Why, when you saunter into a retail outlet, is everything priced Rs 199, Rs 599 or Rs 1299? It certainly cannot be a coincidence if it is so ubiquitous, especially at apparel stores. That’s because for decades, marketers have utilized psychological pricing to woo customers giving them the impression that products prices are in the lower range.
Indeed each of us in search of a good deal has unwittingly fallen in their trap. Even though such behavioral insights have been used in the field of advertising for some time, we may not be exactly aware of these ‘nudges’ that subconsciously motivate our choices. It is evident that retailers have used this strategy to successfully promote sales.
In a similar way, can such behavioral nudges be incorporated to ensure successful public policies? The recent news that the NITI Aayog, the central government think tank, is setting up a behavioral economics unit (or a ‘nudge’ unit) is welcome. We will now be part of a group of countries including the UK (Behavioural Insights Team), Australia (NSW Behavioral Insights), and Singapore (Behavioral Insights & Design Unit) that have dedicated resources to add behavioral elements in our policy design.
In an opinion piece authored by Sowmya Rao and Anirudh Tagat in the Livemint, they offer a simple explanation for what these ‘nudges’ are in a policy framework, “at a conceptual level, if you think of policy design as the map and development outcomes as the destination, then nudges can be the road signs that gently guide you towards the best route”.
To give one a sense of the problem we need to solve, consider the issue of keeping the street outside your home clean. One household may choose to responsibly ensure that their garbage is properly collected, segregated, and disposed; and another household may not. Despite the good practices of the first household, the inaction on the part of the erring household will not protect their family from disease. A possible result could be that no one will keep their streets clean as they realize it is a pointless exercise. So what is the best route that the government can offer to guide the households to co-operate for the common good?
Traditionally public policy entails using certain instruments (regulatory, inducement and knowledge) that allow any governing body to influence collective action for the purposes of achieving specific goals. Regulatory tools often originate in the legislature or administrative spheres of government (they are considered harsh and often pose costs that result in inefficiencies); Inducement tools attempt to motivate actors through the promise of reward or penalty; and Knowledge tools are meant to provide information that is assumed to be lacking so that the actors make better choices (soft instrument).
While the use of policy instruments may differ from different governments, it is the assumptions on human nature and human behavior that remain largely the same: often ignored, or more accurately, under-explored as an element of policy design. By exploring these variables as a non-linear system, it gives policymakers an opportunity to design incentives so that individual behaviour is nudged in a favorable direction.
For example, tobacco usage/control has been a controversial topic for decades. In India’s case, we have legislated to restrict consumption by banning advertisements, sale to minors and smoking in public spaces through the Cigarettes and Other Tobacco Products Act, 2003 (regulatory tool); progressively raised taxes on sale of cigarettes (negative inducement tool); as well as mandated that all cigarette packs, or movies depicting smoking, have a disclaimer informing the consumer/viewer about the harmful effects of tobacco (knowledge tool).
Indeed, the employment of the above tools did create an atmosphere where tobacco became socially unacceptable, or a taboo in households. However it did not necessarily reduce consumption. Cigarette smokers in India increased from 25 million to 46.4 million over 14 years (1996-2010).
Turns out pictorial warnings on tobacco products are one of the most effective ways to discourage consumption. Large, rotating health warnings on tobacco products packaging and labelling or simply plain packaging (denuding packaging of tobacco products of trademarks, signs, and symbols and advertising aimed at attracting users), has led to significant reduction in tobacco consumption in countries like Australia.
These pictorial warnings provide a confronting message to smokers which have increased consumer knowledge of health effects, encouraged cessation and limited relapse, at the same time being cost effective. After months of bitter battle between the tobacco lobby and anti-tobacco campaigners, India officially enforced 85% pictorial warning norms on all cigarette packs from April 2016.
The above example demonstrates that behavioral sciences can potentially be used to achieve specific policy goals. The World Bank’s too in its annual World Development Report (2015) has renewed its focus and makes a strong pitch to governments for applying behavioral economics to development policy. But before we jump in to it completely, there are limitations of a nudge unit in India. Often these nudges are a function of context, and in a complex country like India, a particular ‘nudge’ may not work everywhere else. Moreover larger national goals such as economic growth and stability most likely will not be served favorably by ‘nudges’.
(The author is a policy
analyst. Follow on Twitter @rohitrrs.)
