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Insights from behavioural economics can help us answer several important questions such as how farmers are slow to adopt a new useful technology. Photo: Indranil Bhoumik/Mint
Insights from behavioural economics can help us answer several important questions such as how farmers are slow to adopt a new useful technology. Photo: Indranil Bhoumik/Mint

The science of human behaviour and modern policymaking

As long as one is careful about what to learn, behavioural economics can give important inputs to policymaking

Mumbai: In his book ‘The Theory of Moral Sentiments’, Adam Smith wrote: “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it." What he wrote in 1759 can be traced as the foundation of behavioural economics, a field that lies at the cusp of psychology and economics.

A wide set of our choices are driven and limited by our cognitive ability, attention and motivation. We all are habitué in missing the deadlines; we get impatient and often procrastinate. Over the last decade or so, these behavioural aspects of human behaviour have been incorporated into mainstream economics.

Insights from behavioural economics can help us answer several important questions. They can help us understand why attendance rates remain low in schools (often because of poor course design), why some people choose to defecate in the open (often because they find toilets disgusting), how farmers are slow to adopt a new useful technology (often because there may not be enough know-how about this new machine or equipment).

Take the example of open defecation, practised in large parts of rural India in spite of toilets being available on the premises of households. There could be many reasons for this. Someone may find defecating in the open more convenient. It could be that there may not be enough awareness about the health benefits of using toilets. Others may find toilets filthy and feel claustrophobic.

What could be the behavioural response to this problem? One way to address this problem is to spend more on information, education and communication (IEC). A recent survey by the Research Institute for Compassionate Economics (RICE) found that 84% of the respondents had never heard of any village-level meeting on sanitation; and less than a third had ever seen a poster or any other form of message about toilets. The other possible solution that can overcome the behavioural problem is construction of better designed toilets.

To better utilize the insights from behavioural economics, a recent issue of the peer-reviewed journal Review of Income and Wealth explores some of the central issues in designing policies focused on developing countries.

In one of the research papers, Sendhil Mullainathan of Harvard University and Saugato Datta of the non-profit organization ideas42 offer seven core principles in designing a behavioural intervention which depends on the nature of problem.

First, designing incentives for self-control can have powerful effects. For instance, consider the problem of low productivity among workers in India. In a study on data entry operators in India, Supreet Kaur of Columbia University, Michael Kremer of Harvard University and Mullainathan found that the workers chose a payment mechanism that laid a penalty for missing targets.

“Such commitment contracts could also help tackle the widespread problem of absenteeism among public-sector workers in developing countries such as India, where 25% of government schoolteachers are absent from work on any given day," Mullainathan and Datta say.

Secondly, we should find solutions to avoidable self-control problems. For instance, farmers face enormous financial distress before the harvest season because of which they borrow large sums of money. If farmers spend more judiciously in the post-harvest season or have access to commitment savings accounts, this would solve the self-control problem.

Thirdly, it is important to remove the hassles involved in securing benefits of public programmes. They quote a study in Morocco which showed that nearly 70% of households who were helped with the administrative steps needed to get a piped water connection signed up for piped water, compared with just 10% of those who did not receive similar help.

Fourthly, small monetary incentives can bring in bigger change. Take the case of low rates of immunization in India. Abhijit Banerjee and his colleagues at the Massachusetts Institute of Technology (MIT) conducted an experiment in which they offered parents a half-kilo bag of lentils for each immunization done in 134 villages in Rajasthan. They found this small incentive worked very well; the immunization rate almost doubled by the end of the experiment.

Fifthly, reminders that take care of the problem of inattention are especially effective in driving behavioural change. Consider a farmer who tends to forget to spray pesticide on his crops; an SMS service that disseminates information on pesticide schedule could work well as a reminder.

Sixthly, a large number of public programmes intended for the poor do not succeed because of poor advertisement. This could be mitigated by better framing—presenting information about these schemes in such a manner that intended recipients notice them. People notice the negative effects more than positive ones. In case of open defecation, posters and radio ads could be designed which show the ill-effects from not using a toilet.

Seventhly, linked to last point, information should be framed or designed to fit the mental model of recipients; people often ignore those messages which do not conform to their beliefs.

“An education campaign in Kenya, where many teenaged girls were getting pregnant by older men, sought to reduce such pregnancies by urging girls to shun premarital sex. However, this reinforced the idea of marriage as a desirable goal, and girls viewed getting pregnant as the most efficient way to find a husband. The programme, therefore, actually led teenaged girls to actively seek out older partners for unprotected sex. On the other hand, a campaign that simply provided girls with the information that older men were more likely to be HIV-positive reduced the number of girls who got pregnant by older men by two-thirds. It succeeded because it addressed the fundamental cause of such pregnancies, which was the perceived desirability of older men as sexual partners."

Is there evidence on how behavioural interventions are perceived by policymakers in developing countries? Antonio J. Trujillo and his colleagues at the Johns Hopkins University set out to explore the viewpoint of important stakeholders in the process—policymakers. They interviewed 520 policymakers and development practitioners about health policy prescriptions made by behavioural economics in developing countries.

It seems there is a broad consensus among policymakers on the need for policies which induce changes to overcome present bias (the tendency to be myopic), spread awareness about habits and disseminate information in innovative ways. However, opinion is divided on the effectiveness of monetary rewards in bringing about behavioural changes.

Pinning hopes on behavioural interventions could be an exercise in futility, some argue. The sharpest criticism came from George Loewenstein, a behavioural economist at the Carnegie Mellon University, and Peter Ubel of the Sanford School of Public Policy, Duke University. The duo pointed out that behavioural insights into health policy could be wrong.

They write, “Prevention is certainly a worthy goal; it is much better to prevent a case of lung cancer than to treat it. But efforts to improve public health, even if enhanced by insights from behavioural economics, are unlikely to have a major impact on health care costs. Studies show that preventive medicine, even when it works, rarely saves money."

Already, enthusiasm for the much-fancied Nudge Unit in the UK, a behavioural insights team in the government, is diminishing quite rapidly, Tim Adams of the Observer noted. “Though nudge-economics remains seductive, what once seemed like a panacea has come to look a bit more like a series of sticking plasters," wrote Adams.

Finally, it is important to distinguish between behavioural insights that are local from those which are generic in nature. We should be asking whether a set of incentives that worked in, say, Akola is going to work in Anand.

It is dangerous to jump to policy conclusions from field experiments in economics that have not been validated elsewhere. As long as we are careful about which lessons to learn from behavioural economics, it can still provide important inputs to policymaking.

Sumit Mishra is a research scholar at the Indira Gandhi Institute of Development Research, Mumbai.

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