that target bias correction are often appropriate in cases in which
individual decisionmakers face too much information with too little expertise. One example of
such choices discussed in Nudge are choices about health insurance and prescription drug
coverage (pp. 159-74). Distilling information about health insurance into a more manageable
system would unequivocally be positive, as it would enable the decisionmaker to understand the
implications of different choices and make the choice that best suits his or her needs. However,
providing better and clearer information in an attempt to override biases may have drawbacks as
well. One should also consider whether such choices are subject to accountability to others or to
overweighing less relevant attributes simply because they are now presented clearly; *2115 both
might lead to Type 2 biases. That is, helping people think more carefully about the decision may
yield unintended consequences, such as overemphasis of decision dimensions that previously
would not have been salient, but are now clearly visible and likely to attract undue attention.
The second category of choice architecture solutions--which seeks to employ a person's intuitive
biases for socially desirable results--arises in several places in the two books, especially when
they deal with decisions about spending money. Money is unique in that it is universally desired
even though it has no direct hedonic effect. [FN47] That is, money is useful not because we can
eat, drink, or feel it, but because it is fungible, and can be easily translated into hedonic
experience. [FN48] Just as humans cannot perfectly predict happiness, neither can money be
translated perfectly into happiness. [FN49] Importantly, money's artificial nature sets the stage
for policies that harness individual biases in the interest of macro-efficiency. For example, an
individual's inability to efficiently trade-off future with current benefits may lead to insufficient
savings rates, but may also open the door for corrective measures, such as Nudge's Save More
Tomorrow concept (pp. 103-17). This revised savings policy, using the recognition that people
are mostly present biased [FN50]--they discount the future heavily compared to the present-defaults individuals into committing to increase their savings in the future. Such a policy
redirects two biases--the default bias and the present bias--into better choices; it does not,
however, correct the root cause biases that lead to poor financial decisions. [FN51]
*2116 As discussed in the previous paragraph, some suggestions for improving choice
architecture actually rely on biases to generate a better outcome. Utilizing such interventions
without careful consideration of the underlying mechanisms may render them less effective. For
example, if the mere act of changing the organ donation default to opt out--in order to take
advantage of the strong effect of the stickiness of defaults--causes people to consider the decision
more carefully and perhaps to consult their families, a reactive effect may emerge and the
donation rate may not increase to the desired level. Moreover, learning to suppress biases can
have unintended effects and result in a myriad of new predictably and unpredictably rational and
irrational behaviors. For example, the idea of introducing a penalty default--one that is the least
desirable among the choices--is in fact advanced by other law and economics scholars simply to
force the contracting sides to consider more fully the terms of their agreement, but this may also
lead to a high number of inefficient decisions. [FN52] Similarly, if the manipulative use of street
paint on Lake Shore Drive in Chicago (to create the illusion that one is driving faster) is made
known to all the drivers, they may very simply override the intuitive (Type 1) response.
None of this discussion should underplay the significance of recent behavioral insights. Rather, it
is important to warn against overestimating the ability of choice architecture to solve the social
problems with which they are concerned. It is particularly important to understand what type of
mechanism is causing suboptimal decisionmaking, and whether the solution should attempt to
eliminate an individual's intuitive response by engaging the rational mind, or should use the
power of the intuitive processes to change choices without engaging the rational mind.
Predictably Irrational focuses more extensively on identifying the mechanisms underlying the
biases and helpfully informs the readers of the possibilities of correction, but stops short of
laying out policy solutions. When combined with Nudge, the books offer first steps in unlocking
the potential of predicting and nudging through law and policy.
The key to considering Ariely's insights and the principles suggested by Thaler and Sunstein as
precursors to amending policy lies in identifying the root of the problem to be solved. As our
analysis outlines, Humans have certain predictable limitations (Type 1 biases), and Humans
trying to be Econs have others (Type 2 biases). In order to navigate the vast maze of
psychological mechanisms that may lead to bias, and with an eye to the future directions of the
study and application of behavioral law and economics, we call for a more explicit identification
of the type of bias at hand and for behavioral research outcomes that target dynamic interactions
rather than one-shot lessons.
*2117 As has been argued in this section, it is critical to assess the type of bias at hand and apply
proper corrective measures. It is also important to acknowledge that, at times, addressing
irrationalities through policy mechanism itself relies on manipulation rather than elimination of
the behavioral bias. In sum, Nudge and Predictably Irrational take a significant step beyond the
documentation of behavioral biases and attempt to identify general principles by which one may
construct and improve policy such that the micro and macro good is served. Thus far, we have
outlined these principles and highlighted their importance in determining which types of policy
recommendations may be most likely to be effective. In Part III we consider the range of policy
tools available for effective application of these principles.
III. Neither Libertarian, nor Paternalistic: New Governance as Third-Way Ordering
Beyond concrete examples and reform proposals, Predictably Irrational and Nudge raise
important jurisprudential questions about the limits of individual choice and the legitimacy of
government intervention. In particular, Thaler and Sunstein develop their belief that lessons from
experimental psychology and economics can revolutionize the field of law and policy, informing
a new species of regulations, termed libertarian paternalism (pp. 4-6). [FN53] While we are
generally enthusiastic about Thaler and Sunstein's notion that regulation can frequently be
simultaneously more effective and less interventionist than traditional command-and-control
approaches, we begin this Part by cautioning against overclaiming the regulatory revolution, as is
implied in the term libertarian paternalism. We argue both that Sunstein and Thaler's vision is
incompatible with the principles of libertarianism and paternalism and, more importantly, that
the inclusion of the term libertarianism sells short some of the best attributes of regulation
through choice architecture. Part III.B then suggests that Nudge's proposals of choice
architecture are related to a broader school of thought termed new governance, which calls for
an expansion of the policymaking toolbox. New governance offers a comprehensive vision for
policy reform; one that integrates design with incentives, collaboration with control, process with
coordination, information with data mining and data minding, and reflexive regulation with
monitoring and enforcement. Finally, Part III.C focuses on the ways organizational theory and
behavioral insights further inform institutional design.
*2118 A. Libertarian Paternalism as the Wrong Heuristic for Generating Regulatory Innovation
The term nudge, in addition to being an acronym, [FN54] is intended to signify Thaler and
Sunstein's belief that interventions designed to correct irrationalities should and can be light and
modest, rather than intrusive or heavy-handed. According to Nudge, regulation that relies on
sophisticated design of defaults and related choice architecture methods can improve welfare
without reducing freedom. Thaler and Sunstein therefore view their idea of gentle policy nudges
as appealing to conservatives, moderates, liberals, self-identified libertarians, and many others
(p. 248). The authors are not unique in their desire to occupy the uneasy middle ground between
conservative and liberal politics and to defy the conventional boxed camps that have long
impeded policy reforms. [FN55] Since the mid-1990s, Democrats and Republicans alike seem to
agree that [t]he era of big government is over [FN56] and that reforms should aim to be
neither left nor right. [FN57] The pairing of two loaded yet ambiguous terms--libertarian and
paternalism--is in itself a heuristic device, a why not? moment if you will. [FN58] By using
this phrase, Thaler and Sunstein suggest to their readers that the regulatory toolbox can be
expanded to include methods which satisfy both the left and the right. But as behavioral
economics teaches us, reframing and the use of heuristics, old and new, can do as much harm as
good for our decisionmaking outcomes. We view the term libertarian paternalism as
potentially undermining the broader fundamental lessons about improving and expanding the
tools of social policy. The pairing of the two concepts to form a soundbite which represents the
range of innovative solutions to problems of market and regulatory failures both overclaims and
understates the contribution of behavioral economics to law and policy. Moreover, we question
whether setting defaults, the libertarian paternalist's primary design tool, is always the least
interventionist tool in the policymaker's toolbox, which includes such instruments as incentives,
collaborative standard setting and enforcement, education, and self-deliberation processes.
*2119 Nudge defines libertarian paternalism as including actions, rules, and other nudges that
can be easily avoided by opting out (p. 248). [FN59] The paternalist component of the
libertarian paternalism duo signifies that the nudges are designed to improve individual
welfare, well-being, and happiness in accordance with an individual's own preferences. The
libertarian component signifies the near-zero costs and opt-out rights designed to retain freedom
of choice (p. 237). Thaler and Sunstein explain that in many (perhaps in most) cases, choice
architecture is inevitable. [FN60] Once a public program has been adopted, its basic design and
defaults must be in place. Because defaults are unavoidable, policymakers have an obligation to
present the option that best reflects people's beliefs about a good life and also allows for an opt
out from the default route. For Thaler and Sunstein, defaults are a way of padding the path of
least resistance (p. 83). In other words, defaults simply facilitate a fuller expression of
individuals' desires by choosing welfare-enhancing defaults rather than remaining neglectfully
default neutral, but as we will show, this approach is neither libertarian nor paternalistic.
*2120 1. Libertarianism and the Impossibility of Value-Neutral Interventions.--The lessons of
behavioral economics show that defaults are sticky as a result of more than one bias. Nudge
teaches that the status quo bias, inertia, and the endowment effect all suggest that people tend to
stick with the default presented to them (pp. 7-8, 83). Because a default must be chosen, and
because defaults are sticky, choice architecture can often be used as a solution to many
regulatory design problems. According to Nudge, the default rule should generally be the one
that is wealth maximizing (pp. 4-5). This aim illustrates the error in classifying such default rules
as libertarian. Behavioral economics suggests that choice architecture is simply a means through
which to best achieve previously defined ends, remaining neutral between such ends. The ends
themselves, however, are not value neutral. Nudge's idea of promoting more savings by setting
defaults is one example of this. [FN61] Incentivizing savings, such as by Nudge's envisioned
Save More Tomorrow programs, presents a clear choice about how societies should treat
money throughout the life cycle. The Save More Tomorrow programs have indeed been well
received in practice, and translated into legislative bills with much bipartisan enthusiasm. [FN62]
It must be recognized however that promoting savings, like many other goals of Nudge, relies on
underlying assumptions that may run contrary to the libertarian principle of value neutrality.
Most broadly, the idea that the goal of policymaking is to promote rational decisions assumes
that rationality, including preference consistency, is in itself a worthy cause. Libertarians value
freedom of choice above all, including the freedom to make mistakes and cognitive errors. More
programmatically, in many cases rational people will disagree on welfare goals. Even with
regard to savings or better health choices, Thaler and Sunstein's assumption that, absent
irrationalities, every individual would agree that future savings and improved long-term health
are better than immediate satisfaction and gratification seems problematic. *2121 The problem
lies in the axiom of revealed preferences--the proposition that people's actions usually reflect
their preferences. [FN63] For example, it is entirely possible that many smokers may smoke not
because they are irrational about the risks, but because they choose to assume the risks and live
their lives as smokers. Similarly, some people choose to take physical risks by participating in
extreme sports not because they mentally discount those risks, but because they make the
decision that it is the lifestyle they would like to pursue. [FN64] Also, new empirical findings on
different (but presumably equally rational) cultures have reasonably challenged the idea that
increased wealth is a valid policy goal, finding that more money does not necessarily increase
happiness. [FN65] This is not to dispute the need for public policy to take a stance on various
health and welfare issues. On the contrary, our argument is that public policy inevitably should
and does attempt to objectively evaluate better life choices and thus it is better to explicitly
recognize these value judgments as a significant part of the legal process rather than to hide them
by describing choice architecture as libertarian. Although Nudge envisions that the choice of
end goals will remain open because of an opt-out architecture, one must first recognize that the
default itself conveys a normative message. In other words, however laudable these goals of
promoting health, welfare, human capability, equality, and redistribution might seem to the vast
majority, they cannot--and should not--be promoted under the umbrella of libertarianism.
As both Predictably Irrational and Nudge recognize, the frame in which information is presented
both responds to and constructs social norms. Preferences are endogenously shaped by the
framing and setting of defaults. Ariely's analysis of the effect of expectations on actual
experiences and taste sheds further light on the endogeneity inherent in individual preferences,
which are always a function of experience and existing social and cultural norms (pp. 155-72).
Preferences are adaptive and can change within the same individual over time as expectations
and desires *2122 continue to be heavily influenced and shaped by marketing communications
and social situations (pp. 190-91). In other words, defaults themselves are norm generating.
These lessons from Nudge and Predictably Irrational point to the inevitability of a normative
stance in any legal order. While this understanding is consistent with liberal theories about the
role of the state and the regulator, [FN66] it cannot be consistent with libertarian positions. The
idea that the formation of norms and values is a task for government is antithetical to libertarian
principles, which view constraints on and intervention into individual action and way of life as a
violation of liberty. [FN67] Under the libertarian ideal, it is precisely the absence of government
that allows individuals to naturally form self-governing rules, beliefs, norms, codes, and
contracts. [FN68]
The challenge of normativity is even more acute given that most programs, including choice
architecture, entail costs. Most basically, if policymakers are to become consumers of the
discipline of judgment and decisionmaking, they must be wise consumers. [FN69] In order to
apply behavioral economics insights effectively, there must be a continuous study as to whether
the chosen design attains its intended effect, both at the micro and macro levels. In addition to
research and development costs, policy programs themselves entail operating costs, whether they
are of the traditional command-and-control kind or involve noncoercive regulatory design. Once
policymakers enter the business of directing and improving decisionmaking, taxpayer money
will be allocated to the task. *2123 Cost-benefit analysis will be required to determine whether
these ventures are effective and worthwhile.
Moreover, the correction of biases has significant redistributive effects. Encouraging savings
through defaults, tax subsidies, and various social insurance programs affects people differently.
Assisting people to reach better choices about their finances, health, and happiness can often
result in some unhappiness for other, possibly more rational, market actors. For example,
businesses that have long relied on marketing strategies that exploit behavioral failures may
experience reduced profits. This is a consideration for regulation in the area of consumer
protection--mentioned by both Predictably Irrational (pp. 23-48, 173-94) and Nudge (pp. 13274)--which compensates for behavioral biases and irrationalities that lead to misguided consumer
choices. If government intervenes to help consumers become more sophisticated about their
lending, saving, and spending, corporations will lose money. Credit card and mortgage brokers
have long studied market failures as part of their marketing task forces. [FN70] Indeed, in the
internal lingo of the credit card industry, those who resemble most closely the mythical Econ are
called deadbeats, for those are the customers who are the least attractive to the marketers.
[FN71] As a result, just as choice architecture is itself frequently inevitable, within choice
architecture, normative judgments about the desirability and fairness of certain distributional
outcomes are also inevitable. These normative judgments will almost always favor one group
over another and preclude the use of the term libertarian to describe the type of regulation
Thaler and Sunstein propose in Nudge.
The distributional effects of government regulation, even when opt outs are made available, are
particularly pronounced in the many contexts in which irrationality is not universal.
Sophisticated market actors, such as the corporations mentioned above, may engage less
frequently in irrational behavior. Indeed, this observation has led Colin Camerer and his
colleagues to envision a system of asymmetric paternalism, a type of regulation which creates
large benefits for those who make errors in their decisionmaking, while imposing little cost on
those who behave in a fully rational manner. [FN72] These policies are designed to help the least
sophisticated groups while imposing the fewest costs on sophisticated actors. *2124 Camerer
also argues that a variety of decisionmaking errors identified in behavioral economic studies
may expand the scope of paternalistic regulation. [FN73] This would result in a broader
category of interventions than those supposedly libertarian policies, which must allow opt out or,
as Thaler and Sunstein see it, where costs are kept near zero (p. 249). While liberals may
consider such government functions to be integral, they clearly do not resonate with a libertarian
vision. Thus, although the insights of behavioral economics are invaluable for better policies, the
heuristic of libertarianism simply distorts this broader liberal vision.
2. Paternalism and the Distorting Implications of Focusing on Individual Will and Welfare.--The
inclusion of the term paternalism in the call for regulatory intervention is similarly confusing
and can be read to be either too broad or too narrow in the context of policymaking. Even if one
agrees with Nudge's definition of paternalism as simply a method for improving decisions made
by the individual decisionmakers themselves (p. 5), good governance must also be interventionist
in that it sets goals and processes for the individual and collective good. Regulation is not,
however, necessarily paternalistic in the sense of guiding choices against an individual's own
will, but for their own good. An overly broad definition of paternalism might encompass any
collective effort to improve people's welfare and well-being. Although some extreme libertarians
may subscribe to this broad definition, from a liberal perspective such definition is simply
circular and meaningless. [FN74] Life in a society entails ordering. A central role of law is a
coordination function. Goals need to be ordered and mediated, conflicts need to be resolved, and
shared goals must be planned and realized in order to make civic life more livable. Behavioral
economics teaches that individuals have conflicting long-term and short-term desires, global
principles, and immediate choices. Moreover, most of our actions are not merely self-regarding
but also affect our environment, family, and neighbors. [FN75] Even when one is committed to
the primacy of personal responsibility and individual choice, most of us recognize that our
responsibilities extend beyond narrow commitments to the individual self. Individuals are
responsible for their own economic and emotional well-being. At the same time, we operate in a
society that binds us together through cooperation, norms, and rules for settling conflicts. Market
capitalism depends on a well-functioning government and legal system. Policy most often entails
a balance between individual and collective responsibilities.
*2125 Many of the suggestions promoted in Nudge for better health, safety, and financial
security can be explained by externalities and third-party effects rather than in paternalistic
terms. For instance, the regulation of pollution (pp. 183-96) is desirable because polluters not
only impose costs on their own surroundings and health, but also harm others around them as
well as future generations. Furthermore, pollution depletes public funds allocated for
environmental recovery, insurance, and social welfare. Public programs and services such as the
provision of healthcare *2126 (pp. 207-14) must face the challenge of solving intractable social
problems riddled with tradeoffs and multiple goals. [FN76] Such programs are designed not
solely to benefit individuals, but also because they embody good policies for market stability in
the long run and buffer the risks that affect the shared goals of a capitalist society. Programs
inevitably entail tradeoffs between arrangements promoting more choice and those promoting
more effective delivery. Regardless of the manner in which such tradeoffs are resolved,
facilitating improved decisionmaking may reduce costly inefficiencies and yield better outcomes.
In sum, the lessons brought to us in Predictably Irrational and Nudge are highly valuable in the
search for appropriate forms of government intervention. At the same time, if the goal is to
promote effective policymaking and to help people best improve their decisionmaking processes
and welfare, we caution against using the ideologically loaded marketing formula of nudge =
paternalism + libertarianism. The above concerns, while by no means detrimental to Nudge's
overarching argument that effective regulation is both needed and possible, require consideration
and nuanced responses. Although we question the pairing of libertarianism with paternalism as a
beacon for policy, we share Nudge's commitment to enhancing individual choice in regulatory
design as well as its preference for regulatory approaches that leave a large degree of flexibility
and agency for regulated parties. While human preferences can be a moving target, one feature
of individual preferences is well established in the behavioral literature: Individuals value the
ability to control their lives, paths, and choices.
The fact is that human beings come into the world with a passion for control, they go out of the
world the same way, and research suggests that if they lose their ability to control things at any
point between their entrance and their exit, they become unhappy, helpless, hopeless, and
depressed. [FN77] Just as voluntariness, agency, and choice are matters of degree, there are no
bright lines between coercive intervention and mere *2127 soft guidance by the state. [FN78]
There are, however, real and important differences among education, manipulation, and
coercion. [FN79]
As we have seen, several related yet distinct jurisprudential claims follow from the behavioral
field and should serve policymakers in their attempts to improve law and regulation. First, in
many instances some form of government intervention is inevitable in functioning markets and
societies. Second, freedom is not equivalent to unlimited choice and our preferences are
evolving, adaptive, and often inconsistent even within the same subject in a particular moment.
Third, policy can be improved dramatically by expanding the tools of regulation (to include, for
example, setting defaults, promoting feedback, expecting and planning for errors, and giving
recommendations) and adjusting governance to correct for certain biases in decisionmaking.
The following section describes recent experimentation by policymakers with such tools in
various regulatory fields. The proposals set forth by new governance [FN80] scholars and by
the authors of Nudge and their collaborators have distributional, outcome, and incentive effects,
but they achieve these effects in a much less rigid and choice-limiting way than traditional
command-and-control regulation.
B. New Governance Approaches to Law and Policy: From Command and Control to
Collaborative Placebos
Predictions about human irrationality must inform both the adoption and implementation of law
and policy. Increasingly, legislators, administrators, and courts draw on behavioral insights. In
recent years, both in practice and in scholarly inquiry, new approaches to regulation, often
collectively referred to as new governance, have become a key area of experimentation. New
governance approaches aim to bring together insights from interdisciplinary research on
regulation and the changing demands of a new global economy. [FN81] These new regulatory
approaches address concerns about the inefficiency of traditional regulation and the continuing
need for public response to social challenges. New governance scholars have a different starting
point than behavioral law and economic scholars. While the latter begin with the limits of
individual*2128 choice, new governance scholars begin with the limits of traditional regulation.
In the end, however, the two circles of scholarship find themselves in similar territories; much
like individual decisionmaking, law is a problem solving venture. [FN82] Both public and
private ordering is imperfect, prone to various biases and systemic failures. Thus, improved
decisionmaking becomes both a goal for regulation and a challenge for regulators, who are
themselves decisionmakers with human fallibility. This section describes the emerging field of
new governance and the various ways in which it builds on behavioral insights and calls for
improved regulatory design. In particular, it discusses the shift from command-and-control

