Designing policy interventions based on behavioural analysis


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Alison Cossar, from the Ministry of Consumer Affairs, discusses behavioural analysis outputs from a top-down policy perspective. In particular, she discusses how policy should see behavioural economics as complimentary to the neoclassical approach traditionally used. Alison states how the big problem for government departments and policy makers is how they should apply such behavioural economic principles. Consequently, she presents a number of suggestions for how these principles can be applied to designing policy interventions.

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Designing policy interventions based on behavioural analysis

  1. 1. Policy Interventions based on Behavioural Economics Alison Cossar Ministry of Consumer Affairs September 2010
  2. 2. Policy Toolkit <ul><li>Behavioural economics should be considered part of the policy toolkit </li></ul><ul><li>Alongside neoclassical economics </li></ul><ul><li>Work with people’s biases, not against them </li></ul><ul><li>But how is it to be applied? </li></ul><ul><li>Many of today’s choices involve complex products, whether they are electronic, financial, even food </li></ul>
  3. 3. Problem definition <ul><li>First step is the usual policy process: definition of the problem </li></ul><ul><ul><li>Is it due to a behaviour of consumers, or of businesses </li></ul></ul><ul><ul><li>What is the motivation for both parties? </li></ul></ul><ul><ul><li>What outcome do I want? </li></ul></ul><ul><ul><li>Example: low savings for superannuation, want people to save more </li></ul></ul>
  4. 4. Collecting data <ul><li>Usual method is to do a survey </li></ul><ul><li>But these are usually of limited value as they don’t reflect what people actually do </li></ul><ul><ul><li>Example: importance of country of origin labelling on food </li></ul></ul><ul><ul><li>Example: Water efficiency of appliances </li></ul></ul><ul><li>Must think of other ways of gathering data </li></ul><ul><ul><li>Unfair terms in consumer contracts </li></ul></ul><ul><li>Even cost benefit analyses can not take behaviour into account </li></ul>
  5. 5. Choices <ul><li>Usual outcome is for consumers to make good decisions for themselves </li></ul><ul><ul><li>Allow people the freedom to choose what is best for them </li></ul></ul><ul><li>Usual first solution is: Give more information! </li></ul><ul><li>BUT… </li></ul>
  6. 6. Choices <ul><li>Consumers are likely to not make decisions in their best interests </li></ul><ul><ul><li>Too much information </li></ul></ul><ul><ul><li>Feeling of loss of control </li></ul></ul><ul><ul><li>Lack of trust in authority </li></ul></ul><ul><ul><li>Influence of family and friends </li></ul></ul>
  7. 7. Information Interventions <ul><li>May distract consumers from the more important information </li></ul><ul><ul><li>The US has developed food-nutrition labels that have less information on them; </li></ul></ul><ul><ul><li>The US also requires credit card companies to present important information in a clear table </li></ul></ul><ul><ul><li>Example: country of origin labelling </li></ul></ul><ul><li>Simplify </li></ul>
  8. 8. Framing <ul><li>Another important tool </li></ul><ul><li>If people think that everyone else is doing it, then they will want to follow </li></ul><ul><li>Example: Anti-smoking advertising (turned it on its head) </li></ul>
  9. 9. Default interventions <ul><li>A valuable tool is the default mechanism </li></ul><ul><ul><li>Most consumers do not want to/can’t make decisions </li></ul></ul><ul><ul><li>Therefore the default should be in the interests of most consumers </li></ul></ul><ul><ul><li>Must be very careful with the default and allow an opt-out </li></ul></ul><ul><ul><li>Example: Kiwisaver </li></ul></ul>
  10. 10. Trust <ul><li>Some consumers trust authority but many do not </li></ul><ul><ul><li>Financial products: trust in advisors has gone </li></ul></ul><ul><ul><li>Medical products: vaccines, conspiracy theories </li></ul></ul><ul><ul><li>Climate change </li></ul></ul><ul><ul><li>Sustainability </li></ul></ul><ul><li>Weigh convenience against cost </li></ul><ul><ul><li>Lightbulb backlash </li></ul></ul>
  11. 11. Summary <ul><li>Reiterate that it is best to work with people’s biases </li></ul><ul><li>Get appropriate information on the problem </li></ul><ul><li>Information provision is not necessarily the best option </li></ul><ul><li>Framing is important </li></ul><ul><li>Inertia is the main state of most people </li></ul><ul><li>People are more likely to respond if there is trust </li></ul>