Making reforms through behavioural economics

Application of nudges, and providing incentives and behaviours

Traditional policy-making has its limitations given human unpredictability.

Usual policy-making does not always prove successful, given the inconsistency of human behaviour. Traditional policy-making assumes that people make rational decisions that provide them with the most significant benefit and satisfaction. In economics, the sensible choice theory states that when individuals are presented with multiple options, they will choose the option that maximises their satisfaction by effectively analysing the costs and benefits of each option available. Behavioural science explores the cognitive processes that govern human thinking and can be used to develop policy tools influencing citizen incentives and behaviours, including abiding by rules and regulations.

Two economic approaches can be used to influence the behaviours: Application of Nudges & Providing incentives & rewards.

Governments and companies have widely used the theory of nudging to influence the behaviour of citizens and employees. These occur via a choice architecture that predictably alters people’s behaviour without forbidding any options or significantly changing their economic incentives. Common nudges include communicating messages, reminders, and warnings toward a specific direction and increasing the ease and convenience of certain choices. For example, in Guatemala, the government sent tax reminders to citizens saying that 64.5% of their fellow citizens had declared their income tax on time. This action led to a 43% increase in payments in 11 days. Similarly, National Grid, the electric utility provider in New York, sends Home Energy Report comparing household energy consumption with the neighbours.

Whiteshield suggests a 5-step framework for designing a reward program.

Whiteshield has focused on the second technique for influencing behaviour: designing a country-wide framework for rewarding citizens for completing daily activities considered positive by the government, with the ultimate goal of affecting the citizens’ sub-conscious behaviour in the long run.

  1. Principle alignment: Every country has a different judgment of what is deemed “good.” Hence, it becomes imperative to establish what these “good” principles should be across various government entities. The principles should be based not only on national agendas but also on global priorities. Interviews with ministries and other government entities ensure the alignment of these principles. Whiteshield suggests that the program should always be focused on positive rewards than punishment to citizens.
  2. Behaviour selection & measurement: This step begins by identifying the country’s priorities and challenges that need to be addressed and placing the behaviours that economic actors should exhibit to support the priorities and counter the challenges. The behaviours are chosen based on their importance, the time required to implement the behavioural change, and the cost. These behaviours could then be tracked continuously (e.g. the number of steps taken per day) or on a one-off basis (e.g. one-time events or challenge-based actions) by using multiple tools such as IoT. A thorough assessment of behaviours and measurement techniques will help finalise the selection of behaviours based on their impact on the national indicators, the ability to track them, and the ease of their implementation in society. This could be done by conducting surveys and interviews with government entities, the private sector, and other economic actors.
  3. Rewards selection: Rewards should be both tangible and intangible and should be provided by both the public and the private sectors. Reward assessment should be based on the perceived value of the rewards by the population, the ease of operational integration with existing government platforms, and the financial impact. Some rewards could include discounts on traffic fines, “citizen of the year” awards, and extra air miles. However, carefully considering financial rewards allocation could be in digital currency, cryptocurrency, or any other currency based on the country’s financial policy.
  4. Governance and operational features: Once behaviours and rewards are selected, setting a governance model is essential for the continuous enhancement, maintenance, and monitoring of the reward programme. One appointed government entity should oversee the operations and coordinate with other stakeholders. This governance model ensures a single point of contact and clear accountability. This reward programme could be implemented in one platform that could take the form of a mobile application and act as a dashboard for tracking and rewarding citizens.
  5. Monitoring and after assessment: Once the programme is launched, it is essential to set up a monitoring framework to assess its impact. Tracking KPIs and opinion surveys are a few of the possible techniques for the evaluation of the programme. The platform can be continuously updated based on the feedback for better involvement.

Governments need to implement behaviour programs carefully, considering the risks involved.

China’s social credit system focuses on penalising citizens and has received a lot of criticism worldwide. Monitoring citizen behaviour continuously threatens citizens’ privacy, which might make them disinterested, eventually opting out of the program. Hence, the governance and communication around the program should always focus on rewarding citizens and not punishing them.

Some key learnings for policy-makers

Policy-makers need to consider certain aspects in mind for making policies complementing behaviour economics:

  • Policies should be designed with a behavioural science aspect considering human unpredictability.
  • Reward programs should be focused on positives and rewarding people instead of punishing them.
  • Policy-makers can utilise PPP and technology used for behaviour monitoring. Whiteshield has developed multiple online platforms to identify economic activities and utilised IoT-based systems for activity tracking.

The long-term behavioural change of citizens is a lengthy process. It requires continuous government intervention to achieve desired results and impact on National KPIs (e.g. family cohesion, health, reduced obesity and smoking, better law-abiding). A reward program’s successful implementation could change citizens’ lives through positive behavioural incentives.

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