Wednesday, December 17, 2014

In praise of small policy miracles


Dec 11 2014






The new style, which supplements but does not replace the old style, is based on the obvious point that human beings are not always rational actors. Sometimes we're mentally lazy, or stressed, or we're influenced by social pressure and unconscious biases. It's possible to take advantage of these features to enact change.


This kind of merit pay didn't improve test scores. But, in other schools, teachers were given a bonus at the beginning of the year, which would effectively be taken away if their students didn't improve. This loss-framed bonus had a big effect.


But then the ACT folks changed the form so there were four lines where you could write down prospective colleges. That tiny change meant that many people applied to four colleges instead of three. Some got into more prestigious schools they wouldn't have otherwise. This improved the expected earnings of low-income students by about US$10,000 (S$13,000).

The World Bank has just issued an amazingly good report called Mind, Society and Behaviour on how the insights of behavioural economics can be applied to global development and global health.


Sugar cane farmers in India receive most of their income once a year, at harvest time. In the weeks before harvest, when they are poor and stressed, they score 10 points lower on IQ tests than in the weeks after.

If you schedule fertiliser purchase decisions and their children's school enrolment decisions during the weeks after harvest, they will make more far-sighted choices than at other times of the year. This simple policy change is based on an understanding of how poverty depletes mental resources.

The policies informed by behavioural economics are delicious because they show how cheap changes can produce big effects. Policymakers in this mode focus on discrete opportunities to exploit, not vast problems to solve.

This corrects for a bias in the way governments often work. They tend to gravitate towards the grand and the abstract. For example, the United Nations is now replacing the Millennium Development Goals, which expire in 2015, with the Sustainable Development Goals.

"The Millennium Development Goals are concrete, measurable and have an end-date, so they could serve as a rallying point," says MDG Health Alliance chief executive Suprotik Basu. "One good thing about the Sustainable Development Goals is that they're being written through a bottom-up consensus process. But sometimes the search for consensus leads you higher and higher into the clouds. The jury is out on whether we will wind up with goals concrete enough to help ministers make decisions and decide priorities."

Behavioural economics policies are beautiful because they are small and concrete but powerful. They remind us that when policies are rooted in actual human behaviour and specific day-to-day circumstances, even governments can produce small miracles.


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