Behavioural economics offers the potential to improve public and individual welfare at relatively little cost, by 'nudging' people towards more optimal choices, in what is termed libertarian or soft paternalism. The application of behavioural economics to public policy has the potential to increase rates of organ donation, tax returns and other socially beneficent behaviours without the use of coercion or fines, and therefore it appears to be a win-win situation, but is it so simple?

Behavioural economics has been heralded as a revolutionary paradigm for understanding human decision making, but actually it is basically just the application of psychology to decision making. In fact much of the knowledge was already implicitly known by large businesses and advertising firms, who were 'nudging' us towards their desired outcomes via such nudges as buy one get one free, and celebrities wear our clothes, why don't you? (thank you to Thom Scott-Phillips for crystallising this view). Therefore this new field is only revolutionary if you previously subscribed to a strict form of classical economics that rested entirely on the foundation of rational choice and revealed preferences. This form can be summarised by the tautological axiom: "People choose what they prefer, and [we know what] they prefer [by] what they choose".

So why do you keep on hearing about behavioural economics (I could have picked one of many features from various broadsheets, but this rather old link was most relevant to this post)? Well, there are two things that make nudging so appealing to cash-strapped governments nowadays, and hence why it keeps on appearing in the news; 1) nudging is soft government, it still lets people have freedom of choice; and 2) it offers temptingly large effects from almost cost free interventions. These aspects are particularly attractive to more right-wing governments that wish to reduce big government and advocate freedom of choice in free-markets. In contrast, left-wing governments applying nudging are at risk of being perceived as a hyper-nanny state.

As behavioural economics is largely the application of psychology to decision making, and the use of randomized controlled trials to test if policy implementations actually work, I am mostly a fan. However there is a danger that by focussing on how to shift people's choices, in attempts such as trying to reduce obesity, reduce unemployment, or increase saving rates, it allows the creation of a narrative that suggests people are solely to blame for their own failings (i.e. misfortune). I'm sure this wasn't the intention of those who created the field of behavioural economics, but it is a potential by-product that we may want to guard against.

Otherwise political campaigners may abuse behavioural economics, similar to how Darwinism was abused to justify prejudiced views in the 1930's, and our political discussions and policy designs may end up implying everyone could be healthy, wealthy and happy, if only they changed their behaviour to match the behaviour of the rich and successful. In other words you are not poor, obese or unwell because of deeper societal structures such as inequality in education, sports facilities, housing or health-care, but because you basically prefer choices that make you poor, obese or unwell. Where have we heard that before?

Other related articles;

http://www.independent.co.uk/news/people/profiles/the-nudge-team-started-outas-a-sort-of-mission-impossible-how-the-governments-successful-behaviour-insights-team-has-had-a-profound-effect-on-whitehall-9117793.html

http://www.theguardian.com/sustainable-business/behavioural-economics-nudge-cash-charities-finance#start-of-comments

http://www.theguardian.com/politics/2013/nov/12/government-nudge-theory-budge

http://www.theguardian.com/money/2008/may/20/consumeraffairs.economics