Articles for category: Choice Architecture in Democracies

Bounded Rationality and the Concept of Materiality in Securities Regulation – How rational is the “reasonable investor”? (Abstract)

The concept of materiality – in the EU known as (price) relevance – is key to both the insider trading ban and the continuous disclosure obligation under EU and US securities regulation. The insider trading bans prohibit market participants from trading on non-public, material information. The EU continuous disclosure obligation requires issuers of financial instruments to publish any material information that is not publicly known and directly concerns those issuers. Both EU and US securities regimes measure materiality from the perspective of a “reasonable investor”. However, courts have reached differing conclusions on how rational reasonable investors really are. In the ... continue reading

8. Januar 2015

Getting nudges right – interests, norms and the legitimacy of choice architecture

While the general approach of choice architecture of altering the decision contexts of individuals without limiting freedom of choice should provide several innovative and efficient regulatory tools, the criticism by various scholars usually focuses on the following: Critics claim that the influence of the regulatory state in dictating socially desirable goals to be achieved through nudges by steering consumers towards these goals will go well beyond any libertarian idea regarding the role of state and its supposed impact on citizens’ autonomy. When theorizing about the question of legitimacy of nudging policies, reflecting the normative foundations of choice architecture will foster ... continue reading

8. Januar 2015

Nudging as a Matter of Politics

Nudging is about effective solutions for social problems and a parallel case to other regulatory approaches. It fits into the tradition of rational policy-making. It requires a political decision on whether or not nudging should be chosen as an instrument to remedy the social costs entailed with risky behavior. And from a legal point of view it has to be reviewed whether the measure chosen is not a disproportionate loss of freedom for the individual. This requires balancing the interests. As nudging is a matter of politics we have to discuss it in the political arena.

8. Januar 2015

Information and Paternalism

Disclosure mandates are often considered to be the least paternalistic of all regulatory techniques. Indeed, information provision is believed to enhance both autonomy and efficiency by facilitating more informed decisionmaking. According to this traditional approach, disclosure regulation – a key instrument in the Nudge toolbox – is beyond reproach. Legitimacy concerns might be raised with respect to other Nudge-type interventions (specifically, the setting of default rules), but not disclosure. I propose a two-pronged challenge to this conventional wisdom.

8. Januar 2015

Constitutional Limits to Paternalistic Nudging in Germany

Nudges with paternalistic aims pose special legal problems in liberal States. Surprisingly, the discussion on regulation-by-nudging has not focused on the constitutional limits to nudging. Although the property rights of firms potentially infringed by nudging measures are dealt with in the literature and by (international) courts (e.g. the tobacco cases), the potential infringement of the rights of those being nudged is neglected. But judges may at one point be confronted with a nudge regulation challenged by the individuals being nudged; and even before reaching a court, the legality of nudging should be scrutinised by legislators. I explore the legal limits of paternalistic nudging under the German Constitution, especially the right to freedom of action and self-determination under Art. 2 (1) German Basic Law.

7. Januar 2015

Educating Citizens: The Choice for Paternalism

Liberal political philosophy has two alternative options in principle: It can either stick to its original theorems such as the harm principle or the separation of law and morals and from here try to prove large parts of present social and political reality as wrong, illegitimate, dangerous etc. The other option is trying to adjust the original theorems to the apparent needs of modern societies, which is what I would prefer in the long run.

7. Januar 2015

Nudging and human dignity

Cass Sunstein’s "Why Nudge?" presents a proposal for nudging as an alternative to traditional regulatory mandates and economic incentive-based regulation. I shall suggest that nudging creates considerable tensions with thick conceptions of human dignity.

6. Januar 2015

Why not Nudge?

Now as ever, I agree with Cass Sunstein’s views on many matters. I above all agree that nudging is compatible with any defensible liberal idea of autonomy, and especially with the undeniable claim that nudges can often enhance autonomy in the empire of caveat emptor. Indeed, my concern is that libertarian paternalism is too libertarian, not too paternalistic.

5. Januar 2015