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Business News/ Opinion / Nudge units: a new tool in the policy toolbox
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Nudge units: a new tool in the policy toolbox

Behavioural economics could help overcome social obstacles in policy implementation

Illustration: Jayachandran/MintPremium
Illustration: Jayachandran/Mint

Toilets built at great expense are not used. New variants of tuberculosis spread because patients do not complete the course of drugs prescribed by hospitals. Rash driving on roads kills people in the thousands every year. Railway crossings are also death traps. Parents do not immunize children even when it does not cost them anything. There is no shortage of examples of how behavioural quirks lead to public policy failures.

The recent news that the government think tank Niti Aayog could be setting up a behavioural economics unit is thus welcome. Several other countries have also set up similar nudge units—the UK, the US, Singapore and Australia, for example. These units help governments design incentives so that individual behaviour is nudged in a particular direction. Immunization rates in some Rajasthan villages climbed after free lentils were given to women who brought their babies to local dispensaries. Weekly SMS reminders have helped ensure that HIV patients in Kenya take their medication on time.

Behavioural scientists have shown that human choice is a complicated affair. We have cognitive biases, we use heuristics to decide, framing effects are important, we cannot discount the future very well, we need commitment mechanisms to stick to goals.

The World Bank pointed out in a 2015 report that people make some types of decisions automatically; they think socially and they draw from mental models around them. So, social or cultural contexts also matter a great deal. Public policy is often focused on the problems of market failure or state failure. Far less attention is paid to the deeper problem of social failures.

Consider the example of cleanliness. There is no doubt that the practice of open defecation needs to be ended soon. But how is it to be done? One household in a village may choose to build a toilet, but that will in itself not protect that family from disease or contaminated water in case the other households in the village continue with the old ways. You cannot stay healthy if your neighbours do not have toilets. So, nobody will invest in a toilet unless everybody does. How does the government get people to cooperate rather than try to free-ride? One way out of this perverse equilibrium is for the government to build public toilets. The question is whether communities divided on caste will agree to use such common facilities. There is also the question of safety for women.

Or take the question of messaging. Should government advertising focus on the advantages of using modern toilets or the disadvantages of open defecation? The central concept of loss aversion suggests it should be the latter. Behavioural scientists have shown that people value loss avoidance more than gain acquisition.

A nudge unit can indeed help the government deal with such challenges that are rooted in human behaviour or social realities. But it is also important to realize that a nudge unit will have its limitations.

First, behavioural sciences may help the government design better social sector programmes but they are of little use as far as the bigger challenges of rapid economic growth, poverty reduction and macroeconomic stability go. Second, nudge units may fall prey to a paternalistic view that planners know better than citizens despite the fact that public policy designers have the same behavioural quirks that other human beings have. Third, the very complexity of the country means that what works in one state may not work in another; in fact, what works in one district may not work in another.

The most well-intentioned social interventions fail because of the ground realities that policymakers in New Delhi often fail to grasp. The Narendra Modi government has until now banked heavily on technology as one tool to deal with implementation problems. Aadhaar has been the centrepiece of this strategy. The move to set up a nudge unit could be thought of as a radically different way to deal with some of the same problems.

Can nudge units help the government fulfil its social policy objectives? Tell us at views@livemint.com

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Published: 13 Sep 2016, 12:33 AM IST
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