Nudges, Defaults, and the Problem of Constructed Preferences

Regulatory bodies have increasingly become interested in “nudges,” or low-cost adjustments to the environment in which people make choices. These interventions promise to give more people what they truly want while preserving freedom of choice. In theory, default rules—a type of nudge—that can survive a thorough cost-benefit analysis should both preserve liberty and enhance welfare. In reality, altering default rules can also change people’s preferences.

Neutral cost-benefit analysis is thus impossible, and choosing a default rule therefore influences personal freedom. This Article explains how nudges influence preferences and why this makes neutral cost-benefit analysis impossible for regulators.