The document discusses the application of behavioral economics to improve public policies in light of governance failures exposed by the global financial crisis. It outlines ongoing projects within the OECD that leverage behavioral insights to inform regulatory frameworks, tackle consumer protection, and improve environmental policies. Future directions include addressing institutional behavior and applying various motivational strategies to enhance policy effectiveness.

1. BEHAVIOURAL INSIGHTS -
UPDATE
Working Party of Senior Budget Officials, 7 November 2017
Faisal.naru@oecd.org & Filippo.Cavassini@oecd.org

2. Agenda
1. Why?
2. What is going on?
3. Where are we now?
4. What next?

3. 1. Why?
“The global financial and economic crisis has
uncovered major failings in governance and
regulation, which have undermined trust in
public and private institutions alike. Amid
ongoing economic uncertainty, establishing a
well-functioning national regulatory
framework for transparent and efficient
markets is central to re-injecting confidence
and restoring growth.”
Angel Gurría
Secretary-General of the OECD

4. Body of RPC & NER work since 2012
http://www.oecd.org/gov/regulatory-policy/behavioural-insights.htm

5. What are behavioural economics and
behavioural insights
• Behavioural Economics is the application of the inductive scientific
method to the study of economic behaviour
BEHAVIOURAL ECONOMICS
• Lessons derived from the behavioural and social sciences,
including decision making, psychology, cognitive science,
neuroscience, organisational and group behaviour, which
are being applied by public bodies with the aim of making public
policies work better
• Often involves the use of experiment and observation to
identify patterns of behaviour and use these findings to
inform policies and regulation
• It is about inductive approach to policy-making
BEHAVIOURAL INSIGHTS

6. 2. What is going on?

7. 3. Where are we now?: CFP Project
Policy Area Policy Question OECD Committee
Consumer protection Online disclosures Committee on Consumer
Policy (CCP)
Environment and Energy Sustainable energy use Environment Policy
Committee (EPOC) and
Working Party on
Integrating
Environmental and
Economic Policies
(WPIEEP)
Competition Cartel behaviour Competition Committee
Regulators and regulated
entities
Organisational safety
culture
RPC and NER

8. What next?

9. Changing institutional behaviour
2010 Deepwater Horizon oil spill

10. Gathering evidence

11. Changing regime

12. • Numeric literacy biases
– Stated preference for quantitative data  qualitative information more
memorable and engaging
– Small increases that gain a new whole number more impactful than larger
increases which do not
• Power of comparison
– data is more persuasive when presented in comparison with peers who are
of similar characteristics
– setting unrealistic performance targets lowers the evaluation of good
performance
• Motivated Reasoning
– data might not change entrenched views
– more data doesn't necessarily increases consensus
• Negativity bias
– motivated by losses more than gains  greater attention for low
performance
– preventing a failure make the news!!
Potential Bias in Budgeting and
Performance

13. Rewards may reinforce in the short
term, but may have hidden costs,
becoming negative reinforcers once
withdrawn (Benabou & Tirole, Review of Economic Studies, 2003)
The promise of helping others makes us
more likely to follow rules (Grant, Give and take, 2013)
Motivation

14. 1. Horizontal work e.g. CTP
2. Organisational behaviour
3. Policy toolkit for Behavioural Insights
4. Ethical Framework for policy makers
Future work