By Ibu Sanjeeb Garg
Beating the Rhetoric
Behavioural economics is the field of economics that tries to interpret economics and market based on psychological, social, cognitive and emotional factors that influence decision making of an individual. Behavioural models typically encompass psychology, neuroscience and microeconomic theory to cover a wide array for concepts, theories and pattern. In the last few decades, behavioural economics has began to make an increased impact in how nations frame their social and economic policies.
In essence, Behavioural Economics deals with economic / market decisions that are made and the mechanisms that go behind making such decisions. United Kingdom has a fully dedicated Behavioural Insight Team (BIT) which functions as a social purpose company. The BIT team is attached to the Cabinet and looks into economics and psychology together impacting policy decisions. The recent BIT report offers fascinating insights into how interventions have helped policymaking at different levels. For example, students who were issued alerts on their academic performance before exams, improved their pass percentages by 12 per cent. There was visible impact of letters sent to those individuals who had history of tax arrears and defaults. Positive encouragement towards tax payment in letters also yielded positive results. In Manchester, the use of social norms to instil a sense of civic duty resulted in increased payments by 11 per cent. Changes to social care statement letters in Surrey increased payments amongst those who had just started receiving adult social care by 32 per cent.
While Britain is the first example of a completely independent nudge unit being set up to serve governance, governments around the world have acted on the paradigm of behavioural economics from time to time. US President recently signed an executive order encompassing nudge units into policymaking matters. Australia has set up a nudge unit called the Behavioural Economics Team of the Australian Government (BETA). The Ministry of Manpower in Singapore is sending “pink letters” instead of white ones, to those employing foreign domestic workers who default in paying levies. The power bills in Singapore come with the users power usage printed at the back. It makes them mindful of their wastage and not the bills alone. The “Clean Love to Copenhagen” campaign put green footprints leading to rubbish bins on the streets. It helped in reducing litter by 46% as residents followed a nudge that spotlighted good social behaviour. In France, teachers in French schools use different names for technical drawing after a study found that boys do better if the subject is called “geometry” while girls do equally well or better if it is called “drawing”. Increasingly around the world, Behavioural Economics is being used as a policy tool.
In 2015, the World Bank drew up a study which discussed the need for nudging government policies and how psychology and behaviour factors into decision making. It elucidated the fact that people make some decisions automatically, they think socially and derive from mental models around them. Thus it can be safely concluded that social and cultural paradigms matter in decision making. For too long, governments around the world have warped theories market or social theories. Less attention has been paid to failure of certain policies on account of behavioural models.
Thus it is no surprise that India too made foray into setting up a “nudging unit”. The government think tank Niti Aayog has tied up with the Melinda and Bill Gates foundation to set up a nudge unit that will encourage behavioural changes and work towards policy correction, for those campaigns and schemes which have a strong social connotation. The government of India has started a number of major social campaigns including Swachh Bharat Abhiyan, giving up LPG subsidy, among many others . While the schemes have performed reasonably well, to sustain that momentum, a push is needed. This push can be in form of a behavioural nudge which will make the policy better. For example, the Swachh Bharat targets open defecation free society as one of its goals. Towards this a large number of toilets are being built. Yet open defecation is not a question of inadequate toilets alone. It also has a mentality element to it. For example, what motivates a person to use a toilet for defecation? Or should the proper question be what demotivates a person from using a toilet. The answer to the second is easier to arrive at- social pressure. Thus the real question is how the action of the rural community would impact the decision making of an individual. This would seem to be the bedrock of the Swachh Bharat Abhiyan. And it is in these crucial matters that the question of “Nudge Units” would come into play.
In India too, there have been successful models of nudging the public into action albeit in a smaller manner. The Delhi Metro, through the yellow lines, often seeks to act as a nudge, dissuading people from crossing the line which could result in death. Hence because of that warning although a phenomenal number of passengers ride in the Delhi Metro every year, the number of accidents remains small. This is akin to the Copenhagen experiment when residents were guided to dustbins via green arrows. ThinkScream, a Mumbai based company, has proposed Wi-Fi garbage bins as an incentive (Free Wifi) to encourage the habit of using dustbins, which can act as another potential nudge.
Yet one must be careful of the pitfalls while determining how much of the nudging factors to include in policymaking. For example, India is a vast country with different languages, cultures and social norms and a nudging unit that caters to one particular community system may not produce desired effects in others. While comparing nudging experiments with other countries, one must remember that India is essentially a heterogeneous country and any direct comparison with countries that are more homogenous in nature may be a fallacy. India does not have one language, religion or one cultural identity. Hence the question of evolving one particular appealing model is difficult. Secondly, another factor that has to be kept in mind is how much of nudging is required. What will be the parameters where behaviour of the society itself will determine the policies directed towards them? There is a view that some schemes may fall prey to the prejudicial views of the planners themselves. The third most important aspect relates to the pace at which India is growing and the myriad challenges that it faces today. Today India is one of the fastest growing economies of the world and yet, issues of inequality and economic disparity persist. Many of these issues require immediate long term growth. At such a juncture, the incorporation of a more long term based “nudge unit” may take time to bear results.
Nevertheless, as Justin Fox would tell us in his brilliant article “From Economics Man to Behavioural Economics,” the use of “heuristics and biases research” (which form the bedrock of behavioural economics) might not tell us the right decision to make, but would definitely warn us of the wrong steps. Thus, despite the obvious challenges, the introduction of a Nudge Unit within the NITI AAYOG is a welcome step that would herald a new era in policy and decision making.
– (The author looks at policy issues. He has a special interest in North East India, the ethnic contentions and the multifarious dimensions).