How behavioural economics could address the world’s big challenges

Many of the world’s biggest challenges, such as encouraging people to buy life-saving drugs or unpicking deeply rooted sexism, can be tackled by using subtle psychological cues to change the way people behave, according to experts in London.

Behavioural economics, also known as “nudging”, is about making people more likely to make desirable decisions without directly forcing them to, by incorporating evidence of how people actually behave into policy, advocates told a conference on the subject.

For example, the Behavioural Insights Team, or “Nudge Unit”, set up by the British government in 2010, found that letters encouraging people to pay their taxes had vastly different response rates depending on how they were worded.

Including a note saying most of the recipient’s neighbours had paid their taxes on time, or that taxes are used to fund vital public services, had a bigger impact than plain demands. Similar letters sent out in Guatemala also had positive results.

Much of modern social science, rather than observing how people actually behave, mistakenly assumes “rationality”: that people weigh up costs and benefits carefully before making decisions, said British Cabinet Office Minister Matthew Hancock.

Irrational Behaviour

Millions of people die each year from easily preventable diseases which can be stopped by simple and cheap measures like malaria nets, vaccines and deworming pills, said Rachel Glennerster of J-PAL, a global health charity.

She estimates deworming pills have a lifetime benefit of $142 in increased earnings and better health. But many people will not buy them, even when they are extremely cheap.

“The same people who will not pay 40 cents for a deworming pill will scrape together large amounts of money for acute urgent healthcare needs,” said Glennerster. “This behaviour is really quite hard to explain under standard economic models.”

There are rational reasons why people may not buy cheap life-saving pills, such as a lack of access to finance or information, but these factors cannot explain the results, which are “surprising to the point of incredulity,” said Glennerster.

Sending people persuasively worded SMS reminders increased the number who took medicine, as did subsidising deworming pills, which people are less likely to see the benefits of, rather than subsidising things people do buy, like acute care.

Changing norms, not laws

Glennerster said “nudging” can seem paternalistic, and warned policymakers to be careful when they were not overwhelmingly confident of the benefits of an action, as they can be with certain medical interventions.

“Sometimes ordinary people understand something that we, the experts, don’t,” she told the conference.

The idea of nudging, based on the research of economists including Richard Thaler and Daniel Kahneman, who both spoke in London, gained traction after the global financial crisis, when governments wanted to achieve more but spend less.

The U.S. and Australian governments also have behavioural insight units, which use methodical “randomised controlled trials” to test different interventions, observing human behaviour before recommending a particular policy.

Sex selective abortions, especially common in Asia, are responsible for between 100 million and 160 million “missing girls” globally, around the same as the number of women living in the United States, said Iris Bohnet of Harvard University.

Changing so deep rooted a custom is not something laws alone are likely to achieve, she said. Social norms need to change.

In one study in India, giving women authority and control of significant amounts of money changed social gender norms in observable and lasting ways, though appointing women to the boards of short-term projects did not, she said.

Asking for demographic information at the start of a job application can encourage people to subconsciously play up to negative stereotypes, such as women being less assertive, or black people being less suited to the police force, something behavioural economists call “stereotype threat”.

Though “nudging” alone is unlikely to be able to stop sex-selective abortion, combining behavioural techniques with laws may be the way to solve such difficult problems, she said.

Role Models

When the British government wanted to get more women on corporate boards, it tried two separate strategies after rejecting the idea of using quotas, Bohnet said.

The first was to tell firms only 17 percent of board members of top companies were women. This did not work well. But when the government told firms that 94 percent of companies had at least one woman on the board, the response was much better.

Humans have a natural behavioural instinct to want to do what others are doing, so focusing on the positives, even when using exactly the same underlying data, is more likely to get people to change their actions, she said.

“Reciprocity” is another key insight from behavioural economics. People are more likely to give something up if the other party has also given something up, however small.

Restaurant tips increase when diners are given a mint, and rise even more if they are given two, while guests are more likely to reuse towels if told their hotel has already given to an environmental charity, said Robert Cialdini of Arizona State University.

At Harvard’s Kennedy School a decade ago, Bohnet noticed all 60 portraits were of men, so the school commissioned pictures of illustrious female alumni such as Liberian President Ellen Johnson Sirleaf.

This is important in changing post-university career decisions, because behavioural economics tells us a lack of women can become a “prescription, not a description” because of the way our minds work, Bohnet said.

Far from being a box-ticking exercise, encouraging diverse role models and having images of women and ethnic minority people in the workplace is demonstrably important because it “shapes what we believe is possible,” she said.

This article is published in collaboration with Thomson Reuters Foundation trust.org. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Joseph D’Urso is an online production and breaking news reporter at Thomson Reuters Foundation.

Image: People cross a street in Mong Kok district in Hong Kong, October 4, 2011. REUTERS/Bobby Yip