Behavioral Economics and Human Flourishing: A Neo-Aristotelian Perspective

 This is a guest essay by Dr Edward W. Younkins, Professor of Accountancy and Business at Wheeling University, and Executive Director of its Institute for the Study of Capitalism and Morality. Ed is author of a trilogy of important books on freedom and flourishing: “Capitalism and Commerce”, “Champions of a Free Society”, and “Flourishing and Happiness in a Free Society”. He also has numerous other publications, including several published on this site. (Please see the list after the end of this essay.) 

 

Behavioral Economics has emerged over the past seven decades as a significant development in economic thought challenging the idealized assumptions of perfect rationality that have long dominated neoclassical economics. Yet, for all its insights into human cognition and decision-making, the field has generated controversy regarding its normative implications. Should behavioral economists address their findings to public policy makers who could nudge citizens toward supposedly better choices? Or should they address their recommendations to individuals, empowering them to make better decisions for themselves?

The concepts of nudging and choice architecture initially played a role in gaining the attention of public policy makers to interventions informed by the behavioral sciences. The more recent approach holds that individuals require the knowledge that traditionally has been in the domain of researchers and government officials.

This essay argues for the latter approach. Drawing on the neo-Aristotelian tradition of human flourishing as an essentially self-directed activity, and on the work of Robert Sugden, Winton Bates, Douglas J. Den Uyl, and Douglas B. Rasmussen. Behavioral Economics can make a valuable contribution to human flourishing, but only when its insights are placed in the hands of individuals rather than autocrats. The most useful ideas from Behavioral Economics are those that help self-directed human beings understand their own cognitive tendencies and design choice architectures that serve their own conception of the good life. People need to be empowered to contribute toward designing their own decision environments and therefore choose if and how they want to nudge themselves.

The Development of Behavioral Economics

The intellectual roots of Behavioral Economics run deep. Adam Smith, often celebrated as the father of economics for his Wealth of Nations, also wrote The Theory of Moral Sentiments, which explored the psychological and moral dimensions of human action. Smith understood that human beings are not mere calculating machines but creatures of sentiment, sympathy, and social connection.

The modern Behavioral Economics movement, however, is typically traced to the 1950s and the work of Herbert Simon. Simon introduced the concept of bounded rationality, arguing that human beings, in all but the simplest decision contexts, are simply unable to make fully optimal decisions. Rather than maximizing, Simon suggested that people satisfice. They seek outcomes that are good enough given their cognitive limitations and the information available to them.

The field gained substantial momentum in the 1970s with the work of Daniel Kahneman and Amos Tversky. Their prospect theory offered a descriptive model of decision-making under risk that departed radically from expected utility theory. Prospect theory demonstrated that people are loss-averse (they feel losses more acutely than equivalent gains) and that they weigh probabilities non-linearly, overweighing small probabilities and underweighing large ones. Kahneman later popularized the distinction between System 1 (fast, automatic, intuitive) and System 2 (slow, deliberative, analytical) thinking, a framework that has become central to understanding how cognitive biases and heuristics (mental shortcuts) operate.

Richard Thaler, building on these foundations, developed nudge theory in collaboration with Cass Sunstein. Their 2008 book, Nudge, argued that choice architecture (the way options are presented) can be designed to steer people toward better decisions without eliminating any options or significantly changing economic incentives. Thaler and Sunstein termed this approach libertarian paternalism suggesting that nudges preserve freedom of choice while gently guiding people toward choices that improve their welfare.

Other significant contributions include the  endowment effect (the finding that people value what they already possess more highly than identical items they do not own), regret aversion theory (the tendency to avoid decisions that might later be regretted), mental accounting (people divide financial resources into psychologically meaningful distinct categories rather than treating all resources as fungible), framing (the way alternatives are presented can influence decisions) anchoring and adjustment  (a person tends to start with an initial reference point and adjust away from that anchor), and halo theory (the tendency for one positive characteristic to influence judgments about other characteristics).

