New Delhi: What is behavioural economics?
According to Richard Thaler, the American economist who won the 2017 Nobel Prize in Economics, it is a study of psychology into analyzing the decision-making behind an economic outcome. In other words, a timely decision that directly addresses popular aspiration, rather than the cold, rational logic of decision-making. Unlike classical economics, behavioural economics even allows for ‘irrational’ behaviour.
In a recent lecture in New Delhi on this subject, Cass R. Sunstein, the Robert Walmsley University Professor at Harvard, said that India is emerging as the best example of the use of behavioural economics to achieve public good. The government decisions normally seen as ‘populist’ may also fall in this category.
Citing the example of a decision encouraging cleanliness (Swachchha Bharat) and toilet-making for public good, he said it enabled the people to get access to toilets and combat the problem of open defecation.
Making toilets available to a large number of people, who could not afford one earlier, is one of the greatest public policy achievements in the world in the last 25 years, he added. Another public good came from the free LPG connections to the poor, thus reducing their dependence on firewood, pollution and related ailments; a third one has been, like Obamacare, India’s own Modicare, a scheme to provide free medical aid to some 500 million people with a health insurance cover of up to Rs. Five lakh per family per annum.
He said many humans are not fully rational and tend to follow inherited habits, even if not the best ones, as they are more focused on today rather than tomorrow. But they do change these habits if the authority nudges and persuades them for their own and larger public good. If they get a set of clear information, they can overcome the biases that kept them behind others.
Sunstein said that some nudges do work while others do not. Nudges like ‘no-smoking’ only tend to reduce consumption, for instance.
After he set up a dedicated Nudge Unit in the White House during the Barack Obama era, he said, countries like Germany, Australia, the UAE, Saudi Arabia, the UK and Japan also followed suit to consider ‘populist’ decision for larger public good.
He said India stood a better chance as the “most successful practitioner” of behavioural economics in the next few years. Expressing hope about the government’s commitment, he said observers across the world are excited about the potential in India. “No other country has done anything better.”
About the role of social media in spreading such consciousness about public good, Sunstein said increasing use of this media proves what the popular demand is likely to be, something the policy planners can bank upon for decision-making. But there is a flip-side, too: it can lead to ‘unjustified’ fears about certain things.
