Humans are not unerring. Often enough, perfectly rational people tend to behave irrationally, as any salesman or advertiser would attest. Simply reducing the price from Rs. 1,000 to Rs. 999.99 increases sales. Economists used to believe that such human irrationality was compatible with economic theory. Psychologists showed in the 1960s that humans are irrational in a systemic way.
Consider this true story. A class found an exam in which the average score was 72 points out of 100 ‘too tough’. The same set of students were delighted on scoring an average of 70% in a subsequent one. Why? Because the numerical average of the class scores was 96 points. The professor had purposely raised the perfect score to 137 points. This exam was tougher; the average score had dropped. Rationally, the students should have been unhappy. Instead, they were elated.
That professor is behavioural economist Richard Thaler, the winner of the Nobel Prize in Economics this year. He went on to show that even small departures from rationality have outsized impacts, and that limitedly rational humans don’t fit neatly into classical economics. So, he helped develop a new branch of economics, behavioural economics, to study the interplay of human quirks and economic forces.
Prof. Thaler’s work is famously applied in constructing choices. How a choice is framed tends to influence choosers’ behaviour. Choice architects can thus ‘nudge’ choosers in a direction. For instance, by making a pension plan the default option, while giving the choice to opt out, people can be ‘nudged’ towards saving for their retirement. Scores of people have been successfully enrolled into pension schemes by default this way.
Pushing people in the directions that the choice architects prefer is not nudging, though. The nudge philosophy is that the chosen option makes choosers better off as judged by themselves. Say the problem at hand is unhealthy eating habits, which lead to obesity. An extreme solution would be strictly-enforced bans and diktats on food that can be consumed and that which is prohibited. A less extreme public policy would be a sin tax on fat or sugar. Nudge-type policies, on the other hand, would tend to include things like displaying the healthier food options relatively more prominently. Or mandating calorie labels on sweets boxes.
Development policies become measurably more effective when combined with insights into human behaviour. A common refrain in India is that constructing toilets will not guarantee cleanliness and hygiene; Swachh Bharat will succeed truly if behaviours change. For which mindsets must change. In experiments conducted in some States, application of behavioural economics successfully changed the sanitation mindset. The World Bank has documented some of the pilots. One such study found that open defecation dropped 11% from very high levels after a community-led total sanitation programme was combined in a few chosen villages with the standard approach of subsidies for toilet construction and information on the transmission of diseases.
Since going out in the open is partly a social norm, the researchers tried to facilitate the building of a new social norm. A technique was used in which volunteers escorted the villagers out to the field where they put some food next to some human waste. The experiment involved watching the flies go back and forth. The villages were nudged into collectively rejecting open defecation by making a declaration in public. The point being that to reap the benefits of sanitation, everybody has to do it together. Behaviours changed measurably.
Another study involved puzzle-solving sessions. It helped understanding the effects of caste on classroom performance. Boys from backward classes were found to be just as good at solving puzzles as boys from the upper castes when the caste identities were not revealed. In mixed-caste groups, revealing each of the boys’ caste created a significant “caste gap” in achievements. The boys from backward classes underperformed by 23%.
The behaviour-informed approach to policy-making recognises that there are two systems of thinking. Thinking automatically and thinking analytically and deliberatively. Just as any tool can be used controversially, and in a way not intended by its creators, nudging is sometimes used for misshaping mindsets, behaviour or manipulation. Examples would include using stigma to deflect blame on to individuals, such as on social media, for systemic problems. The motivator in such cases encourages herd behaviour by making people think quickly. In such situations, it helps to get people to slow down their decision-making, make them think analytically.
An experiment from the U.S. is instructive. People were asked for their views on controversial topics, such as sanctions on Iran, in distinct ways. In the first approach, people were asked why they believed what they did. It immediately made them more argumentative and the polarisation increased. Then, when the same people were asked to explain how they thought the sanctions work, it made them think, and the polarisation and extreme views slowed down.
Puja Mehra is a Delhi-based journalist