Why ‘behavioural economics’ could be a blessing for taxpayer
WE HUMANS are a flawed and funny lot. We are selfish and narcissistic, as well as kind and caring. We may be the smartest species on the planet, and possibly the universe, but we can be pretty dumb at times. By not thinking things through, or by acting impulsively, we can be our own worst enemies.
Despite all this, the seven billion people on the planet are getting better at rubbing along. There are fewer wars, more democracies and more prosperity than ever before.
The blizzard of bad news the media tends to focus on should not distract from the fact that by almost every measure – from health to education, from violence to famine – the world is improving.
One reason for this is because we, uniquely among the planet’s species, learn fast. We are constantly discovering new things about how the world works. That includes the physical laws that underpin the natural world, such as the weather and the oceans, as well as about our own quirky selves.
This is challenging enough. Even harder is learning about the complicated webs we weave.
While the dynamics that drive weather patterns and human behaviour don’t change, the dynamics behind human constructs – such as markets and societies – are changing all the time, and they are becoming ever more complex. This makes understanding them a moving target.
This has many implications for people and actors in societies. It is particularly relevant to governments and the many decisions they make which affect us all.
Yesterday a pair of policy wonks at a research centre in Dublin had some very interesting things to say about these matters. Pete Lunn and Deirdre Robertson work in the new and fast-advancing “behavioural economics” branch of the dismal discipline.
It brings new insights into human behaviour being unearthed by psychologists together with economists’ ever more detailed understanding of complex markets, including how companies design and market their mobile phone packages and how consumers make financial decisions on mortgages, pensions and the like.
Learnings from behavioural economics have led to simple but effective innovations, such as automated and carefully worded texts to patients reminding them of their hospital appointments which subtly play on feelings of letting others down if they don’t show up.
Setting up such a system and sending these texts can cost very little but result in a big reduction in the number of missed appointments, something that leads to better health outcomes for patients and less wasted resources in hospitals.
In Ireland, the Revenue Commissioners is just one of a number of government agencies that has built up its own behavioural economics teams. Its handiwork is to be seen in how the taxman corresponds with taxpayers.
One example is the personalising of letters even when this means just adding a Joe Bloggs name at the bottom of the correspondence. Because humans react more to other humans than they do to letters that appear to have come from a computer program, they tend to be more tax compliant when a name and signature is included.
Another thing the taxman has tried is a form of peer pressure. His letters sometimes mention that most of your fellow taxpayers are paying on time. This is a play on people’s tendency to want to do as most others do, and it has worked in other countries.
Interestingly, studies in Ireland have shown that it appears to have made people here less compliant! If corroborated by further research, it might be the best hard evidence to date to show we are a nation of maverick individualists who don’t give a fig for what others think.
“The history of public policy development is littered with expensive mistakes,” Lunn and Robertson write in their research paper* published yesterday.
SCHOLARS in their field, along with most observers of politics, know that very often politicians feel pressured to be seen to be doing something in response to a problem, real or perceived.
Under fire, they then make decisions on the hoof, often with little evidence to show the measures they plump for will make matters better. Sometimes a lot of taxpayers’ hard-earned money is involved.
The pair make a number of worthwhile suggestions on how politicians can do less harm, more good and possibly save taxpayers a packet while they’re at it.
Their study discussed designing ways of testing new policies before they are legislated for and before cash is spent on them. One way of doing this is to gather a random group of people to trial things, such as new kinds of smart electricity meters.
If their energy usage falls compared to the rest of the population, it may be worth insisting that all households and business use the higher tech meter.
Another way of testing the policy waters is to bring people into labs to measure the effectiveness of, for instance, graphic photos on cigarette packages of real people suffering illnesses (this is done by tracking eye movements to see how much time is spent looking at the images on the packs compared to other packs with written warnings only).
The whole area of behavioural economics in its infancy. But it offers hope for more effective public services delivery, better regulation of providers who are too clever by half in ripping off consumers and much else besides.
It really has the potential to make the world a better place in many small steps. You will be hearing lots more about it in the years to come.
Carefully worded texts to patients reminding them of their hospital appointments subtly play on feelings of letting others down if they don’t show up