Nudging the nudger: Toward a choice architecture for regulators

Abstract

Behavioral research has shown that individuals do not always behave in ways that match textbook definitions of rationality but are subject to cognitive biases that may lead to systematic errors in judgments and decisions. Recognizing that regulators are not immune from these cognitive irrationalities, this article explores how the institutional framework or “choice architecture” in which they operate interacts with those biases. By examining five cognitive biases that may be prevalent among regulators, it discusses the extent to which the institutions regulators face reinforce or counteract the influence of cognitive biases in regulatory decision making. Just as behavioral insights can help design a choice architecture to frame individual decisions in ways that encourage welfare-enhancing choices, consciously designing regulators' institutional frameworks with behavioral insights in mind could lead to more public-welfare-enhancing policies. The article concludes with some modest ideas for improving regulators' choice architecture and suggestions for further research.