regulation to more collaborative public-private standard setting.
New governance approaches have received various expressions and terms in the law and
regulation literature, signifying the myriad of recent regulatory approaches designed to enhance
problem solving, self-regulation, and government-industry cooperation. [FN83] Instead of
focusing on *2129 substantive prohibitions and adversarial enforcement, new governance
approaches attempt to actively involve firms in the legal process, including the processes of
interpreting and complying with legal norms. Jason Solomon recently described new governance
approaches in this way:
Think about new governance regulation as an umbrella term covering a kind of interaction
between the state, regulated entities, and other stakeholders that has a number of desiderata-public participation, data provision, transparency, benchmarking, sharing of best practices, fora
for deliberation on ends and means, and autonomy and flexibility for those subject to regulation.
[FN84]
Many of the behavioral insights emphasized in Predictably Irrational and Nudge confirm the
importance of self-regulatory mechanisms rather than traditional top-down command-andcontrol regulation. Default design is one possible tool of new governance approaches to
regulation. Other tools include asking actors to give reasons or set their own reflexive processes,
self-monitoring, self-checks, reason-giving requirements, and preventative measures such as
training, data collection, and continuing education. [FN85] All of these approaches resonate with
many of Nudge's ideas *2130 about feedback systems, recommendation, and the expectation of
errors by policymakers. They also resonate with the deeper lessons of Predictably Irrational and
Nudge about human judgment, motivation, and decisionmaking.
Building on behavioral insights about motivation and social norms, agencies are seeking ways to
foster a culture of compliance within the private sector. To put a twist on a recent behavioral
subfield, the emphasis on public-private cooperation and self-compliance in the shadow of the
law serves as a collaborative placebo, triggering an ethos of voluntariness while maintaining
background rules of command. Cooperation instead of adversarialism has thus become the
motto of administrative agencies in the past decade, and they have carried this out by
experimenting with shifts from extensive elaboration of prohibitive standards and high rates of
inspection to facilitation of self-regulation and programs of collaborative, semivoluntary
compliance. [FN86] Agencies enlist private corporations to actively self-regulate, by identifying
problems and risks and formalizing possible solutions. In turn, the agency offers consultation and
assistance, practical and reputational rewards through safe havens, flexibility and variance
accommodation, and the public certification of responsible practices. [FN87] Looking at
business regulation around the world, John Braithwaite and Peter Drahos have recently described
the rise of a new regulatory state, where states do not so much run things as *2131 regulate
them or monitor self-regulation. [FN88] In other words, the focus is on providing nudges in
the form of carrots, information, design, and processes, rather than rigid commands and sticks.
New governance theory views adversarial commands as potentially counterproductive.
Behavioral insights about social norms and motivation indicate that adversarialism reduces the
willingness of companies and individuals to share information and to engage in mutually
beneficial problem solving. [FN89] In order to allow for such continuous improvement through
the self-monitoring of corporations, government regulations can be phrased as standards and
norms rather than rigid rules and commands. In fact, regulations are often deliberately
ambiguous and open to multiple interpretations. Instead of regulating the details of behavior,
agencies increasingly use broad policy goals such as risk management and allow the regulated
industries to implement and interpret these mandates. [FN90] These initiatives also build on the
insight, discussed in the previous section, that law has a norm-generating value in addition to its
direct control over individuals and corporations. The law offers principled reasons and
justifications for action beyond its direct tangible prohibitions and results. [FN91] In other
words, the regulatory regime creates a relational contract between government and industry that
in turn supports the generation of private norms. [FN92] In fact, an important lesson that is
underplayed in both books reviewed here is that ends and means of our actions and choices are
inextricably linked; [FN93] not simply preferences, but also principles and values are contingent
on our environments and experiences.
*2132 New governance scholarship has acknowledged this new meaning of rule following, in
which individuals are expected to rewrite the rules that apply to them and exercise discretion.
[FN94] The recognition that ends and means are inevitably intertwined further illustrates why
policy design, even when allowing for choice, is inherently normative. Unlike the misleading
term libertarian paternalism, new governance scholarship embraces the normative nature of
policymaking and unabashedly recognizes the values embedded in the range of regulatory tools.
[FN95]
C. Policy in Service of Institutional Reform: Layered Design and Sequenced Regulation
An important aspect of new governance approaches is the focus on organizational cultures.
Alongside behavioral economics which studies individual behavior, judgment, and
decisionmaking, the fields of organizational behavior and the sociology of institutions provide
lessons for regulators about the impact of internal processes on compliance. Empirical evidence
indicates that institutional culture and design have a significant impact on the likelihood that
individuals will engage in unlawful behavior. [FN96] For example, in the discrimination context,
policymakers increasingly recognize that [e]mployers' organizational choices can both facilitate
and constrain the development of discriminatory work cultures. [FN97] As a result, the Equal
Employment Opportunity Commission (EEOC) and some state civil rights agencies have
recently guided workplaces to engage in prevention through antidiscrimination training
programs, guidelines, internal reporting channels, and self-monitoring. [FN98] Similarly, *2133
the Occupational Safety and Health Administration (OSHA) offers certification for private
companies as beyond compliance members and assistance from OSHA officials if the companies
are willing to identify, investigate, and monitor their own safety risks and near-miss accidents.
[FN99]
These programs--where the regulated parties can opt out from the regular command-and-control
regime if they can show that their self-monitoring is effective--are similar to the individual optout schemes envisioned by Nudge (pp. 248-51). Both use choice architecture to present a choice
in a way that will encourage ethical behavior. Cooperative compliance is currently introduced in
diverse fields of regulation ranging from hazardous substance regulation, [FN100] food safety
control, [FN101] endangered species regulations, [FN102] civil rights compliance, [FN103] tax
programs, [FN104] and securities regulation. [FN105] These cooperative programs should not be
confused with deregulation or libertarian noncoerciveness. The warning in the previous
section about the distorting effects of Nudge's term libertarian paternalism to describe third-
way regulatory approaches deserves repeated emphasis. New governance relies on the idea of
enforced self-regulation, indicating that a first step of regulation is for the regulated parties to
order themselves. At the second stage, the regulatory agency negotiates particularized
regulations with individual firms, with the threat of a third stage of less tailored and more
coercive rules if the firm fails to self-enforce and cooperate with the agency. [FN106] Ayres and
Braithwaite illustrate this scheme with an advanced regulatory pyramid, where self-regulation
constitutes the base of the pyramid with escalated forms of control (command regulation and
punishment) at the top. [FN107] Similarly, in the context of reporting wrongdoing, a sequenced
*2134 reporting system will allow organizations to first require their members to report illegal
behavior within the internal reporting channels of the company. Only if internal problem solving
fails will individuals be allowed to turn to public channels for whistleblowing (Figure 2).
[FN108] In this sense, government administrators are indeed charged with the role of public
choice architects, but the architecture is a 3-D structure rather than the flatter libertarian
paternalism suggested in Nudge (pp. 4-6).
Figure 2: The Reporting Pyramid [FN109]
Media
Agency Reporting
Internal Grievance Procedures
Chain-of-Command Dissent
TABULAR OR
GRAPHIC MATERIAL SET FORTH AT THIS POINT IS NOT DISPLAYABLE
After Enron and other recent corporate scandals, Securities and Exchange Commission Chairman
William Donaldson declared that the most important thing that a Board of Directors should do
is determine the elements that must be embedded in the company's moral DNA, as one might call
it. [FN110] He continued by explaining
*2135 In humans, DNA encompasses the very building blocks of life and determines or
influences almost every aspect of our physical development. So too should the moral DNA of a
company . . . . As we move past Sarbanes-Oxley and the requirements, rules and regulations that
have come in its wake, it's essential that corporate boards look beyond the letter of the law and
be ever mindful of the spirit of the reforms. [FN111]
The idea of organizational DNA finds support in recent behavioral economics and social
psychology literature. [FN112]
Predictably Irrational's findings about dishonesty, which imply that regular people will steal
office supplies or food from a common room, but would not steal the equivalent value of the
items in cash, are exactly the type of evidence of the influence of framing effects on compliance
that new governance scholars and administrative agencies are seeking (p. 195). [FN113] Ariely's
own experiments on the dishonesty of honest people provide groundbreaking findings about the
role of choice architecture and design for the regulation of conduct. [FN114] Such findings may
bear on the ubiquity of accounting-related frauds or stock-related embezzlements. In fact, legal
rules and penalties, like monetary incentives, are a double-edged sword. They can motivate
compliance, but beyond a certain level, they may backfire. In Ariely's words, [W]e live in two
worlds: one characterized by social exchanges and the other characterized by market exchanges.
And we apply different norms to these two kinds of relationships (p. 76). Closely related is
Ariely's finding about the introduction of a medium, such as poker chips or accounting symbols,
that enables distancing oneself from the illegal conduct, thus increasing the incidences of
noncompliance (pp. 220-21). The effects of distance on morality have been established
previously--such as when companies are involved in production chains. [FN115] Increasing the
visibility and salience of one's noncompliance can be a form of regulatory enforcement that relies
more on human motivation than on external government monitoring. New governance emphasis
on self-monitoring, training, internal adoption of codes of conduct and ethical rules, and
reporting processes within corporations*2136 resonate with these findings about priming and
increasing the salience of the importance of compliance as regulatory tools.
***
The bridge between new governance scholarship and behavioral economics points to future
directions for interdisciplinary research. In order to continue applying behavioral insights to
create smart and lean policy, more integrated research is required. [FN116] Many of the
groundbreaking behavioral economics studies are lab experiments, which lack the rich social
and organizational context of real market interactions, and therefore have limited direct
application to concrete social policy. [FN117] Moreover, behavioral economics often neglects
the institutional aspects of enforcement and compliance. Integrating lessons from both lab and
field experiments, as well as from the various disciplines, including economics, psychology,
sociology, and organizational behavior, into meaningful data is therefore a central challenge for
regulatory agencies. Further, Predictably Irrational and Nudge focus mainly on individual
decisionmaking. Public policy questions, however, are characterized by the need to find adequate
solutions for large groups of people with varying and often competing interests and thus with
uncertainties about the best solu tions. [FN118] This void between well-designed controlled
experiments (either *2137 in the field or in the lab) and concrete policy questions can be bridged
by both making the experimental context closer to the particular policy question at hand and by
conducting experiments with the policies themselves. [FN119] A final key task for the next
stages of law and behavioral studies is delimiting the contexts and spheres of action in which
individuals behave irrationally and those in which experience, expertise, information, and
incentives have elevated market actors close to the status of true Econs, and relating such
micromodels to their macroconsequences.
Conclusion
Predictably Irrational and Nudge represent important developments in the field of behavioral
economics and illustrate potential implications of these developments for law and policy. The
observation that people make imperfect decisions is well established in both books, and the
failures described consist of a broad range of behaviors and underlying cognitive mechanisms.
Individuals have limited information, are limited in their capacity to process large quantities of
data, and have limited attention spans, calculation capacities, and memory resources. Humans are
also limited in their willpower and emotional capacities. All of these fallibilities come into play
in the cases examined by Ariely, Sunstein, and Thaler, but the correction mechanisms in
response to each vary significantly. As this Review Essay highlighted, the biases described in the
books are caused by distinctly different mechanisms, including over and under usage of
cognitive process (Type 2 and Type 1 biases, respectively). Therefore, the prescriptive nature
following these findings must be cautious and narrowly tailored to address each behavioral bias.
Moreover, the insights for policy are broad and can greatly assist the policymaker in expanding
and improving the regulatory toolbox. The behavioral insights offered by the two books support
the liberal understanding that freedom is not identical to unlimited choice.
*2138 Predictably Irrational and Nudge will prove a most valuable contribution to the legal
academy, practitioners, and policymakers and will continue to generate fascinating debates in the
legal community for many years to come. The discrete proposals in the books provide the basis
for a rich set of reforms in a myriad of legal fields. The books contain invaluable insights into the
psychological underpinnings of judgment and decisionmaking, especially regarding monetary
transactions and decisions involving risk and uncertainty. The broader message of Predictably
Irrational and Nudge should appeal to policymakers and thinkers from diverse backgrounds.
There is more yet to be done in applying empirical methods from economics and psychology to
better understand individual and group behavior in the market and in civil life. Insights on human
behavior and decisionmaking are vital to analyzing and improving the modern regulatory state.
[FNa1]. Assistant Professor of Marketing, University of California San Diego; Ph.D.,
Massachusetts Institute of Technology, 2003.
[FNaa1]. Associate Professor, University of San Diego. S.J.D., Harvard University,
2006; LL.M., Harvard University, 2000; LL.B., Tel-Aviv
University, 1998.
[FN1]. Richard A. Epstein, The Neoclassical Economics of Consumer Contracts, 92 Minn. L.
Rev. 803, 803 (2008).
[FN2]. For a discussion of the emergence of the new governance paradigm in regulatory
theory and practice, see generally Orly Lobel, The Renew Deal: The Fall of Regulation and the
Rise of Governance in Contemporary Legal Thought, 89 Minn. L. Rev. 342 (2004) [hereinafter
Lobel, Renew Deal].
[FN3]. As will be further elaborated in Part III, libertarian paternalism refers to the idea that
law can be formulated as default rules which use behavioral insights to help individuals reach
their preferred choices, while allowing them to maintain the freedom to make their own choices,
including mistakes, by an opt-out. Sunstein and Thaler first developed the idea of libertarian
paternalism in their article, Cass R. Sunstein & Richard H. Thaler, Libertarian Paternalism Is
Not an Oxymoron, 70 U. Chi. L. Rev. 1159 (2003), and expanded on the concept in Nudge (pp.
4-6).
[FN4]. See Daniel Gilbert, Stumbling on Happiness 230-32 (2006) [hereinafter Gilbert,
Stumbling] (describing difficulty people have in assessing impact of various events on their
overall happiness); Jeremy A. Blumenthal, Law and the Emotions: The Problems of Affective
Forecasting, 80 Ind. L.J. 155, 166, 184-85 (2005) (noting that although people may be able to
predict whether a future event will evoke a positive or negative response, they usually cannot
accurately predict the duration and intensity of these emotions, and finding that these
inaccuracies interfere with jurors' ability to fairly compensate tort victims).
[FN5]. For research with similar results, see Joel Huber et al., Adding Asymmetrically
Dominated Alternatives: Violations of Regularity and the Similarity Hypothesis, 9 J. Consumer
Res. 90, 90 (1982) (finding times when profitability of a product line can be increased by
adding a (dominated) alternative that virtually no one ever chooses); Itamar Simonson, Choice
Based on Reasons: The Case of Attraction and Compromise Effects, 16 J. Consumer Res. 158,
170-72 (1989) [hereinafter Simonson, Choice] (discussing role of compromise and attraction
effects in choices which diverge from predicted choices based on expected utility).
[FN6]. For a detailed explanation of this research, see Nina Mazar, Dan Ariely & Botond
Kszegi, Incentive Compatibility? Setting Reservation Prices via the Becker-DeGroot-Marschak
(BDM) Procedure (undated) (unpublished manuscript, on file with the Columbia Law Review);
see also On Amir, Dan Ariely & Ziv Carmon, The Dissociation Between Monetary Assessments
and Predicted Utility, 27 Marketing Sci. (forthcoming 2008) (manuscript at 2, 5-11, on file with
the Columbia Law Review) [hereinafter Amir et al., Dissociation] (proposing that dissociation
between monetary assessment and predicted utility is due to focus on different aspects of the
transaction for each assessment); Nina Mazar, Botond Kszegi & Dan Ariely, Price-Sensitive
Preferences 8-12, 18 (Mar. 17, 2008) (unpublished manuscript, on file with the Columbia Law
Review) (demonstrating consumer preferences are often inferred exactly from how consumers
react to different prices).
[FN7]. Incentive compatibility refers to a situation in which a subject has an incentive to exhibit
her real behavior and preferences--that is, the setup of the experimental incentives is compatible
to that of the real world situation. For a mathematical discussion of incentive compatible
procedures, see generally Gordon M. Becker et al., Measuring Utility by a Single-Response
Sequential Method, 9 Behav. Sci. 226 (1964).

