Governments can change what people choose by changing how the choice is set up. This page covers nudges, defaults, framing and the paternalism objection, and how to assess them in an exam.
Why are you enrolled in a pension you never signed up for?
Behavioural economics says people do not always choose rationally, so policy can change choices by changing how options are presented. Nudges such as defaults and framing steer behaviour without banning options or changing prices much. They are cheap and can work well, as with pension auto-enrolment. They can also fail, and they raise paternalism concerns.
Traditional theory assumes people are rational. They weigh costs and benefits, and they pick the option that gives the most utility (satisfaction). Behavioural economics tests that assumption. It finds that people use mental shortcuts, called heuristics, and make predictable errors.
Three ideas matter most. Bounded rationality means people have limited time, information and brain power, so they do not optimise. Present bias means people overweight benefits now compared with benefits later. Loss aversion means a loss hurts more than an equal gain pleases.
A nudge is a change to choice architecture (the way options are presented) that steers behaviour without banning any option and without a large change in financial incentives. The idea comes from Richard Thaler and Cass Sunstein. A nudge works because people err in a predictable direction, so a small change in design moves many people the same way.
The policy case rests on a market failure. Some choices are made with imperfect information or with self-control problems, so private decisions do not match what people would want on reflection. A nudge aims to close that gap cheaply.
Each tool targets a specific bias. Name the bias and the mechanism in your answer, because that is where the analysis marks sit.
| Tool | What it changes | Bias it uses |
|---|---|---|
| Default option | What happens if the person does nothing | Inertia and present bias |
| Framing | How the same facts are described | Loss aversion |
| Salience and disclosure | How easy information is to notice and use | Bounded rationality |
| Social norms | What others are shown to do | Conformity |
| Commitment devices | Binding the future self to a plan | Present bias |
The default is the strongest tool because doing nothing is the easiest action. Switch the default and many people follow it. Their incentives have not changed, so the shift comes from how choices are made, not from price.
Compare this with the standard toolkit. A tax changes the price. A regulation limits what is allowed. A nudge changes the setting. So a nudge is usually cheaper to run, but its effect is less certain.
Two related terms appear in mark schemes. Choice architecture is the design of the decision environment. Mandated choice forces a decision, such as asking every driver to state their donation wish when they renew a licence. Mandated choice is stronger than a nudge because the person cannot ignore it.
Judge a nudge on four things: how big the effect is, how much it costs, how long it lasts, and whether it is fair. The evidence differs sharply by policy.
Pension auto-enrolment moved most eligible UK employees into saving. In 2024, around 89% of eligible employees in Great Britain were saving into a workplace pension, which was 21.7 million people.[1] The person can still opt out, so choice is kept.[5] The default works well here because most people want to save but delay.
England moved to opt-out organ donation on 20 May 2020.[2] Before the change, around 80% of people supported donation in principle, but only 38% had recorded a decision.[3] Families are still involved before donation goes ahead, so the default does not act alone.[3] Because the issue is emotional, people feel strongly, and the ethics are contested.
Large out-of-home food businesses in England have had to show calories on menus since 6 April 2022.[4] A controlled study using purchase data found no evidence of a change in overall calories purchased. Its authors concluded that labelling alone is unlikely to change food purchasing at population level.[4] The policy assumed information was the barrier. For many people it was not.
A good judgement links the type of nudge to the type of problem. It then says when a stronger tool is the better choice.
One more habit helps. Always name who gains and who loses. A default that helps most people may harm a minority whose circumstances differ.
The economics is the same on every board; the question format is what changes. Most questions on this topic take one of six shapes. Open each to see how the topic appears in it and what earns the marks. All questions here are original Curriculum Circle practice questions, not board questions.
On this topicCommon. Expect definitions of a nudge, choice architecture or a default, and sorting policies into nudge or not a nudge.
What earns the marksAO1 for the definition, and AO2 for spotting which policy fits it.
CC practice questionWhich one of the following is an example of a nudge? A a tax on sugary drinks; B a ban on smoking in pubs; C making organ donation the default; D a subsidy for bus fares. (1 mark)
On this topicLess common. It appears as percentage change in participation after a default change, or a simple cost per person.
What earns the marksAO1 for the method and AO2 for applying it, with a short interpretation.
CC practice questionIllustrative figures: a firm has 1,000 employees. Under opt-in, 500 join a pension. Under opt-out, 900 stay in. Calculate the percentage increase in membership and comment on what it shows. (3 marks)
On this topicVery common. Explain how a default or a frame changes behaviour, or why a nudge may fail.
