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Economics explained


Market failure

Nudge theory

Nudge theory

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Providing information

By way of correcting market failure, there is growing interest in how ‘nudge’ theory might lead to a more efficient allocation of resources. The basis of nudge theory lies in the provision of information.


A nudge tries to alter people's behaviour in a predictable way without forbidding any options or significantly changing economic incentives. A nudge is not a legal requirement. When used as a part of government policy, nudges must be open and transparent to the general public. Governments should be honest with the public and ensure that they explain why they have introduced a nudge, but still allow individuals to make a choice.

`Nudge' policies seek to lead people by providing them with helpful information and language that then allows them to make an informed choice.


A typical example is in the case of a free inoculation (merit good) that is available to all people over 60 years old. These people can be targeted by a simple letter that makes them fully aware of the benefits of having the inoculation and how they can get one. In this way, they are ‘nudged’; without such a nudge, take up would likely be less and, over time, involve greater costs to the health service.

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