Nudge vs. Boost: Agency Dynamics Under 'Libertarian Paternalism'

Abstract

Thaler and Sunstein (2008) advance the concept of "nudge" policies -- non-regulatory and non-fiscal mechanisms designed to enlist people's cognitive biases so as to achieve the desired policy ends. A core assumption is that policy makers engage biases to advance the interests of the nudged individual. We analyze a model of dynamic policy making in which the policy maker's preferences are not always aligned with those of the individual. One novelty of our setup is that one of the policy maker's options is to train the individual to remove the individual bias once and for all. We refer to this as a "boost" policy. Our main result identifies conditions under which nudges have option value -- i.e., although it is in the immediate best interests of both the policy maker and individual to boost, the policy maker may aver in order to leave open the possibility of future nudges.