What earns the marksAO1 for the term, AO2 for the context and AO3 for the link between bias and choice.
CC practice questionExplain how making a pension scheme opt-out rather than opt-in might change employees' behaviour. (5 marks)
On this topicCommon. Use a data extract on a nudge, or a diagram of a market with a demand shift, and analyse the effect on welfare.
What earns the marksAO2 for the extract and AO3 for a developed chain of reasoning.
CC practice questionUsing the extract, analyse how a change in the default option could reduce sugar consumption in a school canteen. (9 marks)
On this topicThe usual home of this topic. 'Assess a policy' questions ask you to judge a nudge against a tax or regulation.
What earns the marksAO1 to AO4, with most marks for AO3 analysis and AO4 judgement.
CC practice questionAssess the view that calorie labelling on restaurant menus is an effective way to reduce obesity. (12 marks)
On this topicAppears as a comparison of nudges with taxes, bans or information, or as a debate on paternalism.
What earns the marksAO1 to AO4. A supported judgement on when nudges beat other tools decides the top band.
CC practice questionEvaluate the view that governments should rely more on nudges than on taxes and regulation to improve decisions. (25 marks)
| Weight | What it is | What it means on behavioural economics and policy | |
|---|---|---|---|
| AO1 | 20–23% | Knowledge and understanding of terms, concepts, theories and models | Define nudge, choice architecture, default, framing, bounded rationality and libertarian paternalism accurately. Know the main biases behind each tool. |
| AO2 | 26–29% | Application to economic contexts | Use the context given: pensions, organ donation, food labels or school canteens. Quote figures from the extract and say who decides and who is affected. |
| AO3 | 26–29% | Analysis of issues and their impact on economic agents | Build the chain: bias, nudge, changed choice, effect on welfare and on externalities. Say why the default works where information does not. |
| AO4 | 22–25% | Evaluation, using evidence to reach a judgement | Judge by effect size, cost, duration, fairness and the strength of people's preferences. Compare with taxes and regulation and reach a supported conclusion. |
Weightings are approximate and taken from the AQA A-level Economics 7136 specification [0]. Edexcel and IAL weight the objectives differently, but they test the same four skills.
Evaluate the view that nudges are a better way than taxes to change consumer behaviour.
Many consumers show inertia, so they stick with whatever applies if they do nothing. If the government makes saving the default, more people stay enrolled. Their incentives have not changed, so the increase in saving comes from the change in choice architecture alone.
A tax works differently. It raises the price of a product, so the quantity demanded falls along the demand curve. The size of the fall depends on price elasticity of demand (how far demand responds to price). If demand is inelastic, a tax raises revenue but changes behaviour little. A nudge may then reach people that the price signal misses.
The evidence is mixed, so the answer depends on the problem. Auto-enrolment is a strong case for nudging: in 2024 around 89% of eligible employees were saving.[1] The default matched what most people wanted but delayed doing. By contrast, a controlled study of calorie labelling in England found no evidence of a change in overall calories purchased.[4] Information alone did not shift behaviour.
Nudges are cheap and keep choice open, so they carry little risk of government failure. But their effect can be small, uneven or short-lived. A tax tackles an externality directly because it puts the external cost into the price. So where the harm falls on others, a tax or regulation is more reliable.
Overall, nudges are better where the harm falls mainly on the individual and a bias is the cause. Taxes are better where there is a clear externality or demand is strongly habitual. The strongest policy often combines both, so the claim is true only in the first case.
In 2024, around 89% of eligible employees in Great Britain were saving into a workplace pension, a total of 21.7 million people, according to Department for Work and Pensions (DWP) figures. The default is enrolment, and employees can opt out.[1][5]
England moved to an opt-out system for organ donation on 20 May 2020.[2] Before the change, around 80% of people supported donation in principle, but only 38% had recorded their decision.[3]
Large out-of-home food businesses in England have had to display calories on menus since 6 April 2022. A controlled study using purchase data found no evidence of a change in overall calories purchased.[4]
Everything above is the topic page. The pieces below take it further. Each one trains a particular assessment objective rather than covering the topic again, and they are added over the year.
Figures and facts were checked against these sources on 2 November 2026. Worked numbers labelled "Illustrative figures" are invented for teaching.
The CC Economics revision platform drills nudge and policy questions with the Criterion Marking Engine, and the Inner Academy covers the topic in recorded lessons.
See the Economics platformThe Inner Academy