Nudging people out of poverty

Using behavioral economics to improve welfare policies

Abstract

New insights within the field of behavioural economics have led to the discovery of irrational behaviour of economic agents. The concept of ‘nudging’ is one approach to tackle this irrationality. We
illustrate that behavioural economics could be especially helpful for tackling poverty, as the lives of the poor make them very vulnerable to income shocks. Also, the poor constantly deplete their mental
resources. Moreover, we discuss ethical regulations for policies based on behavioural economics, centered around the idea of transparency. Finally, we present ideas scholars have put forward that
could be used to tackle poverty by using behavioural economics and evaluate them from our own perspective.