According to Kai Wegrich and Martin Lodge, behavioural economists often ignore the rationality paradox.
Are those deciding on choice architecture for behavioural economics approaches, such as nudging, equipped with superior rational abilities? Or do they have a blind spot when it comes to seeing that such approaches themselves might be sub-optimal? The Hertie School’s Kai Wegrich and Martin Lodge of the London School of Economics have published an article in the journal Law & Policy, exploring how governance tools like nudging function in a world of bounded rationality. The paper relies on the example of the nudge to represent a host of behavioural economic approaches. These assume that people’s rational choices are bounded by limited available information, time or cognitive ability. Rather than the common focus on the appeal and criticisms of nudging, this article explores the topic from a different angle, which the authors call the rationality paradox. Although bounded rationality is at the very heart of the nudge approach, the limits to its own rationality are rarely addressed. [more]