Have You Been Nudged Today ?

Have you been nudged? (  Link ) from BBC.com)

<In probably the most well-known example, spillage around the toilet, an age-old problem for at least half of the human race was cut by -80% using an ingeniously simple 

intervention.>

The 2017 Nobel Prize in Economics was awarded to Professor Richard Thaler for his contributions to behavioural economics. Prof Thaler's work essentially questions the economic dogma of the so-called "rational man" as defined by classical economic theory, who makes decisions based on weighing the additional benefits against the additional costs of every single option.

Behavioural Economics is an area of work that studies how psychology broadens the scope of traditional economic theory. It offers insights in addressing some common issues as how we can nudge communities to participate and take responsibility using low-cost and simple interventions.

The assumption within the standard or mainstream economics, that individuals act to maximize their long-term best interest, have stable preferences and are consistent rational actors have served as a useful benchmark for predicting behaviour. This model of human behavior has influenced the design of the public policy. 

Behavioural economics research has pointed to the importance of market inefficiencies, framing, heuristics and hyperbolic discounting, hence our decision making was full of "biases " to some extent from time to time.

NUDGES

In understanding the ways where people were predictably irrational (a term coined by Duke University economist Dan Ariely), Prof Thaler saw the opportunity to influence people to make better choices by exploiting these behavioural biases. Such influences became popularly known as behavioural nudges after the publication of his influential 2008 book co-written with Harvard law professor Cass Sunstein, titled Nudge: Improving Decisions About Health, Wealth, And Happiness.

In short, a nudge is defined as any aspect of the choice architecture that alters people's behaviour in a predictable way without forbidding any options or significantly changing their economic incentives. An example would be using defaults and making the choice of opting out available. People will often stick with the default, even though the choice to opt-out is preserved. Since then, many governments have warmed to the idea of nudges and its potential as a cheap, effective and politically palatable instrument of intervention. Singapore will be no exception.

This is another very good book edited by Prof Donald Low on topics of Behavioral Economics and policymaker been using it to "tweak and nudge" communities in getting better results, in Singapore's context.

Behavioural Economics and Policy Design

Examples from Singapore

Edited by: Donald Low

Abstract

Policies are designed to be economically efficient even if they are not always popular. This pioneering book takes a different approach. It aims to demonstrate how successful policies in Singapore have integrated conventional economic principles with insights from the emerging field of behavioural economics even before the latter became popular. Using examples from various policy domains, it shows how good policy design often requires a synthesis of insights from economics and psychology. Policies should not only be compatible with economic incentives but should also be sensitive to the cognitive abilities, limitations and biases of citizens.

This book gives many examples of how the design of public policies in Singapore integrated classical economic principles with the emerging insights from behavioural economics. The synthesis of economic and psychological approaches exemplifies Singapore's purposeful experimentation and innovation in public policy. Decision-makers took a holistic perspective of how the policy would affect citizen behaviour and pragmatically incorporated behavioural insights even before they became popular. The results are more effective policies and better citizen outcomes.”

Professor Neo Boon Siong
Nanyang Business School, NTU

Few examples from the book on how policymaker used some simple tricks to “nudge” in order to get a better result.

Increasing Organ Donation Through Defaults:

“ …In Singapore’s context, the Human Organ Transplant Act  (HOTA) sets participation in organ donation as the default unless individual opt-out. This has helped raise our organ transplant rate tremendously.”

Anti-Smoking Measures

“…conventional economics does not explain why individuals engage in self-harming behaviours in the first place, the policy (using taxation) solution is not entirely satisfactory. In addition to imposing hefty tobacco duties, the government has pursued additional measures aimed at changing social norms and making smoking as an inconvenience as possible….designating smoking zone, limiting designated public spaces for smoking, requesting tobacco company to a graphic image on cigarette packs.”

image credit to ZME science.com

Ewwww ... Gross! But Pics On Cigarette Packs Are Effective (from www.scsh.org)

Increasing Energy Efficiency through Saliency and Social Norm

“…provides information in utility bills on household’s electricity consumption in relation to similar households ….the intent is to “nudge” the consumer who are consuming above the national average for their housing type towards reducing their energy use.”

You may find many more “nudges” from policymaker on issues related to CPF / COE/ ERP / Health Care as well as the choice of food to improve individual health decisions.

Enjoy reading !!

Ahh.. you may also like to read my previous blog post on “CPF and Behavioral Economics” (here )

How about investing? Can policymaker try to nudge us to be a better "investor" !! 

Cheers !!