[FN8]. See Amir et al., Dissociation, supra note 6, at 13. They note: Monetary assessments
heavily reflect transaction cues (variables relating to the transaction in which the purchase
alternative may be acquired or forgone), insufficiently reflecting experience cues (variables
relating to the experience of owning or consuming the purchase alternative) that inform predicted
utility. Id.
[FN9]. See also Baba Shiv et al., Placebo Effects of Marketing Actions: Consumers May Get
What They Pay For, 42 J. Marketing Res. 383, 391 (2005) (finding price affects not only
perceived quality but also... the actual efficacy of the product).
[FN10]. Credible placebos can help relieve and sometimes even cure physical and mental ills.
See, e.g., Laura Bienenfeld et al., The Placebo Effect in Cardiovascular Disease, 132 Am. Heart
J. 1207, 1210-16 (1996) (noting placebo effect in cardiovascular disease); Irving Kirsch & Guy
Sapirstein, Listening to Prozac but Hearing Placebo: A Meta-Analysis of Antidepressant
Medication, in How Expectancies Shape Experience 303, 314-16 (Irving Kirsch ed., 1999)
(discussing placebo effect in treating depression); Guy H. Montgomery & Irving Kirsch,
Mechanisms of Placebo Pain Reduction: An Empirical Investigation, 7 Psychol. Sci. 174, 175
(1996) (describing effect of placebos on pain). Placebo effects have also been detected with
functional magnetic resonance imaging. See Tor D. Wager, Placebo-Induced Changes in fMRI in
the Anticipation and Experience of Pain, 303 Science 1662, 1662-64 (2004) (finding placebo
effects account for both lower reported pain and reduced activity in pain processing areas of the
brain).
[FN11]. Incidentally, despite increasing evidence about the robustness of placebo effects, the
American Medical Association has recently issued an opinion against the use of placebos for
clinical purposes. See Adam J. Kolber, A Limited Defense of Clinical Placebo Deception, 26
Yale L. & Pol'y Rev. 75, 75-78 (2007) (arguing that given current knowledge of placebo effects
and patient preferences, we should not categorically prohibit the deceptive use of placebos).
[FN12]. See Hilke Plassmann et al., Orbitofrontal Cortex Encodes Willingness to Pay in
Everyday Economic Transactions, 27 J. Neuroscience 9984, 9987-88 (2007) (demonstrating
activity in medial orbitofrontal cortex which encodes people's willingness to pay during simple
economic transactions).
[FN13]. This effect was originally coined by Richard Thaler as the underweighting of
opportunity costs. Richard Thaler, Toward a Positive Theory of Consumer Choice, 1 J. Econ.
Behav. & Org. 39, 44 (1980). Daniel Kahneman, Jack Knetsch, and Richard Thaler later studied
the effect experimentally. Daniel Kahneman, Jack L. Knetsch & Richard H. Thaler,
Experimental Tests of the Endowment Effect and the Coase Theorem, 98 J. Pol. Econ. 1325
(1990) (discussing experiments demonstrating that endowment effect persists even in market
settings with opportunities to learn). This endowment effect is robust but has been recently
qualified to pertain mainly to goods not meant for exchange. That is, a shop owner would not
exhibit an endowment effect for the goods in the store, just like people do not exhibit this effect
for money. See Nathan Novemsky & Daniel Kahneman, The Boundaries of Loss Aversion, 42 J.
Marketing Res. 119, 123 (2005) (concluding there is no loss aversion in routine transactions).
[FN14]. See Ziv Carmon & Dan Ariely, Focusing on the Forgone: How Value Can Appear So
Different to Buyers and Sellers, 27 J. Consumer Res. 360, 368 (2000) (Specifically, buyers and
sellers focus on aspects of the exchange associated with what they will forgo and differ both in
the attention they pay to attributes of the evaluated item and in how they evaluate what they
notice. (citation omitted)).
[FN15]. The set of experiments presented by Ariely does not deal with extremely high gains
from dishonesty. For those, it is likely that people might be very willing to sacrifice their selfconcept. However, the insensitivity to external costs and benefits holds at least for the costbenefit levels examined by Ariely. See Nina Mazar, On Amir & Dan Ariely, The Dishonesty of
Honest People: A Theory of Self-Concept Maintenance, 45 J. Marketing Res. (forthcoming Dec.
2008) (manuscript at 3, on file with the Columbia Law Review) [hereinafter Mazar et al.,
Dishonesty] ([S]elf-concept maintenance... allows people to engage to some level in dishonest
behavior, thereby benefiting from external benefits of dishonesty, while maintaining their
positive view about themselves in terms of being honest individuals.).
[FN16]. Previous research has demonstrated hot-cold empathy gaps across several emotional
states. See Daniel T. Gilbert et al., The Future Is Now: Temporal Correction in Affective
Forecasting, 88 Organizational Behav. & Hum. Decision Processes 430, 435-36, 438-40 (2002)
(discussing impact of hunger on food purchase preferences); George Loewenstein et al., The
Effect of Sexual Arousal on Expectations of Sexual Forcefulness, 34 J. Res. Crime &
Delinquency 443, 463 (1997) (finding sexually aroused men are more likely to imagine that
they would behave in a sexually forceful manner); Leaf Van Boven et al., Egocentric Empathy
Gaps Between Owners and Buyers: Misperceptions of the Endowment Effect, 79 J. Personality
& Soc. Psychol. 66, 72-73 (2000) (describing effect of ownership on selling prices); Leaf Van
Boven & George Loewenstein, Social Projection of Transient Drive States, 29 Personality &
Soc. Psychol. Bull. 1159, 1164 (2003) (discussing impact of being thirsty on participants'
attitudes toward thirst). Interestingly, another recent book on human rationality contends that
rational behavior can be seen everywhere and in every context throughout human history,
including in sexual behavior. Tim Harford, The Logic of Life: The Rational Economics of an
Irrational World 4-6, 26-29 (2008) (arguing that oral sex among teens is rational choice that
reduces the risk of contracting HIV or getting pregnant and that prostitutes who do not insist on
condoms have decided risks are small relative to premium they can charge for unprotected sex).
To us, if in fact such behavior represents rational choices, these examples serve as evidence of
the need to assist people in expanding their choice sets, so that sex workers by and large would
not need to accept such choices at any risk premium.
[FN17]. Mazar et al., Dishonesty, supra note 15, at 29-33.
[FN18]. Ronald Dworkin uses the metaphor of Judge Hercules (after the mythological hero) to
represent an ideal judge, with the full knowledge, wisdom, and time to decide the one right
answer in every case. Ronald Dworkin, Law's Empire 238-75 (1986); Ronald Dworkin, In Praise
of Theory, 29 Ariz. St. L.J. 353, 357-60 (1997).
[FN19]. In a recent article, the challenge to the characterization of humans as generically Econ
is described in the following similar manner:
The discipline of economics is built on the shoulders of the mythical species Homo economicus.
Unlike his uncle, Homo sapiens, H. economicus is unswervingly rational, completely selfish, and
can effortlessly solve even the most difficult optimization problems. This rational paradigm has
served economics well, providing a coherent framework for modeling human behavior.
However, a small but vocal movement in economics has sought to dethrone H. economicus,
replacing him with someone who acts more human. This insurgent branch, commonly referred
to as behavioral economics, argues that actual human behavior deviates from the rational model
in predictable ways.
Steven D. Levitt & John A. List, Economics: Homo Economicus Evolves, 319 Science 909, 909
(2008).
[FN20]. APR stands for annual percentage rate, a standardized expression of the effective
interest rate the borrower will pay on a loan.
[FN21]. On the term and idea of libertarian paternalism, see supra note 3 as well as infra Part III.
[FN22]. See David Charny, Hypothetical Bargains: The Normative Structure of Contract
Interpretation, 89 Mich. L. Rev. 1815, 1819 (1991) (The law must supply a set of background
conditions to the interpretation and enforcement of contracts--commonly referred to as default
rules.).
[FN23]. These processes are summarized in Predictably Irrational (pp. 243-44).
[FN24]. For a description of Ariely's research, see supra notes 9-12 and accompanying text. In
contrast to the policies of the United States, Canadian and European policies are highly
committed to price controls of both generic and brand name prescription drugs. See Luke W.
Cleland, Modern Bootlegging and the Prohibition on Fair Prices: Last Call for the Repeal of
Pharmaceutical Price Gouging, 15 Alb. L.J. Sci. & Tech. 183, 200-01 (2004) (discussing various
price control models, including the UK's maximum profit margin restrictions and Canada's limits
on patent market exclusivity). Currently, many state legislatures in the United States are
contemplating similarly reasoned bills. See id. at 205-10 (describing Medicare Prescription Drug,
Modernization and Improvement Act of 2003 as impeding many attempts by state legislatures to
implement Medicaid price controls).
[FN25]. See, e.g., Richard A. Epstein, Behavioral Economics: Human Errors and Market
Corrections, 73 U. Chi. L. Rev. 111, 125-28 (2006) [hereinafter Epstein, Behavioral Economics]
(describing Truth in Lending Act as one of few examples where direct regulation is beneficial
and discussing Schumer Box-- which places details of credit card loans in accessible format-as proper response to imperfect information).
[FN26]. See Daniel Kahneman & Shane Frederick, Representativeness Revisited: Attribute
Substitution in Intuitive Judgment, in Heuristics and Biases: The Psychology of Intuitive
Judgment 49, 51 (Thomas Gilovich et al. eds., 2002) (discussing two families of cognitive
operations); Leonard Lee et al., In Search of Homo Economicus: Cognitive Noise and the Role
of Emotion in Preference Consistency 4 (undated) (unpublished manuscript, on file with the
Columbia Law Review) (describing emotional system as more holistic, affective, concretive,
and passive and cognitive system as more analytic, logical, abstract and active).
[FN27]. See Lee et al., supra note 26, at 4-5 (collecting research on dual-system
conceptualizations).
[FN28]. See On Amir & Jonathan Levav, Choice Construction Versus Preference Construction:
The Instability of Preferences Learned in Context, 45 J. Marketing Res. 145, 154-55 (2008)
[hereinafter Amir & Levav, Choice Construction] (demonstrating that people asked to consider
tradeoffs when making decisions exhibited much greater preference stability in subsequent
choices); On Amir & Dan Ariely, Decisions by Rules: The Case of Unwillingness to Pay for
Beneficial Delays, 44 J. Marketing Res. 142, 146-47 (2007) [hereinafter Amir & Ariely,
Decisions] (demonstrating that people asked to think carefully about their decisions are less
likely to choose the less preferred outcome relative to people who made choices without this
slight intervention); Kelley Goldsmith & On Amir, Reflexive Positivity: How Uncertainty Can
Improve Promotions 21-22 (unpublished manuscript, on file with the Columbia Law Review),
available at http://ssrn.com/abstract=1095452 (last visited Oct. 1, 2008) (demonstrating that
people asked to think carefully about their judgments were much less likely to overvalue a
gamble).
[FN29]. Using photographs of students at MIT, Ariely created sets of pictures that included two
similarly attractive students and one copy of one of the photos that was artificially made to look
slightly less attractive (pp. 11-13). Other students then received the sets of three photos and
circled the photo that most appealed to them. They ended up choosing the photo that resembled
but dominated the artificially altered one 75% of the time (p. 14). See also Huber et al., supra
note 5, at 90 (demonstrating basic attraction effect, then called asymmetric dominance);
Simonson, Choice, supra note 5, at 170 (finding people who choose compromise option take
more time and generate longer and more complex thought protocols than those who choose
dominating option in attraction effect).
[FN30]. Regularity, which refers to the consistency of preferences, is the lowest threshold
condition for rational behavior. See Amos Tversky & Itamar Simonson, Context-Dependent
Preferences, 39 Mgmt. Sci. 1179, 1179 (1993) (noting theory of rational choice assumes
independence of irrelevant alternatives). In these cases, a choice of an outcome extreme on one
dimension from a set of two alternatives should imply by regularity that if a more extreme option
becomes available in the set of three alternatives, the decision maker would not switch to the
option extreme on the other dimension.
[FN31]. Ravi Dhar & Itamar Simonson, The Effect of Forced Choice on Choice, 40 J. Marketing
Res. 146, 157 (2003) (demonstrating that people who could opt out from choosing any
alternatives were less likely to choose compromise alternative, but were more likely to choose
dominating alternative in attraction effect); Anastasiya Pocheptsova et al., Deciding Without
Resources: Resource Depletion and Choice in Context, J. Marketing Res. (forthcoming)
(manuscript at 22-23, on file with the Columbia Law Review), available at http://
www.marketingpower.com/ResourceLibrary/Documents/JMRForthcoming/Deciding%20Withou
t%Resources.pdf (demonstrating that people depleted of cognitive executive resources were
more likely to choose dominating outcome than people in control group).

