Monday, June 24, 2019
Why do people leave "free" money on the table?

For years, government policymakers encouraged workers to increase their investments in tax-free retirement savings.  But they were baffled by how many workers were leaving “free money” on the table by not signing up to participate in employer-matched 401K pension plans. However, when some companies changed their enrollment process from having workers “opting in” to the program vs. automatically enrolling them (and allowing them to opt out), enrollment rates increased by 50 percent.

Why did that minor change in the enrollment process make such a big difference?

It turns out that a natural human tendency is to rely on the default option.  That is, to take what’s given, even if that’s not always the best choice.  This human tendency is one of a range of human tendencies studied in what is called social “behavioral science” research.

In the private sector, insights based on behavioral science have been used extensively for years in sales, marketing, and negotiations. But there are intriguing implications for use in the public sector as well. Pioneers in government have tested strategies to entice citizens to recycle, volunteer, vote, and give to charity.

Using insights based on behavioral science isn’t new, but it has received increased prominence in past five years at all levels of government and is increasingly becoming an important part of policy and process design thinking because it is seen as a powerful way to improve program outcomes.

This blog post is the first in a series that will explore the use of insights based on behavioral science in government and hopefully answer some basic questions about the behavioral science revolution in public policy and administration.  This post will start by addressing “what is behavioral science?”  Future posts will address:

  • What are some basic behavioral science concepts and techniques?
  • How are insights based on behavioral science influencing the field of public administration?
  • How are insights based on behavioral science being used in the federal government?
  • Are there examples of the use of behavioral science insights at the federal, state, and local levels?
  • What are some of the opportunities and challenges of expanding the use of behavioral science in government?

What Is Behavioral Science?  Behavioral science research “studies how people react to changes in cues or incentives,” according to the Behavioural Insights Team, which originated as a temporary British government agency in 2010 to promote its use by government policymakers and program managers.  A key premise underlying the field of behavioral science is that everyone is prone to “cognitive bias” – that is, systematic errors in thinking. Basically,  we can’t assume people will make decisions based on rational behaviors.  Therefore, we shouldn’t assume customers or citizens will respond rationally to rationally-designed policies, systems, directives, or processes.

This premise -- that people cannot be assumed to be rational and will make decisions that may not necessarily in their own best interest – upended the field of economics in the 1990s.  This same upending is in the process of happening in the field of public administration.

I’ve found it difficult to read some of the primary texts on the topic, such as Thinking, Fast and Slow (2012) by Daniel Kahneman, a Nobel Prize winner in economics. But an excellent primer for lay people was written by Michael Kelly, The Undoing Project (2017) and another, Nudge, by Richard Thaler and Cass Sunstein (2009).

Understanding the insights provided through behavioral science research may help answer an age-old public administration dilemma – “Why do well-constructed, rational policy initiatives fail?” As a result, policy makers and program implementers can leverage this greater understanding of human behavior to better design policies and programs to avoid predictable cognitive biases. Or they could use it to leverage cognitive biases as part of a policy initiative to more effectively achieve intended outcomes.

A team of researchers at the University of Toronto’s Rotman School have developed a practical “what is it” guide on the use of behavioral science insights.  They begin by observing that all organizations are “in the business of behavioural change.” For example, private sector companies encourage consumers to switch to their products; government tries to get citizens to voluntarily pay their taxes on time; non-profits try to get people to save for retirement; and healthcare providers encourage patients to take their medications on schedule.

Bridging the Gap.  The Rotman researchers say that there is a gap in understanding in how to change people’s behaviors.  They say that rational-based policymakers, such as economists, assume humans have well-defined preferences and “can accurately predict the consequences of their actions.” Psychologists, on the other hand, have concluded that humans “are impulsive, cognitively lazy, emotional and computationally constrained.”  The researchers say this gap in understanding human tendencies “occurs when organizations design products, processes and programs” for rational thinkers and not for actual human behavior.

The techniques and approaches for bridging this gap comprise the evolving field of behavioral science and, when applied in government, it is increasingly being called “behavioral public administration,” at least by academics (In fact, there is now a newly-created academic journal on the topic – the Journal of Behavioral Public Administration).

How Does Behavioral Science Fit?  Lester Salamon’s classic 2002 book, The Tools of Government, examines the traditional tools used by policymakers to implement change in behavior --such as taxes, regulation and grants – but there is no mention of behavioral science tools. However, the Rotman School’s guide helpfully puts behavioral science techniques in the context of some of the traditional policy tools commonly used by different kinds of government policymakers who are attempting to get people to select one option over another.  For example:

  • Lawyers attempt to restrict an undesirable choice via regulation, by outlawing one option and thereby forcing people to use another, preferred option.  For example, banning the use of coal-fired power plants and thereby forcing power companies to use another source of power.
  • Economists attempt to incentivize a preferred choice by, for example, imposing a tax on sugar-rich soft drinks in order to encourage people to choose a healthier drink option.
  • Marketers attempt to persuade people to make a desired choice by providing appealing information on a product or service. For example, the Department of Agriculture’s creation and marketing of the food pyramid as a way of getting consumers to make better dietary choices.
  • Behavioral scientists attempt to “nudge” people into making better choices by creating an environment that makes it easier for people to choose one option over another.  For example, making employee enrollment into a 401K retirement plan automatic, with an “opt out” feature rather than making enrollment an “opt in” feature.

What Are Some Examples of Techniques? The Rotman researchers also offer illustrative examples of some behavioral science-based techniques, such as:

  • Choice architecture:  Creating choice contexts that “nudge” a person’s choice toward a certain outcome.  For example, when registering to be an organ donor, behavioral scientists tested alternatives as to the wording on the form and when the registration form was handed out and found that more individuals signed up depending on how the forms were worded and whether the form was handed out earlier or later in the process.
  • Decision making tools: Specific techniques can help decision makers make better choices –such as using rules of thumb, computational support, or peer comparisons.  For example, consumers make better choices in selecting mortgage payment plans if they are offered financial tools and calculators to help them make their decisions.
  • Behaviorally-informed design:  Combining behavioral science principles with design thinking can result in better informed policies and processes.  For example, a financial markets regulator blend these approaches to improve the design of investor protection policies.
  • Self-control products:  Closing the “intention-action gap” by imposing a cost or creating an incentive to act.  An example would be the step-counter function in an Apple watch, which encourages users who intend to exercise to actually take action by incentivizing them to set and achieve daily goals for walking.

Each of these types of behavioral techniques can be used internally within the government or as a lever to encourage better choices by citizens or program customers  The next post will examine some of these concepts and techniques in a bit more depth.

 

Graphic credit: Courtesy of Chatchai_stocker via FreeDigitalPhotos.net

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