Utilizing Behavioral Insights (without Romance): An Inquiry into the Choice Architecture of Public Decision-Making

October 20, 2016

Adam C. Smith

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Behavioral economics has been employed in a number of policy applications over the last decade. From energy requirements to tax compliance to consumer finance, policymakers are increasingly operating under the assumption that people consistently fail to make rational choices. While the benefit of this policy trend remains an open debate, behavioral economists have long neglected a complementary examination of public decision-makers themselves. By comparing two public agencies influenced by behavioral economics, the U.S. Consumer Financial Protection Bureau and U.K. Behavioral Insights Team, I show how different institutions create divergent policy outcomes across the two agencies in a way that cannot be accounted for without incorporating public choice theory. I argue that improvement of private choice architecture must be accompanied by careful understanding of the public choice architecture in which policies are rendered if behavioral economics is to be a successful foundation for welfare-improving policies.