[FN32]. See Amir & Levav, Choice Construction, supra note 28, at 156 (finding in attraction
effect circumstances that stable preference can be attained by explicitly instructing respondents
to attend to the attribute trade-offs implied by their choices).
[FN33]. See Shane Frederick & Leonard Lee, Attraction, Repulsion, and Attribute
Representation 4-5 (undated) (unpublished manuscript, on file with the Columbia Law Review)
(demonstrating and discussing possible reasons attraction effect increases with clear and salient
dominated alternatives).
[FN34]. See Amir & Ariely, Decisions, supra note 28, at 149-50 (discussing results
demonstrating that when people are asked to consider carefully, they will overcome automatic
rules).
[FN35]. See id. at 146-48 (describing tendency of people to follow [ ] rules for action in a
moral-like manner).
[FN36]. Id. at 149 (finding people follow automatic rules, yet are able to override them when
considering the facts and merits of the particular case at hand).
[FN37]. Pocheptsova et al., supra note 31, at 13-14.
[FN38]. See Craig McKenzie, Framing Effects in Inference Tasks--and Why They Are
Normatively Defensible, 32 Memory & Cognition 874, 875-76 (2004) (collecting sources).
[FN39]. For a description of the compromise effect and relevant experiments, see Simonson,
Choice, supra note 5, at 171-72.
[FN40]. Id. at 168 (demonstrating that people who would later need to explain their choices were
more likely to choose compromise alternative).
[FN41]. Pocheptsova et al., supra note 31, at 16-18 (demonstrating resource depletion in a prior
task led to a reduction in the compromise effect).
[FN42]. See id. at 26-27 (finding the choice of a compromise option stems from more effortful
and careful processing).
[FN43]. For a more detailed analysis of transitivity as a property of consumer preference, see
David M. Kreps, A Course in Microeconomic Theory 21-24 (1990).
[FN44]. See Lee et al., supra note 26, at 26 (finding that subjects whose cognitive capacities
were constrained made more choices consistent with transitivity).
[FN45]. Timothy D. Wilson & Jonathan W. Schooler, Thinking Too Much: Introspection Can
Reduce the Quality of Preferences and Decisions, 60 J. Personality & Soc. Psychol. 181, 185
(1991) (describing results of an earlier unpublished experiment).

[FN46]. See Richard P. Larrick, Debiasing, in Blackwell Handbook of Judgment & Decision
Making 316, 317 (Derek J. Kohler & Nigel Harvey eds., 2004) (discussing when debiasing is
simply rebiasing).
[FN47]. As put by Douglas Adams: Money has no meaning outside ourselves, it is something
that we have created that has a powerful shaping effect on the world, because [it's] something we
all subscribe to. Douglas Adams, Is There an Artificial God?, Speech at Digital Biota 2
Conference (Sept. 11, 1998), available at http://www.biota.org/people/douglasadams/ (on file
with the Columbia Law Review).
[FN48]. But see Amir et al., Dissociation, supra note 6, at 13-16 (arguing such mapping does not
take place).
[FN49]. See Gilbert, Stumbling, supra note 4, at 192-97, 230-31 (stating that, in fact, we are not
very good in predicting what might make us happy or sad, the magnitude of the emotion, or its
duration). A focus on money has even been shown to lead to less social behavior. See Kathleen
D. Vohs et al., The Psychological Consequences of Memory, 314 Science 1154, 1155 (2006)
(finding those primed to think about money were less likely to volunteer to help others than
control group).
[FN50]. See David Laibson, Golden Eggs and Hyperbolic Discounting, 112 Q.J. Econ. 443, 44446 (1997) (describing how people often use future commitments as a means of exerting selfcontrol over savings plans); Gal Zauberman et al., Discounting Time and Time Discounting:
Subjective Time Perception and Intertemporal Preferences, J. Marketing Res. (forthcoming)
(manuscript at 8-10, on file with the Columbia Law Review) (suggesting much of present bias
can be explained by how people consider different time horizons as opposed to how they
discount outcomes differentially).
[FN51]. As Ariely points out in Predictably Irrational, the private sector has known about human
biases for a long time and, more often than not, companies do not hesitate to take advantage of
these biases to increase their profit (pp. 1-21).
[FN52]. See Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic
Theory of Default Rules, 99 Yale L.J. 87, 91 (1989) ( Penalty defaults are designed to give at
least one party to the contract an incentive to contract around the default rule and therefore to
choose affirmatively the contract provision they prefer.).
[FN53]. For an explanation of libertarian paternalism, see supra note 3.
[FN54]. See supra Part I.B.
[FN55]. See Lobel, Renew Deal, supra note 2, at 459 (describing the transcendence of left-right
political alignments in new governance scholarship).
[FN56]. Address Before a Joint Session of the Congress on the State of the Union, 1 Pub. Papers
79, 79 (Jan. 23, 1996).
[FN57]. Joel F. Handler, The Presidential Address, 1992: Postmodernism, Protest, and the New
Social Movements, 26 Law & Soc'y Rev. 697, 722 (1992) (quoting Carl Boggs, Social
Movements and Political Power 220 (1986)); see also Orly Lobel, The Paradox of Extralegal
Activism: Critical Legal Consciousness and Transformative Politics, 120 Harv. L. Rev. 937, 984
(2007) [hereinafter Lobel, Paradox] (using quote to illustrate an aversion to any metanarrative
and a resignation from theory).
[FN58]. See Barry Nalebuff & Ian Ayres, Why Not?: How to Use Everyday Ingenuity to Solve
Problems Big and Small 3 (2003) (describing how a why-not attitude can lead to innovative
solutions).
[FN59]. On a theoretical level, Nudge is a bit thin in its definitions and analysis of both
libertarianism and paternalism. On diverging strands within libertarian theory, see generally
Richard A. Epstein, Skepticism and Freedom: A Modern Case for Classical Liberalism 2-8
(2003) (endorsing classical libertarianism over other forms such as consequentialist, natural, or
utilitarian libertarianism); Robert Nozick, Anarchy, State, and Utopia 141-42 (1974) (describing
disagreements between libertarians); Randy E. Barnett, The Moral Foundations of Modern
Libertarianism, in Varieties of Conservatism in America 51, 51-55 (Peter Berkowitz ed., 2004)
(tracing history of schools of libertarianism); Barbara Fried, Left-Libertarianism: A Review
Essay, 32 Phil. & Pub. Aff. 66, 67-68 (2004) (book review) (discussing left-libertarianism as a
middle ground between egalitarian libertarianism and conventional libertarianism); Murray N.
Rothbard, Robert Nozick and the Immaculate Conception of the State, J. Libertarian Stud., Fall
1977, at 45 (book review) (critiquing form of libertarianism espoused in Nozick, supra). On the
diversity in paternalist theories, see generally Joel Feinberg, Harm to Self 3-8 (1986) (discussing
varied meanings and theories of paternalism); Donald VanDeVeer, Paternalistic Intervention 1624 (1986) (examining ways of defining paternalism and how such definitions affect evaluation of
paternalistic systems); Gerald Dworkin, Moral Paternalism, 24 Law & Phil. 305, 305 (2005)
(listing and describing versions of paternalism); Joel Feinberg, Paternalism, in Encyclopedia of
Philosophy 390, 390-91 (Donald M. Borchert ed., Supp. 1996) (noting differences between
physical and moral paternalism as well as hard and soft paternalism); Douglas N. Husak, Legal
Paternalism, in The Oxford Handbook of Practical Ethics 387, 388-89 (Hugh LaFollette ed.,
2003) (discussing fundamental disagreements about nature of paternalism and application of
paternalism in legal contexts).
[FN60]. According to Nudge, [c]hoice architecture, both good and bad, is pervasive and
unavoidable (p. 252). For example, Thaler and Sunstein explain that even if the state gets out of
the business of licensing marriages and civil unions, contract law would still be needed to define
what partners owe each other during and after the relationship (p. 237). In this sense, their
understanding recalls earlier legal realists and critical legal thinkers who understood law as
constituting the background rules of all human relationships. See Lobel, Paradox, supra note 57,
at 941 (describing critical insight that law exists in every sphere of life, even those spheres that
are seemingly unregulated).
[FN61]. See supra note 50 and accompanying text. Organ donation is another example. The
default makes a tremendous difference from a libertarian perspective. The default that one is an
organ donor unless actively opting out by sending in a nonconsent form is precisely contrary to
the libertarian presumption of no state invasion into one's body. In such instances, libertarianism
may become meaningless if it is defined too broadly. Simply providing the option of active exit
will not satisfy pure libertarians, who are only looking to preserve freedom.
[FN62]. For example, Senator Jeff Bingaman (D-N.M.) introduced the Save More for Retirement
Act of 2005, S. 875, 109th Cong. (2005), which encourage[d] employers to add a feature to its
401(k) or similar plans to enroll its employees in the plan upon being hired unless the employee
notifies the employer that he or she does not want to participate in the plan, 151 Cong. Rec.
S4118 (daily ed. Apr. 21, 2005) (statement of Sen. Bingaman), and Representative Rahm
Emanuel (D-Ill.) introduced the 401(k) Automatic Enrollment Act, H.R. 1508, 109th Cong.
(2005), which suggested automatic enrollment into 401(k)s, 151 Cong. Rec. H6179-80 (daily
ed. July 20, 2005). For further discussion of Save More Tomorrow programs, see generally
Richard H. Thaler & Shlomo Benartzi, Save More Tomorrow: Using Behavioral Economics to
Increase Employee Saving, 112 J. Pol. Econ. S164 (2004).
[FN63]. See P.A. Samuelson, A Note on the Pure Theory of Consumer's Behaviour, 5
Economica 61, 65 (1938) (demonstrating original mathematical derivation). Mas-Colell et al.
describe the axiom of revealed preferences as reflect[ing] the expectation that an individual's
observed choices will display a certain amount of consistency, and note that [t]he idea is that
the choice of x when facing the alternatives {x, y} reveals a proclivity for choosing x over y that
we should expect to see reflected in the individual's behavior when faced with the alternatives
{x, y, z}. Andreu Mas-Colell et al., Microeconomic Theory 10 (1995).
[FN64]. See George Loewenstein, Because It Is There: The Challenge of Mountaineering... for
Utility Theory, 52 Kyklos 315, 328 (1999) (arguing that mountaineers often desire feeling of
goal completion more than they derive satisfaction from it).
[FN65]. See Daniel Kahneman et al., Would You Be Happier if You Were Richer? A Focusing
Illusion, 312 Science 1908, 1908 (2006) (Although reported life satisfaction and household
income are positively correlated in a cross section of people at a given time, increases in income
have been found to have mainly a transitory effect on individuals' reported life satisfaction.).
[FN66]. See, e.g., John Rawls, A Theory of Justice 274-84 (1971) (arguing government
regulation is necessary to achieve just distribution of resources so that all individuals can
compete as equals in economic sphere); Connie S. Rosati, Explanation, Vindication, and the
Role of Normative Theory in Legal Scholarship, 43 San Diego L. Rev. 927, 935 (2006)
(Liberalism need not be, and indeed cannot be, value neutral toward all competing conceptions
of the good, and I doubt that any prominent liberal has meant to claim otherwise.).
[FN67]. Nozick, supra note 59, at 171-74.
[FN68]. See, e.g., id. at 307-09 (describing utopian world as one with a wide and diverse range
of communities which people can enter if they are admitted, leave if they wish to, [and] shape
according to their wishes).

