The demonetisation exercise was planned and is being analysed as an economic activity. What people discount is that demonetisation is inherently a behavioural issue—an emotional issue!
The process of removing 86% of the currency notes in circulation and expecting the economy to function with only 14% was bound to create a lot of hardships. Policymakers would have anticipated the monetary and the physical hardships to the common man. But, any overt preparation to minimize the hardship would have let the cat out of the bag and would have defeated the very purpose of this operation.
The apparent lack of preparation was critical to the secrecy and success of this operation. The scarcity of currency notes and the accompanying pain and discomfort was inevitable.
Sendhil Mullainathan and Eldar Shafir in their book Scarcity: Why Having Too Little Means So Much have clearly established that even scarcity of physical needs can have a significant effect on the minds of those affected. Scarcity of money did generate varied emotions in people’s minds. Experts from the world of finance and economics, who mostly live in the rational world of numbers, may not be aware of the significant role of emotions in decision making and coping.
The work of Antonio Damasio and other neuroscientists have proven that emotions are an integral part of all decision processes, and that emotions significantly improve the efficiency of many human decisions.
The government could have done a lot more to anticipate and manage the emotional aspect of post-demonetisation turbulence.
On the face of it, the emotions involved in the demonetisation process were the emotion of anxiety stemming from uncertainty around new notes, the agony of standing in long queues, and the frustration of not being able to meet one’s basic needs. But a deeper look at the problem reveals far stronger and complex emotions involved.
Daniel Kahneman, the Nobel prize-winning behavioural economist, had pointed out that we human beings are averse to losses. The emotional pain of a loss is only assuaged by pleasure of gaining about twice as much as the loss. Behavioural economists also remind us about endowment effect, people ascribing more value to things they own.
Years of hoarding money would have led to an enormous sense of endowment among the corrupt. The loss resulting from demonetisation would have triggered an emotional whirlwind—the fear of losing power and possessions, the insecurity of the ground giving away beneath your feet, and the rage towards the government responsible for this situation.
But unfortunately, lest the world know their true colours, the corrupt cannot show these strong emotions to the outside world. The only outlet for this emotional impotence is to piggyback on the genuine emotional outburst of the honest man who is suffering, standing in the queues across the country, and amplify it.
All humans have an innate sense of right and wrong. We all have an inherent belief and hope that the unjust will be punished. When those who violated the rules of the land flourished, we all hoped that one day justice will be done. Now, when the honest citizen sees the corrupt wrong-footed, there is a glee deep inside our hearts—an emotion of schadenfreude—the secret happiness in the downfall of another person.
As John Portmann, the author of When Bad Things Happen To Other People, wrote, “It is not uncommon to feel pleasure over the suffering of others, particularly when we feel that suffering has been deserved.” This emotion was captured by Michelangelo in his painting The Last Judgement too—above the images of the sinners suffering horribly in hell, we see a joyful group of angels brandishing the tablets of law as if to say to the sinners “see you’re getting what you deserve.”
An informed understanding of these emotions at play could have led to a vastly different approach to managing the discontentment among the upright, but suffering, majority.
The government missed the opportunity to capitalize on the emotion ofschadenfreude to win over the common man who had to stand in long queues in the hot sun to deposit his money. They should have been portrayed as honest people who have nothing to hide, the epitome of good citizenship. Framing the depositing process as a public display of integrity would have gone a long way in assuaging the physical discomfort he had to go through. This would have created a strong in-group identity of the virtuous citizen pitted against the out-group—the dishonest.
This is not the first time Indians have had to face disruptions to their money supply. One crop failure and the farmer is in a cash crunch, not just for a few weeks, but for the whole year. The common man deals with such financial eventualities through the inherent human tendency to cooperate in times of distress. Prime Minister Narendra Modi should have appealed to this deep-seated virtue to tide over the short-term difficulties.
The dishonest is a bit scared now. Soon fear tapers off and he might revert to his old ways and try to recoup all that he has lost with renewed vigour. To prevent this relapse, a few injections of emotion of fear should be administrated from time to time.
This will help rein in the corrupt, and at the same time, give the honest another reason to smile.
Biju Dominic is the chief executive officer of Final Mile Consulting, a behaviour architecture firm.