David Jiménez-Gómez, University of Alicante – University of Copenhagen

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David Jiménez-Gómez, University of Alicante

"Nudging and Phishing: A Theory of Behavioral Welfare Economics"

Abstract

Nudges, which are interventions that do not restrict choice, have become widespread in policy applications. I develop a general and tractable framework to analyze the welfare implications of nudges. In this framework, individuals suffer from internalities (their utility when choosing is different from their welfare-determining utility) and choice and welfare depend on the environment, which can be altered by the nudge. I characterize the optimal nudge and discuss whether the social planner can have the necessary information to implement it. In heterogeneous populations, the optimal nudge trades off correcting the internalities of biased individuals with psychological costs imposed by the nudge on all individuals. When taxes are also available, nudging is generally optimal as long as the government is not fully efficient in collecting revenue from taxation. I also consider phishing, when firms change the environment to take advantage of consumers’ internalities, and find that competition does not necessarily reduce phishing. Finally, I analyze nudging and phishing in general equilibrium, characterize the optimal nudge, and find conditions under which nudging is welfare-enhancing in general equilibrium.

Link to paper

David Jimenez-Gomez is a behavioral economist working at the intersection of economic theory and experimental economics. He is an assistant professor at the University of Alicante.

He is currently working in behavioral welfare economics: a theory that analyzes the welfare effect of policies, taking into account that individuals can make mistakes because they are subject to hedonic adaptation, self-control problems, and other forms of cognitive biases. He is particularly interested in nudges, and how they can be used to improve people’s well-being.

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