[FN69]. Indeed, one possible objection to Nudge's call for policymakers to correct human
rationality is that policymakers themselves are human decisionmakers, and thus also only
boundedly rational, and at times, straight out irrational. While this is a serious concern in some
contexts, frequently the information access and expertise of the regulator positions her better
than the average person to undertake the task of rational design. This further helps explain why
some economists are hesitant to accept the implications of recent developments in behavioral
economics as requiring more market regulation. Public interventions are costly, they may often
miss the target, regulatory agencies are subject to capture, and they are prone to many of the
same failures they aim to correct. For a discussion of agency capture, see generally Sidney A.
Shapiro & Rena Steinzor, Capture, Accountability, and Regulatory Metrics, 86 Tex. L. Rev.
1741 (2008). Finally, neoclassical economists fear that regulation will create new distortions,
new inefficiencies, and barriers to entry. See, e.g., Epstein, Behavioral Economics, supra note 25,
at 120 (arguing that market forces alone are sufficient to correct most information discrepancies).
[FN70]. See Ron Harris & Einat Albin, Bankruptcy Policy in Light of Manipulation in Credit
Advertising, 7 Theoretical Inquiries L. 431, 431 (2006) (finding credit card industry manipulates
psychological biases, such as optimism, for its benefit).
[FN71]. See Timothy Egan, Newly Bankrupt Raking in Piles of Credit Offers, N.Y. Times, Dec.
11, 2005, at A1 (This is the only industry that calls people deadbeats when they pay all their
bills every month. (quoting Ellen Schloemer, a researcher at the nonprofit Center for
Responsible Lending)).
[FN72]. Colin Camerer et al., Regulation for Conservatives: Behavioral Economics and the Case
for Asymmetric Paternalism, 151 U. Pa. L. Rev. 1211, 1212 (2003); see also Ted O'Donoghue
& Matthew Rabin, Procrastination in Preparing for Retirement, in Behavioral Dimensions of
Retirement Economics 125, 129 (Henry J. Aaron ed., 1999) (designating same concept as
cautious paternalism).
[FN73]. Camerer et al., supra note 72, at 1211-12.
[FN74]. For example, we generally do not think involuntary submission to criminal law is
paternalistic. Individuals would have agreed ex ante upon such a system as a general rule.
[FN75]. See J.D. Trout, A Restriction Maybe, but Is It Paternalism? Cognitive Bias and
Choosing Government Decision Aids, 2 N.Y.U. J.L. & Liberty 455, 459 (2007) (providing
motorcycle helmets requirements as an example of regulation aimed at behavior with farreaching consequences).
[FN76]. Indeed, Nudge itself points to important questions that need to be addressed when
assessing the incentives inherent in policies and why markets may not be efficient when
incentive conflicts exist. To identify such conflicts, one may ask whether the user, chooser, and
payer are the same entity and which one profits from the transaction in a particular context.
When the user, chooser, and payer are different actors, conflicts may arise. The simplest example
is ordering food at a restaurant when someone else foots the bill. More complicated examples
exist in the healthcare system in which the public and private sectors interact and where the
various actors (patients, doctors, pharmacists, hospital administrators, pharmaceutical
companies, lawyers, and the government) have different incentives. Given that in most contexts,
people have conflicting interests, the problem of distribution and tradeoffs is pervasive. For a
discussion of competing incentives in the healthcare industry, see Michael J. Graetz & Jerry L.
Mashaw, True Security: Rethinking American Social Insurance 127-42 (1999).
[FN77]. Gilbert, Stumbling, supra note 4, at 22.
[FN78]. Thaler and Sunstein are certainly not unaware of possible critiques. In the last section of
Nudge, Thaler and Sunstein respond to possible objections to their theory. In particular, they
respond to the slippery slope argument, which, we agree with Thaler and Sunstein, is not a very
compelling one (pp. 236-38). Although they concede that there are no hard-and-fast stopping
points for libertarian paternalism (p. 248), slippery slope arguments can be made against any
proposal in any political direction-- and particularly against any suggestion of regulation by
design.
[FN79]. Thaler and Sunstein hint at this point, defending choice architecture as distinguishable
from manipulation and coercion based on existence of low-cost opt outs (pp. 236-37).
[FN80]. See supra note 2 (discussing new governance area of regulatory studies).
[FN81]. See Lobel, Renew Deal, supra note 2, at 355-58 (describing new governance approaches
as stemming from developments in political economy and legal thought).
[FN82]. See William H. Simon, Solving Problems vs. Claiming Rights: The Pragmatist
Challenge to Legal Liberalism, 46 Wm. & Mary L. Rev. 127, 177-78 (2004) (explaining that
most legal problems cannot be solved through analytical or textual interpretation, and thus
solutions must be derived creatively and experimentally).
[FN83]. See generally Lobel, Paradox, supra note 57 (describing limits of extralegal activism);
Lobel, Renew Deal, supra note 2 (discussing emergence of new governance paradigm in
regulatory theory and practice). For various terminologies within new governance, see Ian Ayres
& John Braithwaite, Responsive Regulation: Transcending the Deregulation Debate 4-5 (1992)
(describing responsive regulation); John Braithwaite, Restorative Justice and Responsive
Regulation 29-30 (2002) (same); Archon Fung & Erik Olin Wright, Deepening Democracy:
Institutional Innovations in Empowered Participatory Governance 3-6 (2003) (describing
participatory governance); Michael C. Dorf & Charles F. Sabel, A Constitution of Democratic
Experimentalism, 98 Colum. L. Rev. 267, 267-68 (1998) (describing democratic
experimentalism as a form of new governance wherein citizens and agencies use their local
knowledge to adapt goal-oriented standards to unique circumstances); Daniel A. Farber,
Revitalizing Regulation, 91 Mich. L. Rev. 1278, 1278 (1993) (describing revitalizing
regulation as a shift from Reagan-era minimalism toward integrated models of regulation that
adopt conservative principles to achieve liberal ends); Alberto Febbrajo & Gunther Teubner,
Introduction to State, Law, and Economy as Autopoietic Systems: Regulation and Autonomy in
a New Perspective 3, 11-13 (Gunther Teubner & Alberto Febbrajo eds., 1992) (describing
reflexive law); Jody Freeman, Collaborative Governance in the Administrative State, 45
UCLA L. Rev. 1, 1-2 (1997) (describing collaborative governance as involving problem
solving, broad participation, provisional solutions, the sharing of regulatory responsibility across
the public-private divide, and a flexible, engaged agency); Neil Gunningham & Darren Sinclair,
Regulatory Pluralism: Designing Policy Mixes for Environmental Protection, 21 Law & Pol'y
49, 49 (1999) (describing regulatory pluralism); Kimberly D. Krawiec, Cosmetic Compliance
and the Failure of Negotiated Governance, 81 Wash. U. L.Q. 487, 489-90 (2003) (describing
how negotiated governance models may improve efficiency in regulation and litigation by
promoting interaction between agencies and regulated parties); Ralf Rogowski & Ton Wilthagen,
Reflexive Labour Law: An Introduction, in Reflexive Labour Law: Studies in Industrial
Relations and Employment Regulation 1, 1-7 (Ralf Rogowski & Ton Wilthagen eds., 1994)
(describing reflexive law); Gunther Teubner, After Legal Instrumentalism? Strategic Models
of Post-Regulatory Law, in Dilemmas of Law in the Welfare State 299, 305 (Gunther Teubner
ed., 1986) (describing post-regulatory law); David M. Trubek & Louise G. Trubek, Hard and
Soft Law in the Construction of Social Europe: The Role of the Open Method of Co-ordination,
11 Eur. L.J. 343, 343-44 (2004) (describing soft law and possible interactions between
traditional hard law and new governance soft law).
[FN84]. Jason M. Solomon, Law and Governance in the 21st Century Regulatory State, 86 Tex.
L. Rev. 819, 834 (2008) (reviewing Law and New Governance in the EU and the US (Grinne de
Brca & Joanne Scott eds., 2006) and Lisa Heinzerling & Mark V. Tushnet, The Regulatory and
Administrative State: Materials, Cases, Comments (2006)).
[FN85]. See Lobel, Renew Deal, supra note 2, at 371-407 (delineating elements of new
governance model as including increased participation of nonstate actors, stakeholder
collaboration, diversity and competition, decentralization and subsidiarity, integration of policy
domains, flexibility and noncoerciveness, adaptability and dynamic learning, and legal
orchestration among proliferated norm-generating entities); David Zaring, Best Practices, 81
N.Y.U. L. Rev. 294, 323-24 (2006) (describing how best practice regimes may have effect of
reducing transaction costs of rulemaking). Another good example of the synergy between private
standardization, monitoring efforts, and government agencies is the use of information or
disclosure regimes as policy tools which allow choice and participation. Paula J. Dalley, The Use
and Misuse of Disclosure as a Regulatory System, 34 Fla. St. U. L. Rev. 1089, 1094 (2007)
(describing disclosure as essential to the functioning of the capital markets because the most
efficient allocation of resources will occur when the information is sufficient for the purposes of
those making decisions, when it is reliable, and when it is disseminated in a timely manner
(quoting H.R. Rep. No. 98-910, vol. 1, at 563, 574-75 (1977))); William M. Sage, Regulating
Through Information: Disclosure Laws and American Health Care, 99 Colum. L. Rev. 1701,
1707-10 (1999) (describing disclosure-based regulations in health care). In areas as diverse as
securities regulation, banking and loan management, environmental safety, health care,
pharmaceuticals, and consumer protection, the availability of information on performance, rates,
and quality is required by regulatory agencies for the use of interested stakeholders and is
understood as a way to generate better practices. For example, the European Union has
formalized social and environmental reporting and disclosure obligations as a matter of corporate
law. Douglas A. Kysar, Sustainable Development and Private Global Governance, 83 Tex. L.
Rev. 2109, 2158-59 (2005) (describing how formalizing obligations in environmental disclosure
typically requires nothing beyond providing relevant information to nonstate actors, who in turn
promote beneficial standards of behavior). In the United States, environmental information
disclosure initiatives such as the Federal Toxic Release Inventory Program require firms to
report their environment-related activities to the Environmental Protection Agency, which then
posts the data on the internet for use by industries, consumers, and nongovernmental groups.
Envtl. Prot. Agency, What Is the Toxic Release Inventory (TRI) Program?, at
http://www.epa.gov/tri/triprogram/whatis.htm (last updated Mar. 31, 2008) (on file with the
Columbia Law Review). In other words, government provides incentives for self-implementation
programs and encourages private participation by disseminating information to the public. Even
when imposed by regional or national law, corporate social and environmental reporting still
constitutes a significant departure from conventional command-and-control mechanisms. In a
disclosure regime, the state mandates only that information be provided to private actors and
assumes the information will cause those actors to behave in a socially desirable way.
Government can serve the coordinating role of initiating industry groups to share data and learn
about systemic failures. Nudge's insights are invaluable for improving these approaches to
account for the differences between Humans and Econs, as the average consumer will find it
difficult to rationally rely on the dissemination of large amounts of data without the aid of central
framing and correction of various human biases in information processing.
[FN86]. See Orly Lobel, Interlocking Regulatory and Industrial Relations: The Governance of
Workplace Safety, 57 Admin. L. Rev. 1071, 1089-91 (2005) [hereinafter Lobel, Interlocking]
(using OSHA's burdensome regulations and surprise inspections to illustrate limits of top-down
regulation in inducing compliance).
[FN87]. See id. at 1090-92 (arguing that adversarial regulatory frameworks cannot fully utilize
these long-term incentives as a means of increasing compliance); see also Jody Freeman &
Daniel A. Farber, Modular Environmental Regulation, 54 Duke L.J. 795, 815 (2005) (describing
how market-based incentives may lead some industries to provide agencies with information that
they normally would not reveal).
[FN88]. John Braithwaite & Peter Drahos, Global Business Regulation 28 (2000).
[FN89]. Lobel, Interlocking, supra note 86, at 1090 (The exclusive focus on enforcement
impedes the ability of industry to consult with regulators as expert authorities. Firms are more
reluctant to share information on cost reduction and innovative techniques. They are also
reluctant to freely deliberate with the agency in order to find mutually beneficial solutions.).
[FN90]. See Kenneth A. Bamberger, Regulation as Delegation: Private Firms, Decisionmaking,
and Accountability in the Administrative State, 56 Duke L.J. 377, 380 (2006) (explaining broad
delegation allows regulated industries to better interpret norms in local context, leaving them free
to select appropriate response).
[FN91]. See Elizabeth S. Anderson & Richard H. Pildes, Expressive Theories of Law: A General
Restatement, 148 U. Pa. L. Rev. 1503, 1513 (2000) (describing laws as matters of external
normative judgment that are judged according to their effects rather than any articulated
rationales); Cass R. Sunstein, On the Expressive Function of Law, 144 U. Pa. L. Rev. 2021, 2022
(1996) (Many people support law because of the statements made by law, and disagreements
about law are frequently debates over the expressive content of law.).
[FN92]. Cf. Robert McMaster & John W. Sawkins, The Contract State, Trust Distortion, and
Efficiency, 54 Rev. Soc. Econ. 145, 149-56 (1996) (Trust removes the requirement for
exchanges to be protected by sophisticated governance arrangements.).
[FN93]. See William H. Simon, Toyota Jurisprudence: Legal Theory and Rolling Rule Regimes,
in Law and New Governance in the EU and the US 37, 64 (Grinne de Brca & Joanne Scott
eds., 2006) [hereinafter Simon, Toyota] (arguing for pragmatic link between policy ends and
means).
[FN94]. See Charles F. Sabel & William H. Simon, Destabilization Rights: How Public Law
Litigation Succeeds, 117 Harv. L. Rev. 1016, 1019 (2004) (explaining that experimentalist
approaches tend to set more flexible and provisional norms, leaving parties considerable
discretion in how to achieve their goals).
[FN95]. Orly Lobel, Setting the Agenda for New Governance Research, 89 Minn. L. Rev. 498,
502 (2004) (Governance scholars recognize that the traditional structures of liberal democracy
are limited in both their effectiveness and legitimacy. However, they refuse to abandon the role
of an active state in a democracy. (footnotes omitted)).
[FN96]. See Jennifer Arlen & Reinier Kraakman, Controlling Corporate Misconduct: An
Analysis of Corporate Liability Regimes, 72 N.Y.U. L. Rev. 687, 692-93 (1997) (showing how
imposing different levels of liability upon firms can influence company culture and employee
behavior); Yuval Feldman & Orly Lobel, Decentralized Enforcement in Organizations: An
Experimental Approach, 2 Reg. & Governance 165, 171-81 (2008) (demonstrating impact of
institutional processes on individual decisions about whether to blow whistle on illegality);
Canice Prendergast, The Provision of Incentives in Firms, 37 J. Econ. Lit. 7, 55 (1999)
(illustrating that behavior of agents changes with incentives).
[FN97]. Tristin K. Green, Work Culture and Discrimination, 93 Cal. L. Rev. 623, 650 (2005).
[FN98]. See Susan Sturm, Second Generation Employment Discrimination: A Structural
Approach, 101 Colum. L. Rev. 458, 555 (2001) (proposing courts prescribe and give legitimacy
to general norms while allowing private actors to discuss and interpret these norms); Julie Chihye Suk, Antidiscrimination Law in the Administrative State, 2006 U. Ill. L. Rev. 405, 450-51
(discussing Commission for Racial Equality's effective use of self-monitoring techniques to
reduce workplace discrimination).
[FN99]. Lobel, Interlocking, supra note 86, at 1104-11.
[FN100]. See Freeman & Farber, supra note 87, at 798-99 (explaining that environmental
regulation requires not only participation of multiple levels of government, but also active
involvement of key stakeholders).
[FN101]. See Simon, Toyota, supra note 93, at 55-56 (discussing new regulatory approaches to
food safety plans that requir[e] regulated actors to identify hazards of particular kinds and to
formulate their own plans for dealing with them).
[FN102]. See Craig W. Thomas, Habitat Conservation Planning, in Fung & Wright, supra note
83, at 144, 145-50 (describing cooperative Habitat Conservation Plans that satisfy requirements
of the Endangered Species Act).
[FN103]. See Lauren B. Edelman et al., The Endogeneity of Legal Regulation: Grievance
Procedures as Rational Myth, 105 Am. J. Soc. 406, 414-18 (1999) (describing discriminationrelated grievance procedures internal to organization).
[FN104]. See Sagit Leviner, A New Era of Tax Enforcement: From Big Stick' to Responsive
Regulation, 42 U. Mich. J.L. Reform (forthcoming 2008) (manuscript at 42, on file with the
Columbia Law Review) (discussing central role of cooperation in Australian Tax Office
enforcement strategy).
[FN105]. See Cristie L. Ford, New Governance, Compliance, and Principles-Based Securities
Regulation, 45 Am. Bus. L.J. 1, 3-5 (2008) (describing British Columbia's model of outcomeoriented securities regulation).
[FN106]. See Ayres & Braithwaite, supra note 83, at 35-41 (discussing escalating nature of
stages of enforcement).
[FN107]. Id. at 39 fig.2.3.
[FN108]. Orly Lobel, Citizenship, Organizational Citizenship and the Laws of Overlapping
Obligations, 97 Cal. L. Rev. (forthcoming 2009) (manuscript at 55, on file with the Columbia
Law Review), available at http:// papers.ssrn.com/sol3/papers.cfm?abstract_id=1114924
[hereinafter Lobel, Citizenship].
[FN109]. Id. at 55 fig.1.
[FN110]. William H. Donaldson, Chairman, U.S. Sec. & Exch. Comm'n, Remarks Before the
Economic Club of New York (May 8, 2003), available at http://
www.sec.gov/news/speech/spch050803whd.htm (on file with the Columbia Law Review).
[FN111]. Id.
[FN112]. Lobel, Citizenship, supra note 108, at 31; see also Elliott Sober & David Sloan Wilson,
Unto Others: The Evolution and Psychology of Unselfish Behavior 173 (1998) ([S]ocial norms
function largely... to make human groups function as [biologically] adaptive units.... (emphasis
omitted)).
[FN113]. For a discussion of these findings, see supra Part I.A.
[FN114]. As discussed in Predictably Irrational, Ariely and his collaborators found that when
people are asked to either recall the Ten Commandments or to sign an institutional honor code,
they act more honestly in the immediate short period that follows, even when there is no chance
of being caught or of being rewarded for honesty (pp. 212-13). On the other hand, the
experiments show that when compensation comes in a medium other than money, dishonesty is
likely to increase and be more prevalent (pp. 220-21).
[FN115]. See Lobel, Interlocking, supra note 86, at 1094 (noting moral gap created by distancing
oneself from responsibility has led some companies to avoid properly training workers in order
to avoid legal liability).
[FN116]. See On Amir et al., Psychology, Behavioral Economics, and Public Policy, 16
Marketing Letters 443, 447 (2005) [hereinafter Amir et al., Psychology] (explaining behavioral
scientists who want their work translated into policy must bridge the gap between theoretical
and applied settings and noting that [t]aking these extra steps means not only doing more
applied work, but also becoming an expert in the particular policy domains (savings, healthcare,
taxes, education, police lineups, etc.)).
[FN117]. See Feldman & Lobel, supra note 96, at 167 (discussing limits of behavioral
experimental studies in capturing complexities of real institutions); see also Levitt & List, supra
note 19, at 909-10 (To be empirically relevant, the anomalies that arise so frequently and
powerfully in the laboratory must also manifest themselves in naturally occurring settings of
interest.). Some behavioral studies are also identity-blind and do not attempt to distinguish
between different groups and their degree of stumbling. This raises other questions that Ariely,
Thaler, and Sunstein largely do not touch upon, such as, what if individuals of one sex are more
prone to irrationalities in various policy fields than those of another sex? On evidence of gender
differences in economic behavior, see Uri Gneezy et al., Performance in Competitive
Environments: Gender Differences, 118 Q.J. Econ. 1049, 1050, 1056 (2003) (testing whether
men and women differ in their ability or propensity to perform in competitive environments and
finding the performance of men is significantly higher in mixed tournaments).
[FN118]. See Michael C. Dorf, After Bureaucracy, 71 U. Chi. L. Rev. 1245, 1269 (2004) ([I]n
the conditions of modern life, people increasingly find that their problem is not so much an
inability to persuade those with different interests or viewpoints of what to do; their problem is
that no one has a complete solution to what collectively ails them.). A related problem with
current research is that, for the most part, it examines behavior only at the individual level. New
governance approaches must integrate insights about individual behavior with the study of
groups and organizations. These latter areas of study are less developed in the books we review,
although there is a growing body of interdisciplinary literature on group behavior. See, e.g.,
Samuel Issacharoff, Democracy and Collective Decision Making, 6 Int'l J. Const. L. 231, 233
(2008) (placing the difficulty of defining the polity... in the broader context of the long-standing
theoretical uncertainty about the nature of collective decision making). Indeed, Sunstein himself
has extensively studied group decisionmaking in the judiciary. Cass R. Sunstein et al., Are
Judges Political? An Empirical Analysis of the Federal Judiciary (2006) (studying multi-judge
panel decisionmaking); David Schkade, Cass R. Sunstein & Reid Hastie, What Happened on
Deliberation Day?, 95 Cal. L. Rev. 915 (2007) (studying effects of group deliberation by likeminded people); Cass R. Sunstein, Deliberative Trouble? Why Groups Go to Extremes, 110 Yale
L.J. 71, 84 (2000) (describing social cascades that lead opinions on legal issues to run
according to community norms and reputational considerations); Cass R. Sunstein, David
Schkade & Lisa M. Ellman, Ideological Voting on Federal Courts of Appeals: A Preliminary
Investigation, 90 Va. L. Rev. 301, 337-46, 352 (2004) (finding strong correlation between
political party of appointing president and judicial voting patterns, with judicial votes often
turning on panel's political composition).
[FN119]. See Amir et al., Psychology, supra note 116, at 451-52 (urging experimenters to
directly do research on policy to bridge the existing gap between behavioral research and
policy).
108 CLMLR 2098

