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«Query: To what degree has behavioural economics and, in particular, the concept of 'nudging' been understood and used in development interventions to ...»

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Helpdesk Report: Use of Behavioural Economics in Development Interventions

Date: 9th February 2012

Query: To what degree has behavioural economics and, in particular, the concept of

'nudging' been understood and used in development interventions to improve human

development outcomes? How has the impact of these interventions been measured?

How far has behavioural economics, and particularly ‗nudging theory‘ been used in

development interventions? How has the impact of this approach been measured?

Content

1. Overview

2. What is nudging?

3. Key readings

4. To what extent has nudging been used? Case studies

5. Has/will it improved human development outcomes?

6. How has impact been measured?

7. Comments from specialists

8. Additional Information

1. Overview The concept of 'nudging' was first explained in Nudge: Improving Decisions about Health, Wealth and Happiness, a book by American academics Richard Thaler and Cass Sunstein. Nudge theory is based on a libertarian paternalist approach.

Libertarian paternalism contends that people should be free to do what they choose;

but that it is legitimate for people‘s behaviour to be influenced in a positive health direction. Key readings for those in the international development field include the book by Karlan and Appel, 2011 and the article by Bovens, 2010.

The ―nudge‖ has been taken on by some of the British policy elite, epitomised by the creation of the Cabinet Office‘s behavioural insights team (the so called nudge unit).

The reason for the political popularity of nudging is that it offers politicians a tool through which they can offer guidance, without enforcement, on individual behaviour change that is good for and, on reflection, preferred by, individuals themselves.

Nudging has been used in many contexts, primarily in the US and UK, although it has also been used in developing countries. The extent is has been used and case studies are presented in Section 4. Section 5 presents information on whether it has improved human development outcomes. One key criticism is that nudging focuses only on changing individual behaviours in isolation from the broader social, cultural and economic determinants of health and development. Rather than combating poverty and injustice, nudgers can only hope to compensate by nudging people more vigorously. Section 6 considers the impact of ‗nudging‘. Behavioural change interventions appear to work best when they're part of a package of regulation and fiscal measures. Public health policies should be based on the best available evidence. 'Nudge' contains some eye-catching ideas, but little progress will be made if public health policy is made largely on the basis of ideology and ill-defined notions that fail to deal with the range of barriers to healthy living. Other issues raised include the lack of a strong evidence base and the inherent contradiction in the nudge philosophy of ‗libertarian paternalism‘: free choice, so long as you make the one decided by authority

2. What is nudging?

The concept of 'nudging' was first explained in Nudge: Improving Decisions about Health, Wealth and Happiness, a book by American academics Richard Thaler and Cass Sunstein. They argue that most decisions people make are unconscious or irrational. Therefore their behaviour can be manipulated by changing the way that choices are presented to them. Governments should try to influence people's behaviour to make their lives healthier as long as this doesn't involve coercion or significant financial pressures. There is scope to use approaches that harness the latest techniques of behavioural science to do this – nudging people in the right direction rather than banning or restricting their choices. 'Nudges' may involve actions such as increasing the prominence of healthy food in canteens, requiring people to opt out of rather than into organ donor schemes or providing small incentives for people to act more healthily.

The nudgers or choice architects are trying to encourage individuals to enact beneficial behaviours but no compulsion is involved. Nudge theory is based on a libertarian paternalist approach. Libertarian paternalism contends that people should be free to do what they choose; but that it is legitimate for people‘s behaviour to be influenced in a positive health direction to make their lives longer, healthier and better (i.e. paternalism steering choices in ways that will improve their lives). This influencing process is performed by choice architects, these are individuals or groups who organise the context in which people make decisions, and whether they intend to do so or not, influence people‘s behaviour. This approach gives people a nudge and makes it easier for them to make healthy choices that will improve their lives, whilst acknowledging their freedom not to do so.

