Some of the chief unifying ingredients in the process of Cognitive Progression of Homo Sapiens was their belief in cultural traditions, social doctrines and religious gospels. Social Norms—as they are today—derived out as offshoots from these dogmas of faith. Since time immemorial, societal norms have swayed the policies and decisions of the administrative authorities. These societal norms embrace both sacrosanct religious standards that we pursue as per our preference as well as those precepts and laws to which we have come to terms with, perhaps—unintentionally. The behaviour of Homo Sapiens, whether rational or irrational, is considerably dictated by these norms.
Most contemporary economic principles are based on the underlying premise that decision-makers are rational beings. But, in the last few decades, this presumption has come beneath blistering criticism. This premise has, inherently, caused economics to bargain with ideal calculative creatures; renowned behavioural economist Richard Thaler prefers to describe these calculative creatures as “Econs” in juxtaposition to “humans” i.e beings afflicted by cognitive delusions and biases, yet accountable for majority economic judgments. According to Thaler, “The IQ of Homo Economicus became bounded only by the IQ of the smartest economic theorist.” Behavioural Economists argue that many aspects of the standard Homo Economicus model are useful as theoretical special cases, much as perfect competition is used today. They believe that most rational choice models have been ineffective in capturing human behaviour, and since the public policy, directly or indirectly, has business with humans, such paradigms have failed to render practical policy prescriptions. Insights from behavioural economics, therefore, can be extensively relevant in intensifying the outcomes of public policies.
The relevance of behaviour can be corroborated through an event that largely impacted the financial state of the entire world—The Global Financial Crisis of 2008. While experts have various factors to blame, behavioural economists, especially Thaler and Sunstein delineate the crisis using certain characteristics inherent to humans. They attribute the financial crisis to majorly three factors: Bounded Rationality, Self Control and Social influences. Another famous financial economist, Robert J. Shiller has ascribed the social contagion of optimism with the rise in home prices to the crisis, thereby giving it a psychological character.
Thaler and Sunstein, in their publication ‘Nudge,’ set forth valuable perspicacity as to how aspects of behaviour can be manipulated to benefit policies. They have promulgated the role of ‘nudges’ i.e meddling through choice architecture in order to alter people’s responses in an intended manner. Several aspects of human behaviour, including loss aversion, collective conservatism, pluralistic ignorance, priming and spotlight effect etc. can be efficiently appropriated to devise policies. Another remarkably vital aspect of behaviour studied extensively by Daniel Kahneman and Amos Tversky, is the role of ‘heuristics and biases’.
One of the most influential biases is the ‘status quo’ bias; it spells out our tenor to adhere to the default preferences. It recounts that people may be driven to discern the status quo, even if unfair, as the most desirable and sought after state of affairs—that is, as the most appropriate, reasonable, and usually emblematic of the way things should be. Many social norms are considered to be having pious intrinsic values and thus have the status quo bias. One such example is the norms and stigmas associated with women empowerment. For instance, Sati was deemed as a legitimate ritual until 1829 when ultimately the barriers of the status quo were shattered and a more modernistic and edifice structure was put in a position which subsequently became the succeeding status quo. Even now, not as draconian, but biases nevertheless prevail primarily with respect to gender equality, castes, dowry and other similar social norms.
However, because people associate legitimacy to these values, often the government pursues an ascending methodology of inducing changes i.e commencing from minor nudges. A four-step method for using nudges was discussed in the Economic Survey of India (2018-19).
The tendency of people to cling to defaults has become a widely used postulate in the policymaking arena. For instance, in the US pension policy scheme, the default in a savings plan was non-enrollment, thus, most people did not enlist even when they desired to. In these circumstances, the default option was changed. Forthwith, instead of requiring employees to check a box for enlisting in the savings plan, they were asked to check the box if they do not want to enrol in it. After such an intervention, the enrolment increased savings automatically by up to 40 per cent (Beshears et. al, 2005). Recognizing these principles of behavioural economics, consequently, can bridge the chasm separating people’s preferences and the judgments they make, and can henceforth facilitate informed policymaking.
Beti Bachao Beti Padhao policy is yet another precedent; the government tried to supplant the status quo to install the social norm of ‘girls are important’. The policy also attempted to confront the ‘failure bias’ (Baumeister and Bratslavsky, 2001). The failure bias is the bent to concentrate on failures rather than successes, principally because failures are more sweepingly discernible. Hence, in the settings of this policy, the locus was quartered on people who treat their girls justly which admonishes the failure bias and proffers the norm of fair treatment of girls.
Behavioural economics is, however, not a universal remedy to policymaking; its faculty needs to be put into a panorama. For example, a policy that simply pushes people to abstain from assaulting others will falter, such policies should assert strict decree or, at least, a stronger pressure than a mere nudge. Thus, in such cases, the policies may include nudges, but they should not entirely rely on it. Majority of public policy issues are amenable to fusing nudges and thus the focal point of such policies can be the enforcement while the peripheral vision can be the nudging techniques.
The structure of Behavioral Economics lounges on the base that the behaviour of humans is dynamic, vibrant and evolving. For instance, some religions had reservations for insurances, even spouses originally deemed that they were seemingly venturing on their husband’s death. Insurance companies, thus, resolved to change this behaviour by prefacing a new nudge strategy. They hired “common men” as their salespersons which totally transformed their game. Likewise, even in the case of Swach Bharat Abhiyan, Swachhagrahis were hired which too sought to induce a change in behaviour. The notion of evolving behaviour, hence, gives origin to the requirement for evolving policies. As the behaviour of communities would vary with time, future management will have to become more inclusive. Policies in future will require to take into account these novelties—and at times nudge these responses—for the overall benefit. Ergo, policies will survive only if they too are evolving and vibrant, just like humans, as asserted in the Darwinian doctrine of the survival of the fittest.