END OF DOCUMENT
Nudge policies and Negative Liberty

Writing sample
Olga Fjodorowa Msc, MA
Table of Contents
Abstract ............................................................................................................................................... 2
1.
Introduction ................................................................................................................................. 2
2.
Nudge Theory .............................................................................................................................. 3
3.
Nudge Theory as violating Negative Freedom .............................................................................. 4
4.
The types of Nudges and their individual impact on negative freedom ......................................... 6
4.1
Type 1: Activating a desired behaviour Externally-imposed Mindful Encourage ............ 9
4.2
Type 2: Activating a desired behaviour Externally-imposed Mindful Discourage ........... 9
4.3
Type 3 and 4: Activating a desired behaviour Externally-imposed Mindless Encourage
and Discourage .............................................................................................................................. 10
4.4
Types 5 and 6: Boosting self-control Externally-imposed Mindful Encourage &
Discourage..................................................................................................................................... 11
4.5
Types 7 and 8: Boosting self-control Externally-imposed Mindless Encourage &
Discourage..................................................................................................................................... 12
4.6
The four Self-Imposed types of nudge policies .................................................................... 12
5.
Conclusion. ................................................................................................................................ 13
6.
Literature List. ............................................................................................................................ 15
Abstract
In this paper I will consider the claim that nudging reduces the degree of negative liberty. There
are twelve different general types of nudge policies, and their impact on negative liberty will
vary. I will show that not all nudge policies decrease negative liberty to a degree. Thus there are
nudge policies which can be safely implemented by liberal governments.
1. Introduction
The democratic government has always been a topic of debate, in particular what its duties and
powers should be. Since the rise of communism and the welfare state these debates have
increasingly focused on the question of how extended the state ought to be. At the one side of
the debate libertarians have argued that the state should be minimal, and should not interfere
with the liberty of citizens. At the other side, paternalists have argued that the purpose of the
state is the promotion of wellbeing of its citizens.
Recently Thalter and Sunstein (2009) have proposed a third approach, which they call
libertarian paternalism. Their idea is that the state ought to gently nudge citizens to make the
choices most beneficial for them and the society they live in, without removing the right to
choose. In this way, Thaler and Sunstein (2009) argue, the liberty will be preserved while the
welfare of the citizens will increase. Additionally, this method is often cheaper to implement
than the traditional tools of the state, such as taxation, regulation and bans. The usage of
nudges can thus decrease the size of the state, in the long run potentially also reducing the
taxes imposed on citizens.
Libertarian paternalism promises great benefits, but there are fears that the implementation of
such policies will reduce the citizens liberty. Authors such as Grne-Yanoff (2012) have argued
at least some nudge policies decrease negative liberty by interfering in the choice process. Ly et
al. (2013) have identified twelve general types of nudge policies. This paper will examine which
of the general nudge policy types do indeed decrease negative liberty, and whether there are
general types of nudge policies which can be acceptable from the point of view of libertarians.
This paper is structured as follows. In chapter 2 I will discuss the general theory of nudge
policies. In chapter 3 I will look at negative freedom and examine the claim that at least some
nudge policies decrease negative freedom. In chapter 4 will discuss the twelve general types of
nudge policies and consider their impact on the negative freedom. Finally, chapter 5 will offer
the conclusion.
2
2. Nudge Theory
Thaler and Sunstein (2009) provide a definition of a nudge: A nudge, as we will use the term, is
any aspect of the choice architecture that alters peoples behavior in a predictable way without
forbidding any options or significantly changing their economic incentives. To count as a mere
nudge, the intervention must be easy and cheap to avoid. Nudges are not mandates.1
Thaler and Sunstein (2009) begin with the insight that a choice is always made within a choice
architecture. Choice architecture is a context in which people make decisions. One cannot thus
avoid deciding upon a choice architecture, for even a random assignment of choices is in itself a
choice architecture decision.
Choice architects are the ones responsible for designing the choice architecture. When choice
architects, in particular governments and social institutions, wish to promote certain behaviour,
they essentially have two options. Liberal governments usually chose the Just Maximize
strategy, by maximizing the number and the variety of different options. Often this is paired
with forced-choice strategy, forcing the citizen to select the option best suited for their needs.
The Just Maximize strategy maximally respects the liberty of the choosers, and relies on the
choosers to be fully informed and capable of making perfect choices. The disadvantage of this
strategy is that it often implies high costs for the choosers in terms of time, effort and mental
energy. The resulting choice process is often incredibly cumbersome, and the outcomes are
usually not as good as they could have been. A very good example of this is the design of a
Swedish Privatizing Plan, discussed by Thaler and Sunstein (2009)2.
Another option, often preferred by the paternalists, is to make certain types of behaviours
mandatory. Here one can think of mandatory usage of car seatbelts. Such regulations maximally
protect the citizens from making choices that they would otherwise regret, and in a way
provide simplicity to peoples lives by not requiring the citizens to spend their mental energy on
making certain decisions. The disadvantage lies of course in the limited freedom for the
choosers, and with the costs from having one size that does not fit all.
Nudging provides an alternative to these two strategies. It basically provides the chooser with a
preliminary choice. One can either disregard the nudge and decide for oneself what option suits
ones preferences most, or one can follow the nudge, and save the time and mental energy
necessary to make a well-informed decision. Of course there are many different kinds of
nudges, and many possible ways by which nudging can be done. Ly et al (2013) have even
1
Thaler S. R., Sunstein C. R., [2009], Nudge: Improving Decisions about Health, Wealth, and Happiness, Yale
University Press, New Haven & London, p 6.
2
University Press, New Haven & London, p 145 - 156
identified twelve general types of nudges. All these different types differ not only in
implementation strategy, but also in their impact on liberty. I will return to these different
types in Chapter 4.
Nudge Theory is based upon the understanding on how humans actually behave, rather than
how they should be behaving. It assumes that humans are among others fallible, are sometimes
busy, sometimes lazy, and sometimes emotional. Therefore the choices that humans make are
often not the best ones that they could have made. And humans could thus benefit from gently
being nudged into the right direction, or having the best choice highlighted, or being told that
water is good for you. Nudging offers a low-cost way by which the governments and other
institutions can adjust behaviour, while still respecting the freedom of choice.
The trouble with Nudge Theory starts to arise when people are unaware of being nudged,
which is a common occurrence. The most prominent example of it is advertising. Advertising
has nudged us for a long time to purchase certain goods, by promising love, wealth, beauty,
fame and many other things to those who purchase a bar of soap. Of course it is not
unimaginable that a bar of soap contributes to all those things, but the relationship far more
complicated than the advertisers would want us to believe. We consider nudging to be
perfectly permissible if it comes from business who only care about our money, and not so
permissible from the governments which may want us to live happier and better lives.
Unfortunately, we cannot be certain that the governments do indeed care about our wellbeing,
though the chances of that being true for a government are significantly higher than for a
business.
3. Nudge Theory as violating Negative Freedom

The idea that governments should apply nudges in order to save the tax-payers money is mostly
criticized from the libertarian camp for not respecting the citizens freedom. Grne-Yanoff
(2012) argues that liberal paternalism violates the liberal principles. According to him liberal
paternalism limits freedom, and fails to justify such limitations in a way that is acceptable to
liberal positions. He points out:
. some LP policies constitute non-transparent manipulation, and hence reduce peoples
degree of republican liberty; and further that other LP policies interfere in choice processes, and
hence reduce peoples degree of negative liberty.3
Grne-Yanoff T., [2012], Old wine in new casks: libertarian paternalism still violates liberal principles, Social
Choice & Welfare, Volume 38, Issue 4 , p 635-645,
http://home.abe.kth.se/~gryne/papers/LiberalWelfare101111.pdf (checked 25 July 2013) p 1.
This paper focuses on the question whether nudging people by the government is contrary to
the concept of negative liberty. In order to examine the argument offered by Grne-Yanoff one
first needs to understand what is meant by negative liberty. I will very briefly consider this
concept.
Isaiah Berlin (1969) provides perhaps the most famous account of negative liberty and defines it
as freedom from coercion:
I am normally said to be free to the degree to which no man or body of men interferes with my
activity. Political liberty in this sense is simply the area within which a man can act unobstructed
by others.4
And,
Coercion implies the deliberate interference of other human beings within the area in which I
could otherwise act. You lack political liberty or freedom only if you are prevented from
attaining a goal by human beings. Mere incapacity to attain a goal is not lack of political
freedom.5 (emphasis is mine)
Negative liberty focuses on the factors external to the person. These factors are usually thought
to be constraints imposed on the person by other people and the state. Usually proponents of
negative liberty argue against any interference from the state, unless this interference is used
to protect certain liberties, such as freedom of religion, freedom of movement, freedom of
personal property and so on. On this account of freedom, I am free as long as nobody prevents
me from doing certain things, such as attending a university for example. If I am unable to
attend university because I am physically disabled, or too poor, or the university is too far away
from where I live, then my liberty is not diminished. If my angry parents have locked me up so
that I will not attend university, then I become unfree to do so.
The key point here is that Berlin (1969) is very specific about when one lacks negative freedom:
only when other humans prevent you from attaining your goal. This means that Grne-Yanoff
(2012) is right in saying that a mere interference already decreases the degree of negative
freedom. But, a mere interference does not make you unfree, unless this interference prevents
you from achieving your goal.
Berlin I., [1958,1969], Two concepts of Liberty, Four Essays on Liberty, Oxford: Oxford University Press,
http://www.wiso.unihamburg.de/fileadmin/wiso_vwl/johannes/Ankuendigungen/Berlin_twoconceptsofliberty.pdf (checked 27 July 27,
2013), p 3
5
Berlin I., [1958,1969], Two concepts of Liberty, Four Essays on Liberty, Oxford: Oxford University Press,
http://www.wiso.unihamburg.de/fileadmin/wiso_vwl/johannes/Ankuendigungen/Berlin_twoconceptsofliberty.pdf (checked 27 July 27,
2013), p 3
One can wonder if this reduction of freedom is as unacceptable as the libertarians make it
appear. There are two points that can be made here. The first is that if the government has a
certain degree of paternalism in its ideology, then the alternatives to nudges may decrease the
liberty a lot more than the libertarian paternalism policies will ever do. An example of this is the
public ban on smoking. In this case, the government has tried to do some nudging first by
providing warning labels on the packaging. When this has proven to be less effective than
hoped, taxes were raised and eventually a public ban was enacted. It is possible that using
several nudge policies at once, could have had a similar effect, without reducing the negative
liberty to damage own health quite so much.
The second point is that in the long-run, nudge measures may actually promote negative
liberty. The key argument provided by Thaler and Sunstein (2009) is that nudge policies are
cheaper to implement than their alternatives. This is both due to the low-cost for the citizens
on whom these measures are implemented, and due to low-cost of implementation for the
government itself. A nudge does not need to be enforced; therefore there are no enforcement
costs. Thus less taxation money will be needed to maintain the government itself. And perhaps
one of the oldest claims from the libertarian camp is that taxation reduces negative liberty, for
it diminishes the freedom to own property.
One can wonder whether slightly decreasing negative freedom in order to prevent much larger
decreases, or to (slightly) increase another aspect of negative liberty can be justifiable in ways
acceptable to liberal positions. If it is justified, then part of the objection to libertarian
paternalism that Grne-Yanoff (2012) makes will be removed or at least weakened. It is
unfortunately outside the scope of this paper to discuss this point in detail.
Grne-Yanoff (2012) argues that his criticism applies to at least some of the libertarian
paternalism principles6. Perhaps there are other nudge policies which do not decrease the
negative freedom of citizens. This question is the topic of the next chapter.
4. The types of Nudges and their individual impact on negative freedom

According to Ly et al (2013) nudge policies share characteristics which can be classified across
four dimensions:
1. Boosting Self-Control vs. Activating a Desired Behaviour.
2. Externally-Imposed vs. Self-Imposed.
3. Mindful vs. Mindless.
4. Encourage vs. Discourage
6
Grne-Yanoff T., [2012], Old wine in new casks: libertarian paternalism still violates liberal principles, Social
Choice & Welfare, Volume 38, Issue 4 , p 635-645,
http://home.abe.kth.se/~gryne/papers/LiberalWelfare101111.pdf (checked 25 July 2013) p 1.
The first dimension distinguishes between nudge policies which help the individual follow
through with their decision (boosts self-control) and policies which help the citizen to make a
decision to which the chooser is inattentive to, or finds to be unimportant (activating desired
behaviour) . There are areas in life in which there is a discrepancy between what people say
they want to do, and what they end up doing. Perhaps the best examples of this are the New
Year goals. Most people do try to follow through with their intentions, but tend to give up or
forget about their goals in a few months. If people genuinely wish to proceed with their
intentions but lack the self-control necessary to do it, then they can benefit from nudge policies
which boost self-control. Policies which activate desired behaviour focus on the aspects of life
where citizens do not consciously consider what the best behaviour should be. Here one can
think of littering and excessive drinking. As Ly et al. (2013) point out: ... nudges that seek to
activate latent or non-existent behavioural standards in people rely on exposing them to
conditions in which those standards become more salient 7. Nudges in these areas can help
develop good habits.
The second dimension looks at whether a nudge will be voluntarily adopted. Self-imposed
nudges are voluntarily and actively adopted by people to influence their own behaviour. An
example would be going to work on a bicycle to meet an exercise goal. Externally-imposed
nudges are those which passively shape behaviour by presenting a choice in a certain way
without constraining that choice, such as by the use of a default option.
The third dimension focuses on the biases and heuristics that humans use in their decision
making. Mindful nudges attempt to free the decision maker from his biases and allow for a
more deliberate cognitive decision making. Mindless nudges at the other hand make use of
those biases and heuristics such as emotions and framing to sway the decisions towards certain
goals.
The fourth dimension looks at whether the nudges encourage or discourage certain behaviours.
An advertisement drink more water! on a hot day would be an example of an encouraging
nudge.
Ly et al. (2013) have combined those four dimensions into twelve distinct nudge policy types.
They have provided the following table to demonstrate the twelve types:
Ly K., Maar N., Zhao M., Soman D., [2013], A Practitioners Guide to Nudging, Research Report Series:
Behavioural Economics in Action, Rotman School of Management , University of Toronto, 7
Table 1: The twelve general types of nudge policies.8

