Manipulation of Choice Behavior

Manipulation of Choice Behavior We introduce and study the problem of manipulation of choice behavior. In a class of twostage models of decision making, with the agent’s choices determined by three “psychological variables,” we imagine that a subset of these variables can be selected by a “manipulator.” To what extent does this confer control of the agent's behavior? Within the specified framework, which overlaps with two existing models of choice under cognitive constraints, we provide a complete answer to this question. NON-TECHNICAL SUMMARY In many social and policy circumstances an outside manipulator has at least partial control on the psychological variables that affect an agent’s choice. For example, a shopkeeper may rearrange the shop display to influence the buyer's choice; a newspaper editor may choose the prominence of news reports; a moral or intellectual authority (such as a parent, teacher, or religious leader) can shape aspects of an agent’s world-view; and a financial advisor can suggest to a client what would be an acceptable level of risk or return. In terms of policy implications, Thaler and Sunstein’s recent notion of nudging has had an enormous impact on the policy circus (e.g. the UK Government has accommodated the idea by setting up the Behavioural Insight Team, colloquially called ‘Nudge unit’, as a unit of the Cabinet Office). Our paper provides a formal framework to clarify the scope and limits of nudging in practice. JEL Classification: D01, D03, D70