Nudges, preferences and competences: a critique of both neoclassical and behavioral economics
Nudges, preferences and competences: a critique of both neoclassical and behavioral economics (DOI: https://doi.org/10.1017/bpp.2024.54) was written by Richard Epstein in 2025. It was published in Behavioural Public Policy.
The author describes two fields of economic thought: "[s]tandard rational choice theory" and "[m]odern theories of behavioral economics". He formulates the first in broad terms:
- relies on imperfect assumptions
- allows for individuals to hold different preferences, but assumes that "the various individual quirks and tics cancel each other out, so that the centralizing tendencies control the overall movements"
The point being that these are appropriate in macro, but inappropriate in micro.
Seemingly as an aside, the author describes one of the imperfect assumptions underlying classical economics: consistent preferences. The author mentions a critique: preferences change given the immediate context (i.e., framing). The author responds that there is a "desire to be consistent". There are real costs to changing decisions based on transitory context. The desire to not incur costs leads to such effects being minimized. Furthermore, the author responds that the critique relies on a more stringent form of rationality: immediate (re-)assessment of preferences given an immediate context.
The author then describes behavioral theories as being about "nudges". A nudge is then described as a non-coercive (or "gently coercive") adjustment to the environment of decision making that is intended to create positive welfare.
Decision making is poorly understood overall, and can only be made sense of by restricting the domain of choices. The author argues this is inherently antithetical to a nudge experiment. The decision making model can only encapsulate coercive (restrictive) adjustments.
The author makes the case for models that assume "variation in individual competence" rather than "limited but uniform skills in making choices". The author criticizes several behavioral experiments for not taking such variation into account.
The point here is that other fields, especially law, take variation in competence into account. Coercive adjustments to the environment are made in those fields. "[S]ome people do indeed need to be wards of parents or guardians".
Reading notes
First of all, I object strongly to using law as either a philosophical foundation for the organization of humans, or as a case study of how organizations function in actuality. Law is an outcome, is a product, is manufactured to serve the interests of coercive power. It is neither sound nor natural.
Secondly, the author seems to object to any field of study wherein experiments yield rejections of the hypothesis. I in turn object to the suggestion that philosophy can take the place of science.
The author's general argument is that classical economics is flawed but works out in the macro. Meanwhile behavioral economics is fundamentally flawed.