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Symposium 2015

Solution for How to Design Policies for Humans Rather than Homo Oeconomicus?

The Challenge

Most human thinking is automatic, not deliberative. It is based on what effortlessly comes to mind. Human thinking is also socially conditioned.  Beliefs about what others are doing and expecting sha ...

Most human thinking is automatic, not deliberative. It is based on what effortlessly comes to mind. Human thinking is also socially conditioned.  Beliefs about what others are doing and expecting shape an individual’s own preferences. And humans don’t face situations as “tabula rasa,” but instead interpret situations against the backdrop of their own understandings shaped by culture and existing social patterns.

Behavioral Interventions: Designing Policy for Real People

Many policies fail or underperform because the standard policy lens misses powerful drivers of behavior.

For decades, policy-makers have been taught to think about social problems from the perspective of conventional economics. In this perspective, people behave rationally—that is, consistently—and interpret information in an unbiased way. An additional assumption that is generally made is that people are selfish; they care just about their own satisfaction, not about the welfare of society. They always know what’s best for themselves and act accordingly.

The lens of standard economics provides policy-makers with three instruments at their disposal for driving social change:

  • incentives
  • regulation, and
  • information.

 

The problem is that in some cases, these instruments do not work or do not work as well as alternative measures. For example:

  • In Denmark, for every US$1.00 the state spends on subsidizing savings for retirement, aggregate savings only increase by US$0.01.
  • Across the developing world, traffic accidents are a major cause of injury and death, despite the enforcement of many laws against reckless driving.
  • Throughout the world, laws providing broad rights to women leave them politically underrepresented and judicially under-protected. In India, men judge arguments as less persuasive when the text of the argument comes from a male voice than when it comes from a female voice.

 

Standard economics tells us to ignore these problems. If people behave this way, savers must not care much about the future, travelers likely have death-wishes, and women compared to men must simply be less capable leaders and less credible.

But common sense (and much evidence) suggests that what standard economics tells us here is wrong. Some policies based on standard economics are simply failing. They are failing because they have been designed for homo economicus, not for real people.

Is there anything we can do to improve policy design? Is there anything we can do to find a better lens?

The Solution

A richer understanding of human behavior can make policy more effective. The World Bank’s World Development Report 2015 explores this theme and shows that incorporating psychological and sociological insights into policy design can lead to better policy.

The Report draws on cutting-edge work to create a framework of human thinking centered on three principles left out of standard economics.

The first principle is that all people think automatically, as well as deliberatively. Automatic thinking is effortless, intuitive, and associative. It takes into account only information that comes easily to mind. The automatic system is, as the Nobel laureate Daniel Kahneman wrote, “the secret author of many of the choices and judgments you make.”

Consider again the problem of getting people to save for retirement. Using a lens that focuses on automaticity suggests that making it easier to save could cause a shift in behavior. Indeed, when a firm in the US simply switched the default savings plan for new employees—automatically enrolling them in pension plans with the easy option to opt out—savings shot up.

The second principle is that people think socially. Thinking is conditioned by social context, role models, and the salience of social identities. We may look to other people’s behavior—for example, whether or not they use a particular government service, pay taxes, or chlorinate water drawn from the ground—for guidance in deciding our own behavior. Our preferences are not independent of those of others.

Now recall that traffic accidents are one of the major causes of mortality and morbidity in the developing world. They kill more people than tuberculosis and malaria. By 2030, traffic accidents are forecast to kill as many as HIV/AIDS. Using a lens that focuses on our sociality suggests that norms might be an effective way to reduce traffic accidents. When stickers were placed in mini-buses in Kenya urging passengers to speak up against reckless driving, accident rates in those buses plummeted.

Why? People knew that buses were dangerous before the intervention. In a passenger survey before the intervention, one-third of respondents reported having felt that their lives were in danger on a recent trip. But the bus stickers changed something in the environment. The seemingly trivial change of posting a sticker transformed the behavior of the drivers. It saved lives at a cost per year of a life saved of only US$5.80. That was even lower than the cost of saving lives through vaccines.

The third principle is that people think with mental models. In order to make sense of the vast array of information in their environment, people draw on conceptual tools such as categories, schemas, and taken-for-granted worldviews to interpret and derive meaning from situations. The institutions in the environment shape how people think and the alternatives they can imagine. Mental models often become naturalized: some categories, social identities, and patterns are seen as natural or inevitable even though other perspectives are possible, perhaps preferable, and often even one that prevail in other communities.

Consider again the gender imbalance in leadership positions across the world. This deeply ingrained problem can seem intractable when approached using a standard economist’s lens. But a lens that focuses on mental models suggests levers of change. When a program of political affirmative action was introduced for women in West Bengal, India, social change occurred. After just seven years’ exposure to women leaders, men’s bias in evaluating women in leadership positions was gone. The men still preferred male leaders to female leaders. But in evaluating the performance of a given leader, gender was no longer a strong source of bias. Exposure to women leaders also raised parents’ aspirations for their teenage daughters, raised the daughters’ aspirations for themselves, and narrowed the gender gap in schooling.

The standard economic lens, focusing on the rational, unbiased actor, remains central for policy design. In many cases, prices, regulation, and the provision of information are the essential drivers of behavior change. As the World Development Report 2015 emphasizes, the results of the policies described here, and of the many others discussed in the Report, cannot be replicated everywhere. The behavior of humans varies with context and even with historical context. What the Report argues, and what this session will explore further, is that there is tremendous promise in experimenting with a behavioral lens in designing and implementing policies, in using experiments to evaluate their impact, and in making further policy refinements based on the experimental results.

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