 Libertarian Paternalism and the Threat to Autonomy

The normative turn in Behavioral Economics—exemplified by Thaler and Sunstein's libertarian paternalism—has drawn criticism. The core problem is epistemological: how can policy makers know what truly serves individuals' welfare? As critics have noted, behavioral economists often treat perfect rationality as an ideal against which real decisions are judged, and any deviation from this ideal is taken as grounds for intervention.

 Mark D. White has made an argument that the findings from behavioral economists are partial, the policies prescribed by libertarian paternalists are misconceived, and that both strengthen cognitive biases and inspire nudges. White argues against the use of paternalistic nudges by government and makes a positive case for individual choice and autonomy.

 The fundamental objection is that proponents of libertarian paternalism nudges fail to take seriously their targets' true preferences. Without a defensible notion of true preferences, the justification for nudging people toward choices they would not have made of their own accord is lacking. 

Robert Sugden and the Community of Advantage

 Robert Sugden offers a compelling alternative vision for how Behavioral Economics should engage with normative questions. In The Community of Advantage, Sugden reconstructs and defends the liberal tradition in normative economics in light of the findings of Behavioral Economics. He argues that behavioral economists should address their recommendations and findings to individuals showing them how they can coordinate their behavior to attain mutual benefit.

 Sugden's key insight is that the market is a community of advantage—a network of mutually beneficial transactions in which participants come to see one another as cooperative partners rather than rivals. When people participate in market exchanges, they can act with the intention of achieving mutual benefit, rather than merely pursuing personal benefits. Joint action in voluntary transactions permits mutually beneficial cooperative schemes.

 Sugden rejects libertarian paternalism on several grounds. First, he argues that the concept of latent preferences—the idea that individuals have underlying preferences that can be revealed through proper choice architecture—is psychologically ungrounded. People do not have consistent, context-independent underlying preferences. Second, Sugden contends that behavioral economists should not make recommendations about public policy. Rather, recommendations should be addressed to individuals as the directors of their own lives, advising them how to pursue their own interests.

 Sugden abandons core elements of traditional normative economics—notably “the view from nowhere” associated with the idea that an economist or policy maker can objectively determine what would make people better off and advances a contractarian alternative. He advocates addressing individuals as agents responsible for their own decisions.  His approach successfully reconciles the liberal tradition with the findings of Behavioral Economics.

Neo-Aristotelian Flourishing and Self-Direction 

The neo-Aristotelian tradition offers a philosophical framework that complements Sugden's liberal approach to Behavioral Economics. For Aristotle, eudaimonia (human flourishing) is the ultimate end of human action. Flourishing is not merely a subjective feeling of well-being but an objective state of living well and doing well, achieved through the exercise of virtue over a complete life.

Contemporary neo-Aristotelians such as Den Uyl, Rasmussen, and Bates emphasize that human flourishing is essentially a self-directed activity. The agent chooses autonomously to the extent that he selects his actions from a set of alternatives that has not been decreased by the coercive actions of others. As Bates has observed, it is good to be aware of how you are being nudged so that you can make a conscious choice to accept or reject the suggestion involved.

 Rasmussen and Den Uyl characterize human flourishing in terms of objective human goods while emphasizing agent-relativity, individuality, self-directedness, sociality, and practical wisdom. Flourishing is not a passive condition that someone else can simply deliver to an individual. It is an activity involving the exercise of one’s practical wisdom. 

 If flourishing is essentially self-directed, then the discovery that individuals sometimes make predictable errors does not automatically establish a warrant for external direction. Instead, it creates a reason for improving people’s capacity for self-direction.

 

Behavioral Economics can function much like a mirror. It can show individuals things about themselves that they might otherwise fail to notice. The appropriate question becomes not: “How can behavioral experts make people choose better? but “How can knowledge of human behavioral tendencies help people become better directors of their own lives?”

