Free market economists argue that individuals make the best choices for themselves because they are the most aware of their specific preferences. But what happens when people come across decisions where they need specialized knowledge? How do you influence other people’s decisions in this case?
In the Learn Liberty video below, Professor Antony Davies and graduate student Erika Davies explain how a concept known to behavioral scientists, political scientists, and economics as “nudge theory” can be implemented into the decision-making process so people can make the best choice possible.
Nudge theory is the idea that policymakers can help someone make the “right” decision by changing the default option. As the famous rock band Rush once said:
If you choose not to decide you still have made a choice.”]
If an employee is given the option to enroll in a retirement program, the default option is no enrollment. If the default option is moved to enrollment, employees without specialized knowledge are now “nudged” to enroll in the program, for better or worse.
So by changing the default option to what a majority of knowledgeable people would choose, the people without specialized knowledge are “nudged” into a better outcome.