Small departures from rationality sometimes have outsized impact on an interplay of human quirks and economic forces, the study of which falls under behavioural economics. Mint simplifies terms such as nudge and sludge, which are used in this new branch of economics.
What is the sludge philosophy?
Sludge is excessive or unjustified friction such as paperwork burden that slows or halts a behaviour or action. It makes life difficult to navigate and can be frustrating, stigmatizing or humiliating. It hinders access to goods and services. Sludge reduction efforts can improve access to these, especially anti-poverty programmes, education, job training and economic opportunities. It is different from nudge, which can also be used for bad purposes: Consumers might be defaulted into an expensive insurance or be nudged, through behaviourally-informed ads, into buying cigarettes or alcohol.
What are some examples of sludge?
Notoriously high levels of pendency of cases discourage those with limited influence and resources from approaching the courts for justice. Police stations, especially those in rural areas, make registration of complaints and first information reports cumbersome to help them manage their strike rates. Some websites expect visitors to read privacy policies and indicate consent by checking specific boxes before letting them browse pages. The notice is sometimes in an unfamiliar language. Immigration applications involve onerous paperwork that is lengthy and confusing.
In what way is nudge different from sludge?
A good nudge makes life easy. Bans or sin taxes on fat, sugar or alcohol to reduce unhealthy consumption do not qualify as nudges. Displaying healthy food options prominently and mandating calorie labels are examples of nudges. The nudge philosophy is that the chosen option makes choosers better off as judged by themselves.
What doesn’t qualify as a sludge?
Cass Sunstein, a US legal scholar in behavioural economics among others, explains in his 2019 paper that monetary incentives or disincentives, specified payments for obtaining insurance or extra charges for better seats on planes are costs, not sludge. But as time can be monetized, there is no real distinction between those and the kinds of costs imposed by sludge. A ban is not sludge: Smoking bans in public places are not sludge. Sludge is often an indirect method of achieving particular policy goals by limiting access to programmes.
What are sludge audits and how do they help?
Sludge often has costs far in excess of benefits and can hurt the most vulnerable members of society. Sunstein says firms, universities and government agencies should regularly conduct sludge audits to catalogue the costs of sludge and decide when and how to reduce it. The streamlined passport issuing service in India, designed to speed up processes, may have followed an informal kind of sludge audit.
Puja Mehra is a Delhi-based journalist and the author of The Lost Decade (2008-18).