BackNarendra Modi needs a nudge unit
Behavioural economics can be used in policy to understand cognitive flaws so that better policies can be designed
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Narendra Modi quite rightly pointed out in his speech on 15 August that there is a crying need to change our attitudes on how women are treated or the cleanliness of our neighbourhoods. He has thus sought to alter the national narrative on important issues such as gender violence and sanitation. As political scientist Pratap Bhanu Mehta has pointed out, Modi has argued that social failure is as important a challenge as market or government failure.
What is less clear is how social attitudes can be changed in a country such as India. Modi has tried a form of moral suasion. That is a good start. But more thinking will be needed on how social behaviour can be quickly transformed for the better. Here is an idea: Modi should seek advice from behavioural economists and game theorists on ways to change the way people make choices. These experts know a thing or two about how that can be done.
Modi has a successful model to learn from. The British government set up an advisory unit to use insights from behavioural economics for policy design. This is the Behavioural Insights Team, though it is more popularly known as the Nudge Unit. The nudge metaphor is from the title of a book by Richard Thaler and Cass Sunstein, Nudge: Improving Decisions About Health, Wealth and Happiness. The unit has since been privatized, but it has produced a wealth of research on how citizens can be nudged into making better choices.
In the US, the Barack Obama administration appointed Sendhil Mullainathan to a senior position in the Consumer Financial Protection Bureau, an agency set up after the financial crisis to ensure that “markets for consumer financial products and services work for Americans". It had earlier appointed Peter Orszag, an economist with an interest in behavioural economics, as its budget czar.
Behavioural economics is based on the premise that the human brain is hardwired to systematically make certain mistakes. Behavioural economics can be used in policy to understand these mistakes so that better policies can be designed. Here are a few quick possibilities.
Take the issue of toilets. There is ample research to show that even people with access to toilets prefer to defecate in the open. How should any government programme that seeks to alter their behaviour be designed? Behavioural economists have shown that people are more sensitive to losses than gains, or loss aversion. Daniel Kahneman argues that potential losses are on average valued twice as much as potential gains.
In a blogpost, World Bank economist Nidhi Khurana has suggested that communication should focus on how open defecation will harm a community rather than how it would benefit it. The underlying idea is to turn loss aversion into an advantage. “This shift in frame from gain utility of sanitation to loss utility of open defecation would likely have a stronger psychological draw for delivering impact on the intractable issue of behaviour change," she writes.
Or consider how people discount the future: how much are we ready to give up today to gain something tomorrow. Standard economic theory assumes that our choices are time consistent, or that we discount in an exponential manner. Behavioural economics shows we are not such perfect machines when we discount the future. Human beings are hyperbolic discounters, which makes our choices inconsistent over time.
One common example used to describe the problem of hyperbolic discounting is the difficulty people have in sticking to diets. They begin well but their commitment melts when they see a chocolate cake.
Anna Aizer and Pedro Dal Bo have used this insight to study domestic violence in the US. The title of their paper: Love, Hate and Murder: Commitment Devices in Violent Relationships. The two behavioural economists show “the victim’s preferences change with time from the battering incident. That is, right after a battering incident, while in shock and fear, a woman’s valuation of the relationship is low but increases as time passes."
Forty eight US cities have sought to solve this problem with another standard from behavioural economics: a commitment device. Prosecutors refuse to later drop charges against the abusive male because the woman has changed her mind because of hyperbolic discounting. Aizner and Dal Bo say: “In this way, no-drop policies offer a commitment device for women who want to terminate a violent relationship but fear that their intentions may change."
The government should seek expert advice on how it can help change the entire choice architecture when it comes to the treatment of women or the use of toilets. These cannot be the only suggestions but the good thing about what Modi said is that he is ready to seek solutions that go beyond the obvious (better policing) or the legalistic (introduce a new law in Parliament). Changing social attitudes is a complex challenge. Modi should think about appointing his own nudge unit to help him come up with creative solutions to our social failures.
Niranjan Rajadhyaksha is the Executive Editor of Mint.
Comments are welcome at cafeeconomics@livemint.com. To read Niranjan Rajadhyaksha’s previous columns, go to www.livemint.com/cafeeconomics
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