These interventions are often justified by advocates of libertarian paternalism in that well-designed choice architectures can compensate for irrational decision-making biases to improve consumer welfare.
[5] These techniques have consequently become popular among policymakers, leading to the formation of the UK's Behavioural Insights Team and the White House "Nudge Unit" for example.
The term "choice architecture" was coined by Richard Thaler and Cass Sunstein in their 2008 book Nudge: Improving Decisions about Health, Wealth, and Happiness.
[10] Thaler and Sunstein have endorsed thoughtful design of choice architecture as a means to improve consumer decision-making by minimizing biases and errors that arise as the result of bounded rationality.
This approach is an example of "libertarian paternalism", a philosophy endorsed by Thaler and Sunstein that aims to "nudge" individuals toward choices that are in their best interest without forbidding options or significantly changing their economic incentives.
For example, Thaler, Sunstein, and John P. Balz have focused on the following "tools" of choice architecture: defaults, expecting error, understanding mappings (which involves exploring the different ways that information presentation affects option comparisons), giving feedback, structuring complex choices, and creating incentives.
Research from the field of behavioral economics has shown that individuals tend to be subject to predictable biases that may lead to decision errors.
Classical economics predicts that providing more options will generally improve consumer utility, or at least leave it unchanged.
As a result, the ideal number of alternatives will depend upon the cognitive effort required to evaluate each option and the heterogeneity of needs and preferences across consumers.
[7] There are examples of consumers faring worse with many options rather than fewer in social-security investments[4] and Medicare drug plans[14] As consumption decisions increasingly move online, consumers are relying upon search engines and product recommendation systems to find and evaluate products and services.
This may lead to behaviors like overeating or overspending in the short-term at the expense of longer-term health and financial security outcomes.
For example, researchers demonstrated improved decision-making by drawing attention to the future outcomes of decisions[24] or by emphasizing second best options.
Examples of such partitioning of options include the division of a household budget into categories (e.g. rent, food, utilities, transportation etc.
For instance, car buyers can be nudged toward more responsible purchases by itemizing practical attributes (gas mileage, safety, warranty etc.)
However, due to cognitive constraints, consumers may face similar challenges in weighing many attributes to those of evaluating many choices.
See for example the work of B. J. Fogg on computers as persuasive technologies; the concept of permission marketing as described by Seth Godin.
[7] A second major challenge is assessing whether choice architectures are, in fact, improving decision-making and making people better off as Sunstein and Thaler propose.