The question is to what degree each of those general types impacts negative liberty. If the
impact is substantial, then Grne-Yanoffs (2012) criticism is correct and these policies should
not be used by a liberal government. If the impact is modest, then it can be considered whether
the benefits of implementing this policy can outweigh the degree of reduction of negative
freedom. If a policy does not seem to decrease the degree of negative freedom or this decrease
is insignificantly small, then the use of such policies should be encouraged.
Ly K., Maar N., Zhao M., Soman D., [2013], A Practitioners Guide to Nudging, Research Report Series:
Behavioural Economics in Action, Rotman School of Management , University of Toronto, 8
4.1 Type 1: Activating a desired behaviour Externally-imposed Mindful Encourage
Activating desired behaviour refers to policies which help guide the citizens towards certain
behaviours in situations where the citizens do not actively think about what the right behaviour
should be. Usually in these situations the citizens are inattentive, or do not consider the
behaviour to be very important. Such policies are per definition externally-imposed. Mindful
nudges help the decision maker make deliberate and conscious decisions.
Ly et al. (2013) provide simplifying tax rules to make tax filing easier as an example of this
type of nudge policy. Reducing the degree of complexity allows people to make better informed
decisions. And since people do not usually go around questioning themselves whether or not
they will be filing their taxes this year this policy counts as activating desired behaviour.
This type of policy will only moderately decrease the degree of negative freedom. The policies
which activate a desired behaviour do interfere in the choice process by altering the choice
architecture, and thus the criticism expressed by Grne-Yanoff (2012) has some merit. Yet, the
mindful aspect of this policy promotes negative freedom and therefore counters some of the
reduction imposed by the policy activating a desired behaviour.
4.2 Type 2: Activating a desired behaviour Externally-imposed Mindful Discourage
This type of nudge policy is very similar to the previous one, with the only difference being that
this type is about discouraging certain behaviours, rather than encouraging them. Ly et al.
(2013) classify placing signs to remind people not to litter under this category. The placement of
a sign please do not litter does not constrain the choice of behaviour in any way. People are
completely free to ignore the sign and litter, though they are requested not to. A similar
situation would arise if another person would walk up to me and ask me not to litter. I believe
that I would be overreacting if I were to respond to every person who makes a request of me
that they are decreasing my negative liberty by interfering in my choice process.
Yet it is clear that such a sign or a request of another citizen requires me to behave in a certain
way for which I have not expressed a previous desire for. It does therefore have a negative
impact on the negative liberty, but this effect is nearly non-existent. Even if it was my life-goal
to litter all the time, I could not possibly claim that a mere sign is an obstacle which can prevent
me from achieving that goal.
This example highlights one crucial point already made by Thaler and Sunstein (2009) with
regards to policy design: the exit-option. In the example given here the exit-option is present
because you can simply ignore the sign. Since doing so is very easy, the exit-value is very high.
With regards to simplifying regulations, no exit-option is given since you cannot request that
the simplifications would not apply to you. Therefore the impact on negative liberty there is
greater. Thus the impact of a policy on negative liberty also depends on the design on a
particular nudge.
In general though, we can say that nudge policies which activate a desired behaviour have a
negative impact on negative liberty, the degree of which depends on the individual policy
design. However, the mindful type of measures mitigates that impact by providing the citizens
with an enhanced choice and by making such choices more deliberate. Therefore the nudge
policies which combine activating a desired behaviour with mindful aspect have a moderate
to small impact on the negative liberty. They do interfere in the choice process, but they do not
constrain the choice made. And even this interference is designed to promote rather than
diminish negative liberty. Mindful policies do not provide an obstacle for a person to meet his
goals.
Thus these two types of nudge policies can be used by liberal governments if close attention is
paid to the design of individual policies. It is very important to consider exit-option in the design
of a nudge policy.
4.3 Type 3 and 4: Activating a desired behaviour Externally-imposed Mindless

Encourage and Discourage
These types of nudge policies differ from the two previously discussed ones in that they are
designed to be mindless rather than mindful. Mindless nudges attempt to modify the decisions
made by using emotions and biases that humans are prone to. The activating desired
behaviour Mindless types are the ones that the critics are most concerned with, because
these policies can be considered as manipulative by exploiting the citizens ignorance or
irrationality. These policies seek to elicit certain responses by bypassing deliberate
considerations.
Yet caution must be exercised when claiming that such policies are exploitative, for there are
multiple theories about what constitutes exploitation9. What most of these theories agree on is
that for an action to be exploitative, the exploiter must benefit from exploiting the victim. It is
not clear that a democratic government would benefit from nudging its citizens, since the
nudges are designed to be in the best interest of the citizens. Even if one could argue that some
policies may not be in the best interest of a certain individual, this individual could benefit from
the possible decrease in taxation as a result of implementation of the cheap nudge policies.
In any case, the policies used as an example of these two types may be considered to be fairly
harmless. Policies such as signs which invoke social pressure, and fake speed bumps have a
potential for providing great social and economic benefits at the low cost. Thaler and Sunstein
9
Wertheimer A., Zwolinski M., [2001, 2012], Exploitation, Stanford Encyclopedia of Philosophy,
http://plato.stanford.edu/entries/exploitation/ (checked 1 August 2013)
10
(2009)10 have also addressed the concerns that critics may have about the slippery slope, and
the possibility that the nudges may be used for bad purposes.
Yet this does not change the fact that the both crucial components of such policies, activating
a desired behaviour and mindless, have a negative impact on negative liberty. I have
previously already discussed the impact of activating desired behaviour on negative liberty.
Mindless types also negatively impact the negative liberty and the freedom of choice because
they provide an obstacle, such as an emotional response, to deliberate and cognitive decision
making. The combined effect of activating a desired behaviour and mindless can be
substantial. It is therefore advised for the liberal governments to not to deploy such policies. If
negative liberty is a crucial concern, then even the potential of such policies to provide large
benefits should not override the preference for negative liberty.
4.4 Types 5 and 6: Boosting self-control Externally-imposed Mindful Encourage &

Discourage
These two general types of nudge policies include policies which help citizens meet their selfset goals without creating any obligations. The externally-imposed policies can suggest possible
goals by providing gentle nudges towards (socially) beneficial behaviour. The nudges are
mindful and designed to make the decision making process easier and more pleasant.
The two examples provided by Ly et al. (2013) help the citizens to meet self-set goals by either
eliminating obstacles (simplifying application process for college grants to encourage higherlevel education), or by providing clear information (installing car dashboards that track mileage
to reduce gas usage). They only offer support to meet self-set goals (the boosting self-control
factor) while being perfectly ignorable by those who do not have such goals. If I have no
intention to attend a university, nor do I wish to reduce my gas usage (perhaps because I do not
own a car) then these policies have no impact on me.
Policies which include boosting self-control and mindful aspects in fact simply provide the
tools needed for better decision making. It is up to the user whether or not to make use of such
tools. These policies do not interfere in the choice process, unless one sees the provision of
information or suitable tools as interference. Therefore they do not decrease the degree of
negative liberty, and perhaps even promote the negative liberty by removing the obstacles to
decision making. The fact that they are externally-imposed does have a negative effect on the
negative freedom, but I believe that the positive effect from the other two components
(mindful and boosting self-control) mitigate the small negative impact. Therefore such
policies should be considered to be implemented by the government.
10
University Press, New Haven & London, p 236 - 241
11
4.5 Types 7 and 8: Boosting self-control Externally-imposed Mindless Encourage &

Discourage
The two examples of these types of policies provided by Ly et al. (2013) are automatically
enrolling for prescription refills to encourage taking medication, and placing unhealthy foods in
harder to reach places. The liberals have trouble with such policies because they are mindless
and therefore try to bypass the deliberate decision making.
The impact of these two types of policies on negative liberty is perhaps the hardest to judge, for
such policies offer plenty of space for abuse. It can be questioned whether there is a significant
difference between automatic medication prescription and automatic renewal of journal
subscriptions after the subscription has stopped being free.
The key issue here is that while these policies are designed to boost self-control, because they
are mindless they do not ask of the user whether the user wanted to have that self-control
boosted. So there is an issue here regarding to the agents real interests, and there is no clear
consensus as to what these interests should entail. For paternalists it is in the agents real
interest to live a long, healthy and happy life. For liberals, such as for example John Stuart Mill,
it is in the agents real interest to life a self-determined life, to discover own limits and own
way of life. For them, paternalism offers an obstacle in this self-realization, for what can be
seen as good for the majority is not necessary beneficial for the individual. It is out of the
scope of this paper to discuss this issue in much detail, but with regards to these two general
types of nudge policies it can be questioned to what degree they are self-control boosting.
Unfortunately it is out of the scope of this paper to study these two particular types of policies
in great detail. In general, I would advise the governments not to implement such policies
before they have been extensively studied in controlled settings.
4.6 The four Self-Imposed types of nudge policies
The crucial aspect of self-imposed nudge policies is that they are imposed by a citizen himself
upon himself. These policies are therefore per definition part of a citizens private life and
outside of the work scope of the government. Self-imposed nudges do not violate the subjects
autonomy or restrict the citizens negative liberty in any way, because they are not imposed up
on the citizen by someone else. Whether the policy is mindful or mindless also has no
impact on the negative liberty, for it is the private choice of the individual on how to nudge
himself. These policies cannot be enacted without the citizens active and deliberate consent
regardless of them being mindful or mindless.
12
5. Conclusion.
In this paper I have considered the claim that the nudge policies reduce the degree of negative
freedom (Grne-Yanoff, 2012). Nudge policies are a part of the libertarian paternalism
movement which is increasingly becoming the topic of discussion after Thaler and Sunstein
have published their book Nudge: Improving Decisions about Health, Wealth, and Happiness on
this topic in 2009. Nudge policies provide a cheap method of government interference focused
on gently nudging citizens towards behaviour which will benefit the citizens and the society
they live in, without reducing the freedom of choice. Such policies are designed in a way that
makes them cheap to be ignored. Nudge policies assume that most people are fallible, have
limited mental energy and time, and sometimes prefer to be doing other things than making
complicated decisions. These people can therefore benefit from being nudged into the right
direction. According to the authors, libertarian paternalism applied by the state can lead to a
better and smaller state. This could in the future also lead to the reduction of taxes, as the state
overhead costs will be lower due to the implementation of nudge policies.
The liberal camp has expressed some concerns with this theory, most notably that the policies
reduce liberty. A good example of such concerns is a paper by Grne-Yanoff (2012), where the
author points out that by interfering with the choice process nudge policies decrease the
degree of negative liberty. In this paper I have examined the impact of the different types of
nudge policies on the negative liberty.
Lt et al., (2013) have identified twelve general types of nudge policies. A brief analysis has
shown that the impact of a nudge policy on the negative liberty does not only depend on the
type of nudge policy, but also on the design of that particular policy. The policies which are very
easy and cheap to be ignored decrease the negative freedom to a lesser degree than the
policies which are harder to ignore. Keeping this in mind it can generally be concluded that
some types of policies have a larger impact than the others.
The criticism expressed by Grne-Yanoff (2012) mostly applies to the Activating a desired
behaviour Mindless types of nudge policies. Most policies of these types appear to be
harmless, but they have a large negative impact on negative liberty. These policies are nontransparent and greatly interfere in the choice process. If negative liberty is a concern, then the
government should not deploy the policies of this type.
The Activating a desired behaviour Mindful types of policies have a small to moderate effect
on the negative liberty. These policies can be considered to be paternalistic. If a close attention
is paid to the design of individual policies of these types, then they can be used by liberal
governments if the benefits of such policies exceed their costs (including the cost of the
reduced liberty).
13
The Boosting self-control Mindful types can actually increase the degree of negative liberty
by providing better tools for decision making and functioning as an alternative to the traditional
governmental tools, such as taxation. These policies are designed to help the user make more
deliberate, better informed and well considered decisions. These types of nudge policies should
be the first to be considered for implementation by a liberal government.
Boosting self-control Mindless types heavily depend on the theory of what constitutes the
agents real interests. Their impact on negative liberty is therefore unclear and should be
studied in more detail. Finally, the four Self-Imposed types of nudge policies are outside of
the governments concern, since they per definition cannot be imposed on a person by
someone else.
Different types of nudge policies have different impacts on negative liberty, and the
permissibility of their implementation varies as well. Instead of the two camps arguing between
themselves as to whether the government should be using the nudge policies or not, perhaps
the discussion should be about which general types of nudge policies can be used and how they
should be designed as to preserve negative liberty while offering substantial benefits to the
citizens and the state. Such a discussion will be more constructive and practical. Regardless of
our political background we all have one thing in common: we all wish to live a happy life in a
good society. So perhaps we should focus on how to achieve that, rather than argue what a
happy life is and how a society should be in order for me to consider it to be good.
NOTE to fellow Academia.edu members: if you have comments and / or suggestions about my
work, and being a philosopher in general, please feel free to contact me at
olia.fjodorowa@gmail.com
Thank you!
14
6. Literature List.
-
Berlin I., [1958,1969], Two concepts of Liberty, Four Essays on Liberty, Oxford: Oxford
University Press, http://www.wiso.unihamburg.de/fileadmin/wiso_vwl/johannes/Ankuendigungen/Berlin_twoconceptsofliber
ty.pdf (checked 27 July 27, 2013)
Carter I., [2003, 2012], Positive and Negative Liberty, Stanford Encyclopedia of
Philosophy, http://plato.stanford.edu/entries/liberty-positive-negative/ (checked 23
July 2013)
Farrell H., Shalizi C., [2011], 'Nudge' policies are another name for coercion, New
Scientist 2837, http://www.newscientist.com/article/mg21228376.500-nudge-policiesare-another-name-for-coercion.html#.UeaYO9Iy3Ex (checked 17 July 2013)
Grne-Yanoff T., [2012], Old wine in new casks: libertarian paternalism still violates
liberal principles, Social Choice & Welfare, Volume 38, Issue 4 , p 635-645,
http://home.abe.kth.se/~gryne/papers/LiberalWelfare101111.pdf (checked 25 July
2013)
Hansen P. G., [2013], Nudge Nudge for Good, Policy Options,
http://www.irpp.org/en/po/nudge-experiments-in-human-nature/nudge-nudge-forgood/ (checked 17 July 2013)
John P., Cotterill S., Richardson L., Moseley A., Smith G., Stoker G., Wales C., [2011],
Nudge, Nudge, Think, Think: Experimenting with Ways to Change Civic Behaviour,
Bloomsbury Academic,
http://www.bloomsburyacademic.com/view/NudgeNudgeThinkThink_9781849662284/
chapter-ba-9781849662284-chapter-002.xml (checked 19 July 2013)
Ly K., Maar N., Zhao M., Soman D., [2013], A Practitioners Guide to Nudging,
Research Report Series: Behavioural Economics in Action, Rotman School of
Management , University of Toronto
Soman D., [2013], Nudge Making policy through a behavioural lens, Policy Options,
http://www.irpp.org/en/po/nudge-experiments-in-human-nature/nudge-making-policythrough-a-behavioural-lens/ (checked 17 July 2013)
Spiegelhalter K., [2012], Nudge; the current popularity of the agenda, its evidence
base and the potential for its application to Mental Health and Well-being, LAP
LAMBERT Academic Publishing,
http://www.academia.edu/928782/Nudge_the_current_popularity_of_the_agenda_its_
evidence_base_and_the_potential_for_its_application_to_Mental_Health_and_Wellbeing, (checked 19 July 2013)
Thaler S. R., Sunstein C. R., [2009], Nudge: Improving Decisions about Health, Wealth,
and Happiness, Yale University Press, New Haven & London
15
Wertheimer A., Zwolinski M., [2001, 2012], Exploitation, Stanford Encyclopedia of

Philosophy, http://plato.stanford.edu/entries/exploitation/ (checked 1 August 2013)
16
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18 JUN
2012
Safety Leadership nudges, shadows and the value of paranoia

Simon Lawrence
Comments
All Articles, Blogs, Managing Risk, Safety Culture
No
Think New Year 2014 think

new start for safety
Safety Reform Bill Draft a
quick analysis
The Article Safety Leadership Cast no Shadow, by Dr Tim Marsh in a recent edition of IOSHs
official magazine Safety and Health Practitioner was just what I needed last month to hang a few
thoughts of my own on.
Nudges
Nudges are things you can do in safety leadership that gain
attention, prick consciences, focus thoughts, exude
expectations, alert people. They demonstrate standards,
keep people on their toes. I think the key way in which they
work is they are not talking down to us. The way they
address us is at a whispering, rather chummy level. They
are things that we find we have noticed, as opposed to
something directed straight at us. Examples: The fly printed
into the ceramics in mens urinals that apparently we are
unable to resist and that therefore dramatically reduce
splashes and drips. Marsh also mentions the little innocent question Have you
remembered everything? at the end of our tax returns. That gathers revenue because so
many of us say OK, OK maybe there WAS one thing I could have owned up to.
Shadows
Shadows in safety leadership are messages people receive
that reveal the communicators real priorities. In short,
things we hear that are transparent, or token messages, or
mixed messages, conflicting priorities, uncommitted
attitudes or just plain hollow. They are messages that leave
the receivers knowing they might as well carry on the same
as before, because nothing will actually change.
Mindfulness
Clearly, the opposite of mindfulness is mindlessness. In
previous articles, and blogs, I have written about how
sometimes less is more, how employees should be encouraged to make good risk decisions.
In short, mindfulness is not relying on the boss, the guards, the equipment or even your
mates. Its about taking responsibility and being consistently ready to avoid the unknown
and untested. For safety leadership, its about asking the right questions, being a bit
paranoid and watching out for pockets of vulnerability.
Zero Harm with Murray Hurry

hell see you right
Safety Culture something
that happens, not something
you do
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shadows and the value of
paranoia
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paranoid and watching out for pockets of vulnerability.

So, lets illustrate Nudges, Shadows and Mindfulness. A few of the examples are taken from
the article, but I have thrown in a number of my own:
Safety Leadership Nudges

And they finished the job? Compare that with: And they still didnt stop the job?
Do it safely but do it by FridayCompare that with: Do it by Friday but do it safely
Clean workplaces with everything put away and keeping it that way.
Managers who follow up and embed training.
Rewarding and acknowledging good safety performance and ideas.
Fixing safety issues visibly and fast.
Walking back of house and asking questions.
Sending back an accident investigation and asking for a better job.
Attending safety meetings and making it clear what you expect.
Safety Leadership Shadows

Safety is Number 1, but we have to finish the rest of the meeting. To get the meaning of
that, compare it with: I really love you but
I dont need to wear PPE because Im just passing through.
Failure to acknowledge good behaviour and ideas.
Denying there is a problem.
Not addressing concerns or using cheap, unworkable solutions.
Regurgitating platitudes.
We need to set and maintain standards, lead by example, take an interest, never walk past
something wrong, ask searching questions, listen to the answers, never be complacent.
Example Mindfulness (Looking for pockets of vulnerability).