Most contemporary economic principles are based on the underlying premise that decision-makers are rational beings. But, in the last few decades, this presumption has come beneath blistering criticism. This premise has, inherently, caused economics to bargain with ideal calculative creatures; renowned behavioural economist Richard Thaler prefers to describe these calculative creatures as “Econs” in juxtaposition to “humans” i.e beings afflicted by cognitive delusions and biases, yet accountable for majority economic judgments. According to Thaler, “The IQ of Homo Economicus became bounded only by the IQ of the smartest economic theorist.” Behavioural Economists argue that many aspects of the standard Homo Economicus model are useful as theoretical special cases, much as perfect competition is used today. They believe that most rational choice models have been ineffective in capturing human behaviour, and since the public policy, directly or indirectly, has business with humans, such paradigms have failed to render practical policy prescriptions. Insights from behavioural economics, therefore, can be extensively relevant in intensifying the outcomes of public policies.
The relevance of behaviour can be corroborated through an event that largely impacted the financial state of the entire world—The Global Financial Crisis of 2008. While experts have various factors to blame, behavioural economists, especially Thaler and Sunstein delineate the crisis using certain characteristics inherent to humans. They attribute the financial crisis to majorly three factors: Bounded Rationality, Self Control and Social influences. Another famous financial economist, Robert J. Shiller has ascribed the social contagion of optimism with the rise in home prices to the crisis, thereby giving it a psychological character.
Thaler and Sunstein, in their publication ‘Nudge,’ set forth valuable perspicacity as to how aspects of behaviour can be manipulated to benefit policies. They have promulgated the role of ‘nudges’ i.e meddling through choice architecture in order to alter people’s responses in an intended manner. Several aspects of human behaviour, including loss aversion, collective conservatism, pluralistic ignorance, priming and spotlight effect etc. can be efficiently appropriated to devise policies. Another remarkably vital aspect of behaviour studied extensively by Daniel Kahneman and Amos Tversky, is the role of ‘heuristics and biases’.
One of the most influential biases is the ‘status quo’ bias; it spells out our tenor to adhere to the default preferences. It recounts that people may be driven to discern the status quo, even if unfair, as the most desirable and sought after state of affairs—that is, as the most appropriate, reasonable, and usually emblematic of the way things should be. Many social norms are considered to be having pious intrinsic values and thus have the status quo bias. One such example is the norms and stigmas associated with women empowerment. For instance, Sati was deemed as a legitimate ritual until 1829 when ultimately the barriers of the status quo were shattered and a more modernistic and edifice structure was put in a position which subsequently became the succeeding status quo. Even now, not as draconian, but biases nevertheless prevail primarily with respect to gender equality, castes, dowry and other similar social norms.
However, because people associate legitimacy to these values, often the government pursues an ascending methodology of inducing changes i.e commencing from minor nudges. A four-step method for using nudges was discussed in the Economic Survey of India (2018-19).
The tendency of people to cling to defaults has become a widely used postulate in the policymaking arena. For instance, in the US pension policy scheme, the default in a savings plan was non-enrollment, thus, most people did not enlist even when they desired to. In these circumstances, the default option was changed. Forthwith, instead of requiring employees to check a box for enlisting in the savings plan, they were asked to check the box if they do not want to enrol in it. After such an intervention, the enrolment increased savings automatically by up to 40 per cent (Beshears et. al, 2005). Recognizing these principles of behavioural economics, consequently, can bridge the chasm separating people’s preferences and the judgments they make, and can henceforth facilitate informed policymaking.
Beti Bachao Beti Padhao policy is yet another precedent; the government tried to supplant the status quo to install the social norm of ‘girls are important’. The policy also attempted to confront the ‘failure bias’ (Baumeister and Bratslavsky, 2001). The failure bias is the bent to concentrate on failures rather than successes, principally because failures are more sweepingly discernible. Hence, in the settings of this policy, the locus was quartered on people who treat their girls justly which admonishes the failure bias and proffers the norm of fair treatment of girls.
Behavioural economics is, however, not a universal remedy to policymaking; its faculty needs to be put into a panorama. For example, a policy that simply pushes people to abstain from assaulting others will falter, such policies should assert strict decree or, at least, a stronger pressure than a mere nudge. Thus, in such cases, the policies may include nudges, but they should not entirely rely on it. Majority of public policy issues are amenable to fusing nudges and thus the focal point of such policies can be the enforcement while the peripheral vision can be the nudging techniques.
The structure of Behavioral Economics lounges on the base that the behaviour of humans is dynamic, vibrant and evolving. For instance, some religions had reservations for insurances, even spouses originally deemed that they were seemingly venturing on their husband’s death. Insurance companies, thus, resolved to change this behaviour by prefacing a new nudge strategy. They hired “common men” as their salespersons which totally transformed their game. Likewise, even in the case of Swach Bharat Abhiyan, Swachhagrahis were hired which too sought to induce a change in behaviour. The notion of evolving behaviour, hence, gives origin to the requirement for evolving policies. As the behaviour of communities would vary with time, future management will have to become more inclusive. Policies in future will require to take into account these novelties—and at times nudge these responses—for the overall benefit. Ergo, policies will survive only if they too are evolving and vibrant, just like humans, as asserted in the Darwinian doctrine of the survival of the fittest.
By Amogh Sangewar and Garvit Goswami 2nd Year Undergraduate Students, SRCC