BEHAVIOURAL ECONOMICS IN POLICY MAKING · behavioural economics and 3 Nobel prizes The psychology of judgment and decision-making, heuristics and biases Daniel Kahneman 2002 The concept

BEHAVIOURAL ECONOMICS IN POLICY MAKING

PROFESSOR IVO VLAEV WARWICK BUSINESS SCHOOL

UNIVERSITY OF WARWICK

This brief talk will cover…

- The rise of behavioural economics

- Examples of policy interventions




Many ways to change behaviour...

What we have learned in over 50 years of research in behavioural economics and 3 Nobel prizes

The psychology of judgment and decision-

making, heuristics and biasesDaniel Kahneman

2002

The concept of behavioural decision-

making, bounded rationality,Herbert Simon

1978

Incorporating psychology into economic

decision-making and nudge theory

Richard Thaler 2017

Consider the environment

It turns out that the

environmental effects

on behavior are a lot stronger

than most people expect

Daniel Kahneman

Nobel Laureate

“

”

REPETITION

Automatic & quickNo voluntary control

Effortless

DECISIONInformation

presentation

Recognised

Not

Recognised

ReflectiveRequires our attention

Effortful

SYSTEM 1

THINKINGPROCESSES

‘FAST’

SYSTEM 2

THINKINGPROCESSES

‘SLOW’

21

Affect heuristic

Bandwagon effect

Default bias

Impact bias

Loss aversion bias

Optimism bias

Order effects

Relative risk bias

The tendency

to prefer

avoiding losses

than acquiring

gains

OVERRIDE

Two types of thinkingAn interactive division of labor

Public Heath England - Behavioural Insights Masterclass

‘Behavioural Insights’

Consider the environment / situation

Cass Sunstein

Professor of Law, Harvard

Regulatory Czar, Obama Administration

Richard Thaler

Professor of Economics, University of Chicago

Behavioural Insight Team, UK Cabinet Office

Consider this...

Schiphol Airport,Amsterdam80% decline in ‘spillage’

And this...

Lake Shore DriveChicago36% fewer crashes

GSR Behaviour Change Knowledge Review

Reference Report: An overview of behaviour change models and their uses Andrew Darnton, Centre for Sustainable Development, University of Westminster July 2008

Despite a plethora of reports, they fail

in a large part to provide an operating framework for

practitioners to use

Anatomy of System 1

MessengerIncentivesNormsDefaultsSaliencyPrimingAffectCommitmentEgo

MINDSPACE motivating behaviour in automatic ways

Messenger

We are heavily influenced by who communicates information to us

Incentives

Our responses to incentives are shaped by predictable mental shortcuts e.g. strongly avoiding losses

Norms

We are strongly influenced by what others do

Defaults

We go with the flow of pre-set options

Salience

Our attention is drawn to what is novel and what seems relevant to us

Primes

Our acts are often influenced by subconscious cues

Affect

Our emotional associations can powerfully shape our actions

Commitment

We seek to be consistent with our public promises, and reciprocate acts

Ego

We act in ways that

make us feel better

about ourselves




Control Country Postcode Town

% compliance to 3 messages:

“9 out of 10 people in your … pay their tax on time”

Norms

We are strongly influenced by what others do

67.5




67.572.5

79.083.0




MINDSPACE and debt collection

SMS messages sent to customers

Basic message

You received a court summons for council tax. You don’t need to attend court if you make payment or call 08456066683

Norms - Local

You received court summons for council tax. 9 of 10 people in your area pay on time. You don’t need to attend court if you make payment or call 08456066683

Ego – Act is framed as commission rather than omission

You received court summons for council tax. We had treated your lack of payment as an oversight. If you don’t call 08456066683 we'll take it as an active choice

Affect – Monitoring

You received court summons for council tax. We will check how long it takes you to pay. You don’t need to attend court if you make payment or call 08456066683

Incentives – Interest

You received court summons for council tax. Your debt will increase if unpaid. You don’t need to attend court if you make payment or call 08456066683

MINDSPACE and debt collection

7%

10%

14%13%

11%13%

0%

5%

10%

15%

No Text Text 1 Text 2 Text 3 Text 4 Text 5

Customers who made payment within 3 days of SMS Scalable to all instances of

increasing payment :

• Parking

• Penalty notices

• Social care debt

• Business rents

Ego Norms Affect IncentivesBasic

Ego Norms Affect IncentivesBasic

The “rainy day” image prompted customers to put money aside in this account, and they were reluctant to spend it

(mental accounting and loss aversion)

Salience

Our attention is drawn to what is novel and what seems relevant to us

Overall, how helpful have you found using the Budgeting tool?

88% helpful

Affect


Amount

suggested in

email

Average

repayment

increase

among those

who

responded

£10 138%

£15 159%

£25 214%

Primes

Our acts are often influenced by subconscious cues

MINDSPACE and organ donation

1 Control 2 Norm

3 Norm + Pic 4 Norm + Logo



Salience - Costs Salience - Benefits

Ego Commitment


EgoCommitment Salience Benefit

Salience Cost

MINDSPACE reducingmissed hospital appointments

Condition Message

ControlAppt at [hospital] on [Sep 16] at [10:00am]. To cancel or

rearrange call the number on your appointment letter.

SalienceAppt at [hospital] on [Sep 16] at [10:00am]. To cancel or

rearrange call 020 7767 3200.

Norm

We are expecting you at [hospital] on [Sep 16] at [10:00am]. 9

out of 10 people attend. Please call 02077673200 if you

need to cancel or rearrange.

Ego

We are expecting you at [hospital] on [Sep 16] at [10:00am].

Not attending costs NHS £160 approx. Call 02077673200 if

you need to cancel or rearrange.

MINDSPACE reducingmissed hospital appointments

0

5

10

15

Control Number Norms Costs

DN

A R

AT

E

Message

3.4%1,300 fewer DNAs if

applied to all viable

appointments over

whole trial period

8,000 fewer if

applied over one

year in same

location

320,000 fewer if

applied nationwide= £51.2M

EgoSalienceControl

Increasing uptake of NHS Health Checks

Looking for risk factors associated with related NCDs:

• Diabetes

• Cardiovascular Disease (heart attack and stroke)

• Kidney Disease

• Dementia

Control Treatment

NHS Health Check

You will receive a letter about your NHS Health Check.

Your NHS Health Check is due tomorrow at 13.30.

vs. +

Salience – SMS prompting individuals to attend

Behavioural insights

Your NHS Health Check is due tomorrow.

Salience – the letter was simplified

Incentives – the Check is a time limited opportunity

Messenger – From the individual’s General Practitioner

Commitment – The tear off slip prompts making an appointment

Priming – SMS alerting to the Health Check

You will receive a letter about your NHS Health Check.

NHS Health Check: Results

18%

30%

0%

5%

10%

15%

20%

25%

30%

35%

Standard letter and no

texts

Revised letter and

primer and prompt

messages

Percentage uptake

The power of cute

Affect


MessengerIncentivesNormsDefaultsSaliencyPrimingAffectCommitmentEgo

Documents

BEHAVIOURAL ECONOMICS IN POLICY MAKING · behavioural economics and 3 Nobel prizes The psychology of judgment and decision-making, heuristics and biases Daniel Kahneman 2002 The concept