 

Bates argues that human flourishing is ultimately self-directed and involves the exercise of practical wisdom and responsibility. Bates observes that people should be aware of how they are being nudged because awareness provides an opportunity consciously to accept or reject the suggestion. He therefore sees Behavioral Economics as potentially useful for human flourishing when its insights are directed toward individuals rather than primarily toward paternalistic policy makers. 

 

Den Uyl and Rasmussen's template of responsibility, developed in The Perfectionist Turn, provides a framework for understanding how individuals can take responsibility for their own flourishing. The template emphasizes that individuals are the best judges of their own interests and that external interventions—however well-intentioned—cannot substitute for self-direction.

From this perspective, the proper role of Behavioral Economics is not to provide policy makers with tools for manipulating choice but to provide individuals with information they can use to make better decisions for themselves. As Bates has argued, Behavioral Economics can make a useful contribution in helping to make us aware of how nudges may affect the choices we make. If one wants to help individuals to make better decisions, it is better to address the information to individuals responsible rather than to autocrats.

 Situations Where Behavioral Economics Serves Self-Directed Flourishing

1. Retirement Saving: Overcoming Present Bias Through Self-Nudging

 One of the most well-documented findings in Behavioral Economics is present bias—the tendency to prioritize immediate gratification over future well-being. This leads many people to undersave for retirement. Rather than waiting for governments to mandate automatic enrollment in retirement plans, self-directed individuals can design their own choice architectures. They can arrange for automatic transfers from their checking accounts to retirement accounts, set up calendar reminders to review their savings progress, or commit to increasing their contribution rate each year. The key is that the individual, not the policy maker, chooses the nudge and the goal.

 2. Health, Exercise, and Nutrition: Designing Personal Choice Architectures

 People frequently intend to exercise, eat well, sleep adequately, or maintain other healthy practices but find their immediate preferences competing with long-term goals. Behavioral Economics can identify mechanisms such as present bias, default effects, commitment problems, and environmental cues. A self-directed individual can deliberately rearrange his or her environment: placing exercise equipment where it is visible, scheduling workouts, preparing healthy food in advance, using reminders, or making unwanted behaviors less convenient.

 The modern food environment is saturated with cues that trigger System 1 responses—impulse purchases of unhealthy snacks, oversized portions, and marketing that exploits our cognitive biases. Self-directed individuals can design personal choice architectures that serve their health goals. They might rearrange their kitchen so that healthy foods are more visible and accessible, use smaller plates to manage portion sizes, or implement a rule that they will only eat what they have prepared themselves. These are nudges, but they are self-imposed nudges, chosen by the individual in service of their own conception of flourishing.

 3. Investment Decisions: Managing Loss Aversion and the Endowment Effect

 Behavioral Economics has enormous practical value in personal finance. People commonly exhibit present bias, loss aversion, overconfidence, status-quo bias, mental accounting, and difficulties with self-control. Awareness of these tendencies can help an individual to construct voluntary mechanisms that support personally selected financial goals.

 Investors are prone to loss aversion, holding onto losing investments too long in the hope of recovering losses, and the endowment effect, overvaluing assets they already own. Self-directed investors can use behavioral insights to improve their decision-making. They might set pre-established rules for selling investments (e.g., sell if an asset declines by 20 percent), or regularly review their portfolio with a focus on opportunity costs rather than sunk costs. Awareness of these biases is the first step toward overcoming them.

 4. Career and Life Planning: Countering Status Quo Bias

 Status quo bias—the tendency to stick with current arrangements even when change would be beneficial—can prevent people from making important life transitions. Self-directed individuals can use behavioral insights to overcome this inertia. They might set a specific date for reviewing career options, seek out information about alternatives systematically, or imagine that a decision has turned out badly and work backward to identify what could have gone wrong. These techniques engage System 2 thinking and help counteract the automatic preference for the familiar.

 The sunk cost fallacy may cause someone to continue pursuing an unsuitable career simply because substantial time has already been invested. The endowment effect can cause an individual to overvalue a current position. Status quo bias can make change seem costlier than it actually is. The halo effect can cause someone to overvalue an institution because of its reputation.

