State agencies ‘nudge’ good citizenry
THE US federal government found a clever way to make a little extra money last year. Some vendors who provide federal agencies with goods and services ranging from paper clips to translators were given a slightly different version of the form used to report rebates they owe the government.
The only difference: the signature box was at the beginning of the form rather than the end. The result: a rash of honesty.
Companies using the new form acknowledged that they owed an extra $1.59m in rebates during the three-month experiment, apparently because promising to be truthful at the outset caused them to be more honest.
The tweaked form is among the early successes of a yearold effort by the Obama administration to apply academic research on human behaviour to the business of running a government. The idea is that a little science might help the government collect taxes, distribute benefit payments and even help people find jobs, get an education or save for retirement.
Last month, the White House announced the creation of a social and behavioural sciences team to lead this push, and US President Barack Obama issued an executive order encouraging agencies to conduct experiments.
“The goal is to help people who want to take a given step but may face some barriers,” says Maya Shankar, the Oxford-educated scientist who leads the team. “You can do everything to make sure that a programme is well designed, but if it’s not getting into the hands of people who are supposed to be benefiting from it, everything up to that point was for naught.”
Governments generally operate on the assumption that people are rational. One of the basic implications of mainstream economic theory is that public policy works best when people are treated as rational decision makers.
Yet a growing body of research has found that people are not irrational only on occasion, but they tend to be irrational in some consistent and predictable ways. People tend to be influenced by the last thing they heard. They tend to fear losses more than they like profits. They tend to be a little lazy.
AND researchers from this new school argue that governments should account for these tendencies.
“Almost any domain that they let us go in, we could figure out some way of making at least modest improvements in what they’re doing,” says University of Chicago economist Richard Thaler, a founder of behavioural economics and advocate of governments making use of what he calls “nudges”.
Shankar and her team of 15 — including psychologists, economists and sociologists — conducted about a dozen experiments during the past year to prove the value of the approach, but so far, the successes remain small. The rebate forms, for example, increased revenue by about 6%.
Moreover, nudges are hard to mass produce.
The British government, which created a “nudge unit” in 2010, found it could increase collections from delinquent taxpayers by telling them nine in 10 neighbours had paid up, a common marketing technique. But when the US Treasury Department tried this last year, it did not work.
Changing behaviour is tricky. The most important change behavioural economics has made in US federal policy is a 2006 law that made it easier for companies to enrol workers in retirement plans by default. The change has increased participation, but it also may have reduced the amounts some people have saved. People enrolled by default also tend to stick with the default savings rate, often lower than the average for people who sign up themselves.
“Is the government really competent to determine the directions in which we should be nudged?” asks John Cochrane, a Stanford University economist.
Cochrane says the administration’s experiments so far seem basically harmless — “government spam, messaging people to tell them to do X or Y or Z”. He is troubled by the possibility of more forceful nudges by technocrats influenced by lobbyists or other political considerations.
“The case for the free market is not that each individual’s choices are perfect,” he wrote in a blog. “The case for the free market is long and sorry experience that government bureaucracies are pretty awful at making choices for people.”
BEHAVIOURAL scientists have won the attention of policy makers partly by proffering improvements at little cost. Nudges are cheap. The idea that tweaking a taxcollection letter might bring in as much money as hiring tax collectors is deeply appealing in an era of austerity.
“I think we can achieve a real increase in wellbeing, in happiness, in a stronger society without necessarily having to spend a whole lot more money,” David Cameron, the British prime minister who created the first “nudge unit”, said during his 2010 campaign.
The British team found people who had not registered vehicles were more likely to do so if they were sent a picture of the car beside the standard warning it could be taken away.
Public servants in Britain are being trained in behavioural science, and Australia, Denmark and SA are dabbling in nudgery. The World Bank is mulling the lessons for economic development.
Shankar’s team asks federal agencies about their priorities, then mines academic literature for ways to improve policies. The team has a network of academic institutions to provide advice. The tweaked rebate forms were inspired by a 2012 study.
The persistence of these effects is an open question. The first time a person signs, they answer the questions more honestly, but by the 10th time, the nudge might be powerless.
Shankar says there had been “a little dip” in rebate payments since last year, but the effect remains quite strong. Thaler notes that alarm clocks wake people up every morning.
Perhaps even more than new ideas, the behavioural group is bringing a new approach to government. Experimentation is the key. Different nudges are tried systematically, results are quantified and, even after the best approach is selected, the team goes back to see how things are working.
These efforts are informed by common sense as much as academic insight. People are more likely to do things that are easier to do. Yet simplicity has rarely been a priority in the development of federal programmes.
“They’ve been more worried about making sure it’s legally perfect than making sure it’s understandable to anybody,” Thaler says. “So there’s a lot of room to simplify things.” New York Times
The case for the free market is sorry experience that bureaucracies are pretty awful at making choices for people