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CAT VARCmediumRC · Economics

The Hidden Margins of the Nudge

Updated 22 October 2026

Read the passage and answer the questions that follow.

1For much of the twentieth century, the consumer of economic theory was a model of composure: an agent who knew what it wanted, weighed costs against benefits and chose accordingly. Behavioural economics unsettled this figure by cataloguing the ways in which real people depart from it, and not at random. People cling to whatever option is presented as the default, feel losses more keenly than equivalent gains, and postpone unpleasant tasks they sincerely intend to complete. The policy response to these findings has come to be called nudging: altering the way a choice is presented so as to steer behaviour, without forbidding any option or changing its price.

2The appeal of the nudge was political as much as intellectual. It was cheap, it left every option open to anyone who cared to take it, and it could be defended from the left as a way of helping people and from the right as a way of avoiding regulation. Its showcase was the pension scheme. When employers switched from asking workers to opt in to enrolling them automatically unless they opted out, participation rose dramatically, often from around half of eligible workers to nearly all of them. Few interventions in social policy can claim an effect so large for a cost so small.

3Yet the showcase conceals a complication. Researchers who followed auto-enrolled workers over several years found that many of them stayed at the default contribution rate, which had typically been set low so as not to alarm anyone into opting out. Some of these workers, had they been made to choose actively, would have chosen to save more. The default had drawn people into saving while quietly anchoring how much they saved. The intervention was judged on the margin it was designed to move, participation, and that margin moved; the adjacent margin, the size of contributions, received far less attention.

4A deeper worry concerns what nudges do to the people they steer. A nudge treats a bias as a fixed feature of the terrain, to be built around rather than addressed. If inertia is why people fail to save, then harnessing inertia gets them saving, but it leaves them no better at deciding for themselves the next time a consequential choice arrives without a helpful default. Defenders of nudging reply that the alternative, building people's capacity to decide, has a dismal record: courses in financial literacy tend to produce small effects that fade within months. The point is fair, but it proves less than it appears to. The failure of one kind of education shows that lectures in classrooms are poor at changing behaviour in kitchens and offices; it does not show that deliberation is beyond improvement.

5None of this amounts to a case for abandoning nudges. It is a case for widening the terms on which they are judged. A nudge should be assessed not only by whether it moves the behaviour it targets but by what it does to neighbouring choices and to the chooser's ability to manage without it. Measured solely by its headline figure, almost any intervention can be made to look like a triumph.

Question 1 · Multiple choice (+3 / −1)

Which of the following best captures the primary purpose of the passage?

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Answer: B. To argue that nudges, though useful, should be evaluated by broader criteria than the behaviour they directly target

  1. Paragraph 5 states the conclusion: nudges should not be abandoned, but the terms on which they are judged should be widened to include neighbouring choices and the chooser's ability. Paragraphs 3 and 4 supply the two reasons. That is option B.
  2. A is too broad: the critique of the rational consumer in paragraph 1 is only background. D is too narrow: automatic enrolment is the example examined, not the point of the passage.
  3. C distorts the author's view: paragraph 4 concedes that financial literacy courses have a poor record, and never claims they beat nudges.
Question 2 · Multiple choice (+3 / −1)

It can be inferred from paragraph 3 that

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Answer: C. a policy can succeed on the measure it was designed to move while having an unintended effect on a related outcome

  1. Paragraph 3 says participation rose as intended, while the low default quietly anchored contribution levels, a margin that 'received far less attention'. C generalises exactly this.
  2. A overstates: the passage says 'some' of these workers would have saved more, not most. B misreads the motive: the rate was set low so as not to alarm people into opting out, not to discourage saving.
  3. D contradicts paragraph 2, where participation rose to nearly all eligible workers.
Question 3 · Multiple choice (+3 / −1)

The author's attitude towards the defenders' argument about financial literacy courses (paragraph 4) is best described as

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Answer: A. accepting its factual basis but disputing the conclusion drawn from it

  1. Paragraph 4 says 'The point is fair, but it proves less than it appears to.' The author grants that such courses have weak, fading effects, then argues this shows only that classroom lectures are ineffective, not that deliberation cannot be improved. That is A.
  2. B fails because the author calls the point fair and does not question the evidence. C contradicts the final sentence of paragraph 4. D fails because the author clearly evaluates the argument.
Question 4 · Multiple choice (+3 / −1)

According to the passage, which of the following was part of the political appeal of nudges?

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Answer: D. They could be defended by people with differing views on the role of government

  1. Paragraph 2 says nudges could be defended 'from the left as a way of helping people and from the right as a way of avoiding regulation'. That is D.
  2. A is wrong: nudges such as automatic enrolment work by setting a default. B contradicts paragraph 4, which says nudges leave people no better at deciding. C contradicts paragraph 1, which defines a nudge as working without changing an option's price.
Question 5 · Multiple choice (+3 / −1)

Which of the following, if true, would most weaken the author's concern in paragraph 4 about what nudges do to the people they steer?

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Answer: B. Workers who were automatically enrolled later made more careful and better-informed financial decisions in other areas than comparable workers who were not.

  1. Paragraph 4 worries that harnessing inertia leaves people no better at deciding for themselves. Evidence that auto-enrolled workers became better decision-makers elsewhere would directly undercut that worry. That is B.
  2. A and D concern participation rates, which the author already accepts rose; they say nothing about the chooser's capacity. C repeats the defenders' point, which the author has already granted and answered, so it does not weaken the concern.

Full worked solution

  1. Paragraph 1 sets the background: behavioural economics found systematic departures from the rational consumer, and nudging (changing how choices are presented, without forbidding options or changing prices) emerged as the policy response.
  2. Paragraph 2 explains the appeal of nudges (cheap, choice-preserving, acceptable across the political spectrum) and presents the showcase: automatic pension enrolment sharply raised participation.
  3. Paragraph 3 complicates the showcase: the low default rate anchored contributions, so a margin the policy was not designed to move went largely unexamined.
  4. Paragraph 4 raises a deeper worry: nudges build around biases rather than improving people's ability to decide. The author concedes that financial literacy courses have a poor record but argues this does not prove deliberation cannot be improved.
  5. Paragraph 5 draws the conclusion: keep nudges, but judge them by their effects on neighbouring choices and on the chooser's capacity, not just by their headline figure.
  6. Central idea: nudges are useful but have been judged too narrowly; a full evaluation must include side effects on related choices and on people's ability to decide for themselves.