Applying behavioural economics to public policy (Is Indian polity listening?)

The post is on Canadian public policy but I guess it applies to most countries. There is an interesting video on nudging people to use stairs instead of elevators. Though the nudge is slightly noisy. Do see it.

There are numerous ways in which nudges can work:

How to encourage people to save more for their retirement? For example, in some surveys 68% of respondents say they are saving too little, 24% say they are going to do something about it, and 3% actually do! An important US example concerns the default in employer-provided retirement plans. If the default is to enroll employees, then contributions to a savings plan rise, and they also rise when employees are presented with the opportunity to make an active choice to enroll or not.

In the Canadian case think of the Registered Education Savings Program, the RESP. Enrolling in this program requires some changes in routine, and about an hour of work in dealing with a bank. There is free money on the table for a child’s education, yet the take-up rate among low-income people is very low. Making applications easier is important. Experiments have shown that putting the onus on banks to do a lot of the paper work can increase participation rates by 20%.

Think also of organ donations, or flu shots. Defaulting citizens into donating their organs dramatically increases donation rates.

Education is also a particularly fruitful area for behavioural economics since kids are one group for which self-discipline is always an issue. Any parent knows that parenting is one continuous nudge! “Life after high school” is an example of an experiment that encourages Grade 12 students to apply to post-secondary education. With some basic assistance given in completing application forms and paying the fees, application rates rise by 15% . The impact is particularly important for enrollment in community colleges.

Behavioural economics has applications in the labour market, in particular in helping the unemployed find work. Changes in the messaging on a web site can speed up job search for many. Employment and Social Development Canada has a “Behaviorual economics and service innovation research unit” that has experimented with the department’s job bank web site. By making the site more user-friendly it has encouraged many more clicks, and likely sped up job search among many Canadians. This is the first experimental study in the department, and something to be excited about. This is a “low touch” nudge around simple communications and has a lot of potential.

Behavioural economics also has many applications to tax policy. For example, making voting registration automatic, or making applications to social transfer programs easier. Tax compliance has traditionally focused on penalties, but this is costly. But rewording in letters or notices to say that “most people” [like you!] pay their taxes on time, is an effective framing. The Canada Revenue Agency has been doing randomized pilots on compliance for some time. For example, the signature block has been moved to the beginning with a simpler text, and bolder font.

Post UK, State of Ontario too has formed its behavioral team:

There has been a truly remarkable rise in the use of nudges, due in large part to the rise of the “nudge unit,” as David Cameron’s Behavioural Insights Team is affectionately called in the United Kingdom. By one count fifty-one countries now have centrally directed teams that involve some form of behavioural economics policy. Only a few months ago a US presidential order was issued to encourage departments to make use of behavioural insights, likely leading to more applications across many departments. In Canada, there have been inroads: in 2015 Ontario announced a behavioural insights team in the Treasury Board Secretariat. The team has been active in organ donations, license renewals, and has made its results available on-line.

We are just sleeping over this in India.

Hightime we have a behavioral team looking at the several policy issues in India. India is both a fertile ground a landmine for behavioral policies.  We can’t live without making policies which nudge you anyways. So why not also study the several behavioral issues which undermine a policy….Infact all major states could have their own nudges department which obviously does not promise to solve all the ills. But with humility tries to figure why things did not work despite best intentions and try design them better next time. But all we choose to do is form more and more committees without really analysing why previous ones did not work.



3 Responses to “Applying behavioural economics to public policy (Is Indian polity listening?)”

  1. Says:

    Reblogged this on Forwardeconomics.

  2. Anonymous Says:

    Don’t get carried away. There is little evidence that nudge units are any better at making policies than domain experts. India or more specifically J-PAL and IFMR are responsible for the whole RCT fad in developmental economics.

    The behavioral economics is just an extension of such a fad. Indian babus know how to obtain useful inputs. For example, a lot of foreign PhD students are housed in NITI Aayog and support Arvind Subramanian and his brand of neoliberal economics. Earlier this year, there was a EPW piece that explicitly documents efforts to spin what government is doing with LPG targeting as “nudge” philosophy.

    In reality, nudge unit do little than offer dubious inputs to policy making. Evidently Indian government believes e-governance is the same as better governance. Hence it has set up expensive program management units with private sector consultants at state IT nodal agencies who provide support for administrative reengineering. But not one of them is recruited for subject mater expertise.

    Fetishizing reform in the name of e-governance or nudge units distracts from the fact that policy making is imbued with political values. In a country with deep inequalities like India, the framing of the problem determines the menu of choices. So policy makers frame problems where technology e.g. JAM, e-governance PMUs are the solution. The moment they set up nudge units, the direction of nudge becomes a matter of contentious public debate, thereby creating a gridlock of policy making. So they have to push reform they desire using subtle and nudges away from the public view while hiding behind technology.

    • Amol Agrawal Says:

      Hi Anonymous,

      One is surely aware of limitations of nudging as well. There are quite a few examples which show how results went the opposite way. One should not get excited about any big idea in development. Most of the time they are just fads as you rightly said. Development is highly non-linear with varied results. The idea behind the post was to simply understand that there are behavioral issues in development which need to be atleast broadly understood. But yes if any such nudge office is projected as “the idea” which will rid us all of “the ills”, one is surely against it. Humility matters greatly in development.

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