 5. Consumption and Spending: Overcoming Framing Effects

 Consumers encounter choice architectures constantly. Retailers, websites, advertisers, subscription services, and salespeople routinely frame choices, establish defaults, use scarcity messages, exploit social proof, and influence attention.

 How options are framed dramatically affects choices. A product described as "90% fat-free" is more appealing than one described as "10% fat," even though they are identical. Self-directed consumers can protect themselves from framing effects by developing habits of deliberate evaluation. They might translate percentage discounts into actual dollar amounts, compare products on objective attributes rather than marketing claims, or implement a "cooling-off" period for major purchases. By understanding how framing works, individuals can make choices that reflect their genuine preferences rather than the influence of presentation.

 Behavioral knowledge therefore strengthens consumer autonomy. Rather than requiring government to protect people from every persuasive influence, education can help individuals become more capable evaluators of their own choices.

 6. Social and Cooperative Ventures: Mutual Benefit Through Voluntary Coordination

 Sugden's insight that market participants can act with the intention of achieving mutual benefit has practical implications. Self-directed individuals can use behavioral insights to design cooperative arrangements that serve shared goals. For example, a group of neighbors might agree to a system of reminders for recycling, or a team at work might implement a "no-meeting Wednesday" to protect focused work time. These are nudges, but they are chosen jointly and voluntarily, reflecting the participants' own values and goals. They represent the kind of community of advantage that Sugden describes—voluntary cooperation that benefits all participants.

Conclusion: Behavioral Economics for Human Flourishing

 Behavioral Economics has given us powerful tools for understanding human decision-making. Its insights into bounded rationality, cognitive biases, and the influence of choice architecture are valuable contributions to our self-knowledge. But these insights can be used in different ways.

 The libertarian paternalist approach—exemplified by Thaler and Sunstein—treats cognitive biases as problems to be solved by wise policy makers who nudge citizens toward better choices. This approach is problematic. It assumes that policy makers can know what is truly good for individuals, it fails to take seriously the plurality and subjectivity of people's values, and it risks undermining autonomy and self-direction.

 The alternative approach, advanced by Sugden, Bates, Den Uyl, and Rasmussen, treats behavioral insights as resources for self-directed individuals. On this view, Behavioral Economics should inform ordinary people about the evidence and let them decide for themselves. The goal is not to replace individual judgment with expert judgment but to equip individuals with better tools for making their own decisions.

Designing and empirically testing self-nudges should be on behavioral economists’ research agendas. Self-nudging respects individual autonomy and helps to alleviate concerns about paternalism and manipulation. People can learn to use nudges to regulate their own behavior.

This approach aligns with the neo-Aristotelian tradition, which understands human flourishing as essentially a self-directed activity. Flourishing is not something that can be imposed from outside; it must be chosen and pursued by each individual. The role of Behavioral Economics, then, is not to provide a substitute for individual judgment but to enhance it—to help individuals understand their own cognitive tendencies, recognize when they are being influenced, and design choice architectures that serve their own conception of the good life. 

The six situations discussed above illustrate how this might work in practice. In each case, the individual, not the policy maker, is the agent of change. The individual chooses the goal, selects the nudge, and takes responsibility for the outcome. This is Behavioral Economics in service of autonomy, freedom, and human flourishing.

Perhaps the deepest application is metacognition—thinking about one’s own thinking. Behavioral Economics gives individuals a vocabulary for examining their own judgments. A person can recognize confirmation bias, anchoring, loss aversion, present bias, overconfidence, framing effects, availability effects, status-quo bias, and other tendencies. The goal should not be to eliminate bias completely. That would be unrealistic. Rather, individuals can learn to recognize when particular biases may be influencing an important decision.

