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08 Jun 2017

Behavioral ‘Nudges’ Offer a Cost-Effective Policy Tool

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Governments around the world have increasingly turned to behavioral science to help address various policy problems – new research shows that some of the best-known strategies derived from behavioral science, commonly referred to as ‘nudges,’ may be extremely cost effective. The new study, which examined the cost-effectiveness of nudges and typical intervention strategies like financial incentives side-by-side, found that nudges often yield particularly high returns at a low cost when it comes to boosting retirement savings, college enrollment, energy conservation, and vaccination rates.

The findings are published in Psychological Science, a journal of the Association for Psychological Science.

“The changes in behavior produced by nudges tend be quite cost effective relative to those produced by traditional policy tools – so there is a big opportunity to use nudging more widely in government in conjunction with traditional policy tools,” says Professor Katherine L. Milkman of The Wharton School at the University of Pennsylvania, one of the authors of the new study.

“Our findings show that it’s important to calculate and report the cost effectiveness of available policy tools, and not simply the impact of an intervention without an adjustment for cost,” adds study co-author Professor John Beshears of Harvard Business School. “This will facilitate wiser decisions by governments and other organizations regarding which policy tools to use under various circumstances.”

Nudges – which are now being tested and implemented by government agencies in the United Kingdom, Australia, Germany, the Netherlands, Singapore, and the United States – diverge from traditional policy tools in that they encourage certain behaviors without restricting an individual’s options or exacting financial penalties.

Read more about the findings in Psychological Science.
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Christian Camerota
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