3. Key Readings Nudge: Improving decisions about health, wealth and happiness Thaler, R.H., and Sunstain, C.R., 2008 The concept of ‗nudging‘ was first described in this book by the US academics Richard Thaler and Cass Sunstein. They argue that most decisions people make are unconscious or irrational and governments should try to influence people's behaviour to make their lives healthier as long as this doesn't involve coercion or significant financial pressures.





The book includes a section dedicated to health, with chapters on prescription drugs, how to increase organ donation and saving the planet. It also includes theories about the way people think; describing the reflective and automatic system.

More than Good Intentions: How a New Economics is Helping to Solve Global Poverty Dean Karlan and Jacob Appel, Penguin, 2011 http://www.amazon.com/gp/product/052595189X/ref=as_li_tf_tl?ie=UTF8&tag=nudg elinkCode=as2&camp=1789&creative=9325&creativeASIN=052595189X#reader_ 052595189X This book is based around applying behavioral economics to problems in international development. The focus is on making small changes in areas like banking, insurance, and health care that can produce dramatic improvements in decision making and well-being.

Says Richard Thaler: ―Karlan is one of the most creative and prolific young economists in the world. His research lies at the intersection of two of the hottest areas in the field: behavioral economics and development microfinance… [His and Appel‘s book is] a good follow-up to Freakonomics, Predictably Irrational, and Nudge with a development and poverty spin.‖ White Paper on public health, 'Healthy Lives, Healthy People‟ http://www.dh.gov.uk/prod_consum_dh/groups/dh_digitalassets/documents/digitalas set/dh_127424.pdf This paper includes information on changing social norms and default options so that healthier choices are easier for people to make. It states that there is significant scope to use approaches that harness the latest techniques of behavioural science to do this – nudging people in the right direction rather than banning or significantly restricting their choices. It cites the new Public Health Responsibility Deal as a vehicle for this.

Judging nudging: can nudging improve population health?

Theresa M Marteau, David Ogilvie, Martin Roland, Marc Suhrcke, Michael P Kelly, BMJ, 25 January 2011;342:d228 http://www.bmj.com/content/342/bmj.d228 Nudging has captured the imagination of the public, researchers, and policy makers as a way of changing human behaviour, with both the UK and US governments embracing it. The prospect of being able to nudge populations into changing their behaviour has generated great interest among policymakers worldwide, including the UK government.

Most people value their health yet persist in behaving in ways that undermine it. This can reflect a deliberate act by individuals who happen at different moments in time to value other things in life more highly than their health. It can also reflect a nondeliberate act. This gap between values and behaviour can be understood by using a dual process model in which human behaviour is shaped by two systems.

The first is a reflective, goal oriented system driven by our values and intentions. It requires cognitive capacity or thinking space, which is limited. Many traditional approaches to health promotion depend on engaging this system. Often based on providing information, they are designed to alter beliefs and attitudes, motivate people with the prospect of future benefits, or help them develop self regulatory skills. At best, these approaches have been modestly effective in changing behaviour. The second is an automatic, affective system that requires little or no cognitive engagement, being driven by immediate feelings and triggered by our environments.

MINDSPACE: Influencing behaviour through public policy Hardistry and Weber, 2009 http://www.instituteforgovernment.org.uk/publications/2/ Influencing people‘s behaviour is nothing new to Government, which has often used tools such as legislation, regulation or taxation to achieve desired policy outcomes.

But many of the biggest policy challenges we are now facing – such as the increase in people with chronic health conditions – will only be resolved if we are successful in persuading people to change their behaviour, their lifestyles or their existing habits.

Fortunately, over the last decade, our understanding of influences on behaviour has increased significantly and this points the way to new approaches and new solutions.

Governments often aims to change or shape behaviours. This can be done using ‗hard‘ instruments e.g. legislation which is often costly and inappropriate or using incentives aimed at changing behaviour by ‗changing minds‘. The idea behind this is that people weigh up the costs and benefits. However, often people don‘t make rational decisions. It is better to change the context and shape policy around inbuilt responses to the world. The report lists nine non-coercive influences on behaviour.

