Information cocoons are frequently cited in the literature on whether and how social media might lead to ideological segregation and political polarization. From the behavioural and communication perspectives, this paper first examines why algorithm-based social media, as opposed to its traditional counterpart, is more likely to produce information cocoons. We then explore populism and short-termism in voting, bias and noise in decision-making, and prerequisite capital for innovation, demonstrating the importance of information diversity for a sustainable information environment. Finally, this study argues for libertarian paternalism by evaluating the criteria and trade-offs involved in regulating algorithms and proposes to employ nudges to address the core issues while preserving freedom of choice.