Why Nudges Are Not Always Good for Society According to a New Economics Study

For years, nudges have been widely celebrated in economics and public policy. The idea is simple and appealing: instead of forcing people to behave a certain way, governments and institutions can gently push them toward better decisions. Whether it’s placing healthier foods at eye level, adding warning labels on sugary drinks, or sending reminders to save for retirement, nudges are often seen as a win-win solution that improves outcomes without restricting freedom.

However, a new economics study challenges this optimistic view and argues that nudges are not always beneficial for society. The research comes from Dmitry Taubinsky, a professor of economics at the University of California, Berkeley, along with co-authors, and it takes a much closer look at when nudges actually improve social welfare—and when they might quietly make things worse.

The study, titled “When Do Nudges Increase Welfare?”, was published in the American Economic Review and raises an important question: are nudges always helping the people they are meant to help, or are they sometimes influencing the wrong audience?

Rethinking the Assumption That Nudges Are Always Good

In recent years, nudges have gained a strong reputation as a smart policy tool. Many scholars and policymakers have assumed that if a nudge encourages behavior that looks healthier or more responsible, it must be good for society. Taubinsky’s research pushes back against this assumption.

The core argument of the paper is straightforward: nudges should be evaluated with the same level of rigor as taxes and other economic policies. Just because a policy changes behavior in a desired direction does not automatically mean it improves overall well-being. What matters is who is being influenced, how strongly they respond, and whether that response actually corrects a real problem.

According to the study, nudges can sometimes create unintended consequences by affecting people who were already making reasonable choices, while failing to influence those who most need to change their behavior.

The Problem of “Bad Targeting”

One of the most important ideas in the study is what economists call bad targeting. A nudge is supposed to help individuals who are making poor decisions due to misinformation, lack of attention, or behavioral biases. But in reality, nudges often rely on people noticing and responding to them—and not everyone does.

The paper uses the example of nutritional labels on sugary drinks. These labels are typically designed to reduce excessive consumption among heavy soda drinkers. The problem is that heavy consumers are often the least likely to read or care about nutrition labels in the first place. That lack of attention is often part of the reason they consume so much soda.

Meanwhile, moderate consumers—who already drink sugary beverages in reasonable amounts—are more likely to notice the labels. These individuals may feel guilty or overly concerned and cut back even further, despite the fact that moderate consumption is not particularly harmful. In this situation, the nudge reduces overall soda consumption, but it does so by influencing the wrong group of people.

From a standard economic perspective, this can mean the policy is bad for society, even though it appears successful on the surface.

Why Reduced Consumption Does Not Always Mean Better Outcomes

A key insight from the research is that lower consumption is not the same as higher welfare. Many studies evaluate nudges based on whether they reduce or increase certain behaviors, such as drinking soda or using energy. Taubinsky’s model shows that this approach can be misleading.

What really matters is whether the nudge reduces decision-making distortions—the gap between what people choose and what would actually make them better off. If a nudge primarily changes the behavior of people who were already close to making optimal decisions, it can actually increase inequality in outcomes and lower total welfare.

In simple terms, nudges work best when they strongly affect people who are making the biggest mistakes and have little effect on those who are already doing fine. When the opposite happens, the nudge may do more harm than good.

Comparing Nudges With Taxes

The study also compares nudges with more traditional policy tools like taxes. Taubinsky points out that an optimal tax, such as a small per-ounce tax on sugary drinks, affects everyone in a predictable way. It does not depend on whether people read labels or pay attention to subtle cues.

Taxes may not be as politically popular or psychologically appealing as nudges, but they have one advantage: they do not rely on selective attention. Everyone faces the same price signal, and the policy does not risk disproportionately influencing the wrong audience.

That said, the research does not argue against nudges entirely. Instead, it suggests that well-designed nudges can still play an important role, especially when they are precise and targeted. If a nudge reaches exactly the group it is intended to influence, it can be a powerful and efficient policy tool.

Using Data and Economic Logic to Evaluate Nudges

Another major contribution of the paper is its emphasis on data-driven evaluation. Taubinsky argues that nudges should be analyzed using the same standards economists apply to taxes, subsidies, and regulations. This includes measuring not just average effects, but also how responses vary across different groups.

The study introduces a simple economic framework that helps researchers and policymakers determine whether a nudge improves welfare by looking at how it changes the distribution of decision-making errors. If a nudge reduces the largest errors without increasing smaller ones, it is more likely to be beneficial.

This approach moves the discussion beyond moral intuitions about “good” behavior and focuses instead on measurable social outcomes.

Nudges in Modern Policy Making

Nudges are now used across a wide range of policy areas, including public health, environmental protection, education, and retirement savings. Governments often favor them because they preserve freedom of choice while encouraging better outcomes.

This study serves as a reminder that behavioral policies are not automatically harmless. Even gentle interventions can reshape decisions in unexpected ways, especially in populations with diverse preferences and levels of attention.

For policymakers, the takeaway is not to abandon nudges, but to design and test them carefully. Understanding who responds to a nudge—and who does not—is just as important as knowing whether behavior changes overall.

Why This Research Matters

The broader message of the study is about intellectual humility in policy design. Good intentions are not enough. Policies that seem helpful on the surface can fail if they are poorly targeted or insufficiently tested.

By applying rigorous economic logic to behavioral interventions, Taubinsky and his co-authors provide a clearer way to assess whether nudges truly improve social welfare. Their work encourages a more thoughtful approach to policy—one that balances psychology, data, and economics rather than relying on assumptions.

As nudges continue to shape decisions in everyday life, this research adds an important voice to the conversation, reminding us that even small pushes can have big and complex effects.

Research Paper:
https://www.aeaweb.org/articles?id=10.1257/aer.20231304