As Sugden reminds us, the market is a community of advantage—a network of voluntary exchanges in which participants can pursue mutual benefit. The same spirit should guide the application of Behavioral Economics. Let us share our insights with one another, learn from the evidence, and design our own choice architectures. Let us be the directors of our own lives, using the tools that Behavioral Economics provides to pursue our own flourishing, in our own way, on our own terms. 

Recommended Reading

Bates, Winton. 2016. “Is Economics Becoming a Branch of Psychology?” Freedom and Flourishing. May 22.

Bates, Winton. 2020. “How is Behavioral Economics Related to Human Flourishing?” Freedom and Flourishing. May 19.

Bates, Winton. 2021. Freedom, Progress, and Human Flourishing. Lanham, MD: Hamilton Books.

Den Uyl, Douglas J and Rasmussen, Douglas B. 2016. The Perfectionist Turn; From Metanorms to Metaethics. Edinburgh: Edinburgh University Press.

Hertwig, Ralph and Reijulas,Samuli . 2020. “Creating Citizen Choice Architects” Behavioral Scientist (Sept.28).

Kahneman, Daniel. 2011. Thinking, Fast and Slow. Farrar, Straus and Giroux, 2011. 

Rasmussen, Douglas B. and Den Uyl, Douglas J. 2005. Norms of Liberty: A Perfectionist Basis for Non-Perfectionist Politics. Penn State University Press.

Simon, Herbert A. 1957. Models of Man: Social and Rational. New York: Wiley. 

Simon, Herbert A. 1982. Models of Bounded Rationality: Behavioral Economics and Business Organization." MIT Press.

Smith, Adam. 1759. The Theory of Moral Sentiments. Various editions.

Sugden, Robert A.  2018. The Community of Advantage; A Behavioral Economist’s Defense of the Market. Oxford University Press.

Thaler, Richard H. and Sunstein, Cass R. 2008. Nudge Improving Decisions About Health, Wealth, and Happiness. Yale University Press. 

Thaler, Richard H. 2015. Misbehaving: The Making of Behavioral Economics. New York: W.W. Norton.

White, Mark D. 2013. The Manipulation of Choice: Ethics and Libertarian Paternalism. Palgrave Macmillan.

Other essays by Ed Younkins on this site:

Younkins, Edward W. “What Contribution did David L. Norton Make to our Understanding of Ethical Individualism?” Freedom and Flourishing. January 18, 2025.

----------------------------“How can dialectics help us to defend liberty?” Freedom and Flourishing. July 8, 2025.

---------------------------“How can Austrian Economics be reconciled with the Neo-Aristotelian philosophy of Freedom and Flourishing?” Freedom and Flourishing. October 2, 2025.

----------------------------- “Can Polarized Moral Politics be Bridged by a Neo-Aristotelian Philosophy of Freedom and Flourishing?” Freedom and Flourishing. December 13, 2025.

----------------------------- “Does Humanomics Need a Moral Anchor?” Freedom and Flourishing. January 22, 2026.

----------------------------- “Is Character Education Compatible With Individualistic Perfectionism?” Freedom and Flourishing. February 27, 2026.

 ----------------------------- “Are Spontaneous Order and neo-Aristotelian Arguments for a Free Society Compatible?” Freedom and Flourishing. March 19, 2026.

----------------------------- “Are Spinoza’s Philosophy and Neo-Aristotelian Philosophies of Freedom and Flourishing Compatible?” Freedom and Flourishing. June 4, 2026. 

----------------------------- “The Architecture of Freedom: Randy Barnett’s Natural Law Case for a Free Society” Freedom and Flourishing. June 26, 2026.

----------------------------- “Robust Political Economy and Neo-Aristotelianism: Complementary Visions of Freedom and Flourishing” Freedom and Flourishing. July 10, 2026.

------------------------------ “Is Ayn Rand’s Philosophy Consistent with Aristotle’s Virtue Ethics?” Freedom and Flourishing. July 26, 2026.

-------------------------------"Henry B. Veatch’s Neo-Aristotelian Defense of Reality, Reason, and Rights” Freedom and Flourishing. August 30, 2026.