Nudge type policy requires careful handling and the public need to give permission and help shape the tools used. Behaviour change is often seen as the government intruding into personal responsibility. However, they can supply the trigger to support people to make good decisions. New insights into behaviour change have improved policy outcomes at a lower cost if they are used alongside conventional policy tools.

It is important to consider who is affected, what behaviour is intended and how change is accomplished.

Nudges and Cultural Variance: a Note on Selinger and Whyte Bovens,L.(2010) Knowledge, Technology & Policy, pp. 1-4. Article in Press.

http://www.scopus.com/record/display.url?eid=2-s2.0origin=reflist&sort=plf-f&cite=2-s2.0src=s&imp=t&sid=kbJ1nNoRXSzTEa_bRN6NFOt%3a160&sot=cite& sdt=a&sl=0 Selinger and Whyte argue that Thaler and Sunstein are insufficiently sensitive to cultural variance in Nudge. I construct a taxonomy of the various roles that cultural variance may play in nudges. First, biases that are exploited in nudging may interact with features that are culturally specific. Second, cultures may be more or less susceptible to certain biases. Third, cultures may resolve conflicting biases in different ways. And finally, nudge may be enlisted for different aims in different cultures.

Different cultures are subject to perceptual, cognitive and behavioural biases to different degrees.

Perceptual biases tend to be relatively resistant to cultural variance. I think that one would be hard-pressed to find cultures in which people were not subject to such perceptual biases. However, even such biases are not ubiquitous—cultural variance was found in many of the standard visual illusions (e.g. the Müller-Lyer Illusion) with non-Western cultures being less susceptible to some such illusions (Segall et al.

1966, p. 99–214).

Let us turn to an example of a cognitive bias. In Festinger‘s classical cognitive dissonance experiments (1957), subjects were asked about their attitudes (say, about certain moral issues). Subsequently, they were instructed to prepare and deliver a speech that ran counter to their attitudes. Some were paid smaller amounts and some were paid larger amounts for participating in the experiment. Finally, all were asked once again about where they stood on the issue after having delivered their speeches. It turned out that the ones who were paid less had changed their attitudes to a greater degree than those who were paid more. For the former, the small payment was not enough of a reason why they had engaged in a counterattitudinal speech—so they fabricated one, viz. these were simply the attitudes that they actually held. The latter did not need to change their attitudes—the large payment was a sufficient reason for them to hold a counter-attitudinal speech. There is an extensive literature on the degree to which the intensity of this phenomenon is subject to cultural variation. In cultures in which attitudes are less defining of one‘s self-identity (e.g. in Eastern cultures), counter attitudinal behaviour generates less dissonance and the phenomenon is less pronounced. For an overview and discussion of the literature, see Gawronski et al. (2008).

Behavioural biases are also prone to cultural variance. I was once told the following story to illustrate the difference between the English and the Irish. Suppose that an Englishman and an Irishman go to the races and win 1K in their respective currencies. Subsequently, they invest their gains into a new bet and they lose. Then the Englishman is depressed because he lost 1K where the Irishman is indifferent because he neither gained nor lost anything. The suggestion is that the Irish are less subject to the endowment effect than the English.

Resolving Conflicting Biases Biases can conflict with one another, and there may be cultural variance in how a balance is struck. The clearest such cases involve conflicting behavioural biases.

People are drawn in by desires for conformity as well as anti-conformity—i.e. the desire to stand out (Elster 1983, p. 23, 40, 67). Now, some cultures may stress the former at the expense of the latter and vice versa. The social advertisement pronouncing that a large percentage of people have chosen to be an organ donor (T&S, p. 180–2) may completely backfire in cultures that value non-conformity. And furthermore some cultures value conformity or anti-conformity within radically different contexts. In such matters, effective nudging will require a keen awareness of the culture in question.



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