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The Marginal Cost of Transparency: Do honest nudges work?

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  • John S.M Gustavsson

    (Department of Economics, Finance and Accounting, Maynooth University.)

Abstract

Libertarian paternalism (LP), a term which refers to the practice of “nudging” consumers into making “good” decisions, has grown steadily in popularity in recent years as an alternative to sin taxes and other traditional forms of paternalism. Critics however believe that relying on psychological manipulation is inherently unethical as consumers are typically unaware of the nudge and the intention behind it. While proponents of LP insist that they want LP interventions to be conducted in an ethical manner, there is so far little evidence that LP interventions, when conducted in such a manner, still have the desired effect. In this paper I introduce the term Marginal Cost of Transparency (MCoT), the difference in treatment effect of an LP and what I call a Transparent Libertarian Paternalism (TLP) intervention; a type of LP intervention where consumers are made aware of the nudge and why it is there. The results indicate that the MCoT is not statistically significant from zero and that the answer to the question “Do honest nudges work?” is Yes. Moreover, the results indicate that Autonomy-enhancing paternalism (AEP), a type of paternalist interventions that work to enhance the autonomy of consumers (mainly by providing information) and unlike LP do not rely on psychological manipulation, fares at least as well as the LP/TLP treatments when stakes are high.

Suggested Citation

  • John S.M Gustavsson, 2017. "The Marginal Cost of Transparency: Do honest nudges work?," Economics Department Working Paper Series n289-17.pdf, Department of Economics, National University of Ireland - Maynooth.
  • Handle: RePEc:may:mayecw:n289-17.pdf
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    References listed on IDEAS

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