Look for urgencies, priorities, changes, delays, difficulties,
changed routines, absence of process.
Follow the Money Vulnerabilities when spending or
cutting costs, making new developments.
Be a little paranoid How can I be sure.
Do people have a lack of credibility/intensity around H&S?
Do the people writing procedures and processes have the
authority to implement? Have they consulted with the
users? Do the users believe/approve the methods?
Are people making assumptions?
Have solutions been tested?
Who, how often is monitoring the workplace and in what way? Who checks the checker?
Is bad news being repressed?
Are we taking things at face value?
Are we ignoring short cuts and are people breaking the rules?
Do we say one thing and mean another?
Are we really listening to people?
Do we ask What if?
Are we creating and adopting new ideas?
Do we really believe Weve got safety sorted? Is that an indicator of complacency? In
summary, we need to set and maintain standards, do safety leadership by example, take an
interest, never walk past something wrong, ask searching questions, listen to the answers,
never be complacent. In fact, be a bit paranoid. It may be possible to delay the inevitable
indefinitely.
Tags
Blogs
Leadership
Risk Management
037-040_SHP.0112 Marsh
14/12/11
14:27
www.shponline.co.uk
Some time ago, I was in a public

toilet in Amsterdam when I saw my
chance, whipped my camera out, and
got the picture. Ive wanted a shot of
one of these for ages Ill have great
fun with this when I get home, I
thought, as the other occupants
watched me in alarm. . .
The painted ceramic fly on the
toilet bowl at Schiphol airport (which
we men simply cant help but aim for,
and was the subject of my snapping)
is easily the most famous example of
a nudge the hugely influential
social psychology concept so expertly
and thoroughly detailed by Jennifer
Lunt and Malcolm Staves in the
November issue of the SHP.1 As it
happens, I do have lots of fun with
that picture at other conferences
when asking: What rules,
regulations, training, or supervision
could match the automatic 50-percent reduction in splashing and
associated cleaning costs the fly
delivers?
As Lunt and Staves point out, the
nudge concept has been around for
years in different guises2 for
example, user-friendly paint and
signage, and good ergonomics and
it is increasingly widely used by the
current government. Once you know
its around you, its easy to spot. The
new motorway signs saying Dont
litter other people dont (a nudge
with reference to social norms), the
empty Police van parked strategically
in the city centre, the new tax form
that asks Before you sign this off are
you sure you didnt forget anything?
Police being asked to wear uniform
when travelling to work, and so on.
For what its worth, a significant
percentage of those just about to sign,
seal and post a tax form thats not
entirely true find themselves
grimacing, banging the table and
cursing: Bugger it I was home free
but you got me right at the end there,
you evil lot! and reaching for the
white-out. (Studies suggest that this
one simple question alone will
generate tens of millions of pounds of
extra tax revenue!)
Used proactively and systemically
Page 37
SAFETY LEADERSHIP 37
Dr Tim Marsh takes the concept of nudge, as introduced in

our November issue, and explains how it is a key element of
the mindful organisation one in which strong and
proactive leadership creates a robust safety culture.
037-040_SHP.0112 Marsh
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Page 38
38 SAFETY LEADERSHIP
nudges are also a key element of a

safety culture concept thats gaining
great credence around the world: the
Australian writer Andrew Hopkins
concept of the mindful
organisation.3 He refers to the
shadow that leadership throws,
where apparently little things can
have a big impact for example, an
event that generates the comment
and they stopped the job?! or and
they still didnt stop the job?! In
many respects, such critical incidents
work as big nudges.
Mindfulness is not a technique,
or a theory its a practical and
realistic mindset that can (and
should) be applied to all aspects of an
organisations safety culture and
management. Following is a
discussion of several key elements of
a safety culture, starting with
leadership and including incident
analysis, communication and
procurement, and concluding with
how this mindset should be applied
to them all.
The leadership shadow
The idea of a leadership shadow isnt
new either, of course I have written
before in these pages on the subject
of weak leadership.4,5,6 For example:
starting a meeting by announcing
safety is our number-one priority
but in a manner that means lets get
it out of the way then crack on with
the important stuff; using the word
but in the middle of a sentence such
that it means ignore what Ive just
said, as the important stuffs coming
up; and the way that do it safely but
do it by Friday means something
entirely different to do it by Friday
but do it safely.
I mean, has anyone ever heard the
words youre really nice and I really
like you but without their heart
automatically sinking?!
Whether they are aware of nudge
or mindful concepts or not, many
companies train their managers not
to undermine the message in such
ways, and then follow up the training
to make sure they dont. Some others,
that are aware of the concepts, are
being more proactive than that,
however, and are actively looking for
opportunities to throw a positive
shadow (or nudge), as they know it
can take years to change a companys
culture.
SHP JANUARY 2012
This is because it takes that length

of time for a genuine change in
senior-management attitude to
percolate down and become
embedded (e.g. Youve been saying it
for years, I know, but only now am I
beginning to realise you actually
mean it). Basically, a few welldesigned nudges can really help
accelerate this process.
Shell Scandinavia, for example, on
platforms, has stopped asking the
question: Why did you feel it was
necessary to switch off? Instead, it
asks: Why did you feel it was safe to
switch back on? When you think
about it, the technical information in
the report generated in response to
the question will be exactly the same
but the shadow it throws is very
different. Indeed, its also not so
much a nudge but an almighty shove
in the right direction!
I have written previously in these
pages about transactional
leadership,5 and the mindful leader
is, by definition, a transactional one:
always mindful to lead by example, to
maximise the use of praise, to coach
and involve rather than to tell and
dictate, and absolutely always aware
that even the little things they do or
say throw a big shadow.
your investigation. It is the starting

point.
This thinking is fully in accord
with Reasons just culture concept.5
Hopkins himself insists that it isnt
possible to be genuinely mindful
without an ongoing commitment to
such as the five whys analysis. I
couldnt agree more.
Its a good idea to carry out
mindful analysis spot checks. For
example, we can sleep easily, assured
that we have an excellent incident
reporting system, or we can, from
time to time, pick an incident
mentioned in conversation and
follow it up by tracking it through
that reporting system. How far did it
get? What was learned? What was
done with this learning? Even the
best companies with highly expensive
tracking systems will often find that
the answers to these questions are
concerning.
Its also worth proactively looking
at the trends in the reporting system.
Are there divisions, shifts, or other
demographics that hardly ever
report? If so, then we need to dig into
it and find out what the blockages are
and why because since no one ever
has anything to report, theres a
problem!
Just culture and mindful analysis

Hopkins makes specific reference to
both why? and ABC analyses6 in his
work and, in doing so, encourages
companies to make that vital leap
from spotting that something is
wrong to a mindset that always seeks
to understand why its wrong.
For example, at the IOSH Rail
Conference 2011, East Midland trains
produced some graphs showing
impressive safety improvements, and
commented:For us, the key was to
stop treating SPADs (signals passed at
danger) and the like as events in
themselves but as symptoms of a
more underlying issue. That shift in
mindset was vital to our
improvement.
Sidney Decker, in his hugely
influential Field Guide to
Understanding Human Error,7 makes
this point really bluntly, saying:
Human error is not the cause but the
effect. Whatever the label (loss of
situational awareness, inadequate
resources, even complacency) human
error can never be the conclusion of
Mindfulness and zero harm

No conference is complete without a
heated debate about whether zero
harm is a useful concept or genuine
goal. Reasons cheese model,8
showing how weaknesses up and
down the chain effectively show how
all accidents could have been
prevented, is very influential to this
thinking, but his recent work on the
overstretched rubber band model
has been very well received and, for
me, clarifies the debate.
It describes how all companies are
apt to be pulled from best practices
by the challenges and issues of real
life (contractors, unexpected costs
and delays, etc.) so that the realistic
challenge is not to be perfect but to
ensure that when parts of the
organisation are stretched they do not
become overstretched and
vulnerable.
In the real world, says this model,
pockets of vulnerability will
inevitably pop up from time to time
and from place to place, even if the
overall culture is strong and the
037-040_SHP.0112 Marsh
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SAFETY LEADERSHIP 39
www.shponline.co.uk
planning thorough. The trick is to be

geared to spot them soon, and
respond to them effectively so that
balance is quickly restored. This is
entirely analogous to the key
principles of HSG48 (Human Error),
which says:
Design the job/ task so that error is
unlikely;
Make sure you have mechanisms
in place to spot error when it
(inevitably) happens; and
Make sure you can respond
quickly.
Following on from this, Reason
suggests that safety is then best
thought of as an ongoing guerrilla
war and, like any such war, although
we cant actually win it we can delay
the inevitable almost indefinitely. To
do this, well need keen intelligence,
good data and to use the resources at
our disposal cleverly.
In other words, were not asking
our boards to be perfect in such an
imperfect world but we are asking
them to be genuinely mindful.
Mindfully following the money
The Baker report into Texas City has
often been used as a stick with which
to beat behavioural safety, pointing
out, as it did, that with bonuses
triggered by low accident rates the
eye was taken off the process-safety
ball. But the Baker report doesnt say
anything like behavioural safety bad,
process safety good; it actually says
dont get the balance wrong and give
too much weight to just one issue.
This echoes the classic Oliver
Stone film JFK, when the shadowy
but deeply wise figure asks our
investigative hero: You always have
to ask yourself, who most stood to
benefit? and suggests just follow
the money.
A proactive mindful safety trick is
to do exactly that. For example,
where the procurement division is
rewarded for cutting costs but no one
checks if any false economies result
as a consequence, we often find
cheap PPE that no one actually wears
because its uncomfortable, or isnt fit
for purpose, or that cheap
components fail and leak. (At Texas
City itself, bonuses were paid only on
lost-time incidents, so management
focused on these to the detriment of
process-safety issues.)
Of course, its always worth
considering how contractors and

piece workers are remunerated and
selected (the term a whole can of
worms was coined with this issue
specifically in mind!) We all know
full well that what the contract says
and what happens on the day are not
often in accord. An example: we all
want our airports to be safe and
secure, but how do you feel when you
hear that the staff at the airport from
which youll be flying tomorrow with
your family are going to work to
rule? Is your first thought: Great,
theyll follow all those well-designed
rules and regulations and well be
extra safe?
Communication and the mindful
mindset
Hopkins suggests that in 2005, BP
was not a mindful organisation in
fact, the very opposite.
Underinvestment meant that pipe
work was old and leaky and
maintenance wasnt being done, but
in London (HQ) they were simply
The key concept of

the mindful
mindset is astute
thought coupled
with some robust
digging Alamy
unaware of the impact of their

policies because of the existing
climate of only good news moved
upwards and admitted themselves
they didnt listen well to those on the
front line. Hopkins suggests that this
proved fatal at BP, literally and
repeatedly in combination with the
aggressive cost-cutting at the time.
On a more individual level I once
asked an MD at a board meeting if he
ever responded negatively to a safety
issue being raised, and he was
adamant: Never! I asked: Not even
with the eyes? and the whole room
burst into laughter, as he was, it
transpired, notorious for this. Luckily
he wasnt a defensive man, laughed
himself, and we were off.
So, the mindful leader will show a
healthy paranoia by losing sleep to
the thought: How do I know XYZ
wont happen? and this will
inevitably involve lots of good,
proactive communication. More than
that, the organisation must seek out
the many examples there will be of
037-040_SHP.0112 Marsh
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40 SAFETY LEADERSHIP
SHP JANUARY 2012
Mindfulness is always remembering that safety is a

guerilla war to fight an effective rearguard action,
we need to be clever and alert and take nothing at
face value
communication being poor, or even
impossible.
A simple exercise is to ask
someone a production, or qualityrelated question. Check the speed of
the response, the facts they have at
their disposal, and how keen they
appear to reassure you they have
everything under control. Then ask
them a safety-related question of
similar type. How do the responses
tally with a genuinely balanced
scorecard?
Similarly, if you really want to get
to the core of a safety culture why not
sit in on a formal appraisal without
mentioning that your interest is
primarily in safety. Monitor the body
language of the appraiser and the
appraised. Is it as intense when
talking about safety items as when
talking about productivity? (Or does
this look like the half-time warm-up
rather than the real thing?)
You should, of course, also
consider the organisational structure
itself. Is it easy to communicate
concerns upwards, or totally
impossible? (For example, if youd
need to go through the person youre
concerned about, even though you
know for a fact they are not going to
see this as a learning opportunity!)
Also, consider if the people
responsible for writing systems and
procedures are empowered to ensure
they are actually followed. More
fundamentally, do the people who
write the systems and procedures
actively consult the end users as a
systematic part of the design process?
Any nos here absolutely guarantee
problems down the line.
Finally, especially at this time, its
worth considering any recent costcutting or renegotiated contracts.
Were these risk-assessed really
thoroughly for the Law of
Unintended Consequences, or were
assumptions made that all will be
well? Youll have got the idea by now
that a genuinely mindful leader will
be all over any such assumptions like
a bad rash.
Training and a mindful mindset

To start to sum up, I hope Ive made it
clear that, for me, the key concept of
the mindful mindset is astute
thought coupled with some robust
digging. For example, youll often see
companies quoting lead measures
regarding the percentage of
employees actually trained relative to
those they planned to train (and a
very impressive pie chart it can make,
too!).
However, no matter how sexy and
glossy the pie chart, the questions are
still begged: How well designed and
delivered was the training? Were the
behaviours introduced on the course
followed up and embedded? If they
were, was some follow-up analysis
made to ensure the change of
behaviour genuinely benefited the
company in some way?
In my experience, the answers to
these questions are not always what a
company would wish for. Indeed,
they rarely are. There is, of course,
any number of other key issues that
should be considered but whatever
the topic, mindful leaders dont take
assurance from checking the files
they get out and about, talk to people
in-depth, and genuinely dig.
Conclusion
So, to re-iterate, for me the key
element of mindfulness is to drill
into a subject and ask probing
questions that tell you whats really
going, on especially when you suspect
the answers will make you
uncomfortable.
Mindfulness is always
remembering that safety is a guerrilla
war. To fight an effective rearguard
action we need to be clever and alert
and take nothing at face value,
showing proactive analysis crossed
with a healthy paranoia that reflects
senior managements genuine
commitment to get their workforce
back home unharmed every day.
As with the airport security
mentioned above, much of what we
are assured by in our daily lives and
work is an illusion. An unspoken

accommodation of make-pretend that
helps us through the day. Well,
usually. The genuinely mindful leader
remembers this always because
almost every time you dig into
something, youll learn something
worrying.
A final thought: I do wonder if the
concept is proving so popular around
the world because of the positivity of
the word mindful. Its perhaps the
flip-side of the behavioural safety
burden that the word behaviour is
nearly always used when we want to
talk to you about your behaviour. So,
no Mind Games please (unless its the
classic John Lennon song) but can I
sign off by sincerely wishing all
readers to please do take care and
mind yourselves and your colleagues
as you go.
References
1 Lunt, J & Staves M (2011): Nudge,
nudge, think, think, in SHP
November 2011, Vol.29 No.11
www.shponline.co.uk/featurescontent/ full/cpd-article-nudge-nudgethink-think
2 Thaler, RH and Sunstein, CR

(2009): Nudge, Penguin
3 Hopkins, A (2008): Failure to
learn, CCH Australia
4 Marsh, T (2010): Stretch to the
limit, in SHP February 2010,
Vol.28 No.2
www.shponline.co.uk/featurescontent/ full/safety-culture-stretch-tothe-limit
5 Marsh, T (2010): Its A Kind of

Magic, in SHP September 2010,
Vol.28 No.9
www.shponline.co.uk/featurescontent/full/it-s-a-kind-of-magic
6 Marsh, T (2011): Words to the

wise, in SHP February 2011,
Vol.29 No.2
www.shponline.co.uk/featurescontent/ full/cpd-article-words-to-thewise
7 Dekker, S (2006): The Field Guide

to Understanding Human Error,
Ashgate
8 Reason, J (1997 and 2008):
Managing the Risks of
Organisational Accidents and The
Human Contribution, Ashgate
Dr Tim Marsh is managing director of
Ryder-Marsh Safety (Ltd) see page 4
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