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On the Equilibrium Effects of Nudging

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  • Ran Spiegler

Abstract

Consumers' systematic decision biases make them vulnerable to market exploitation. The doctrine of libertarian paternalism maintains that this problem can be mitigated by soft interventions (nudges) like disclosure or default architecture. However, the case for nudging is often made without an explicit model of the boundedly rational choice procedures that lie behind consumer biases. I demonstrate that once such models are incorporated into the analysis, equilibrium market reaction to nudges can reverse their theoretical consequences.

Suggested Citation

  • Ran Spiegler, 2015. "On the Equilibrium Effects of Nudging," The Journal of Legal Studies, University of Chicago Press, vol. 44(2), pages 389-416.
    • Handle: RePEc:ucp:jlstud:doi:10.1086/684291
    DOI: 10.1086/684291
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    Cited by:

    1. Bachi, Benjamin & Spiegler, Ran, 2018. "Buridanic competition," Games and Economic Behavior, Elsevier, vol. 107(C), pages 298-315.
    2. Michel, Christian & Stenzel, André, 2021. "Model-based evaluation of cooling-off policies," Games and Economic Behavior, Elsevier, vol. 129(C), pages 270-293.
    3. Ericson, Keith M. Marzilli, 2020. "When consumers do not make an active decision: Dynamic default rules and their equilibrium effects," Games and Economic Behavior, Elsevier, vol. 124(C), pages 369-385.
    4. Koch, Alexander K. & Monster, Dan & Nafziger, Julia, 2023. "Nudging in Complex Environments," IZA Discussion Papers 16137, Institute of Labor Economics (IZA).
    5. Murooka, Takeshi & Schwarz, Marco A., 2018. "The timing of choice-enhancing policies," Journal of Public Economics, Elsevier, vol. 157(C), pages 27-40.
    6. Michael Kosfeld & Ulrich Schüwer, 2017. "Add-on Pricing in Retail Financial Markets and the Fallacies of Consumer Education," Review of Finance, European Finance Association, vol. 21(3), pages 1189-1216.
    7. Anastasia Burkovskaya & Adam Teperski & Kadir Atalay, 2022. "Framing and insurance choices," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 89(2), pages 311-337, June.
    8. Zhengqing Gui & Yangguang Huang & Xiaojian Zhao, 2020. "Financial Fraud and Investor Awareness," HKUST CEP Working Papers Series 202002, HKUST Center for Economic Policy.
    9. Ekström, Mathias, 2021. "The (un)compromise effect: How suggested alternatives can promote active choice," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 90(C).
    10. Wisnicki, Bartlomiej, 2022. "Consumer inertia fosters product quality," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 96(C).

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