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August 07, 2019 Wednesday 11:05:09 AM IST

Nudge Can Work Wonders

Finance

The Economic Surveys presented in Parliament, since Prime Minister Modi rode to power in 2014, have been classic compilations, rich in content and original in approach, perhaps more than the Union budget, or at least equivalent to it. They have provided data about our economy, ideas on how to steer forward and generally reflected the great mood of optimism and aspiration that characterises a resurgent nation.

 While stating this, one is conscious of millions of our countrymen to whom these documents may not mean anything, because they continue to live on the margins. But that is precisely why the Surveys become more relevant than the Budget as they focus on what India can be or how growth can be achieved with due regard to equity as well.

 The latest in the Surveys presented by the Union Government’s Chief Economic Advisor Krishnamurthy Subramanian also did not fail to impress. One of the strikingly new themes that it has forcefully articulated is the power of the ‘Nudge’ in achieving policy objectives.

 Classical economists have always believed that rational choices and rational expectations are at the base of agents’ decision-making (Agents are decision makers in economic terms - buyers and sellers, for instance; and, rational refers to a means of decision-making by which it is believed that decisions will be made to induce optimal benefit or utility).


 But of late, a school of Behavioural Economists, the most famous of whom is the Nobel winner Richard Thaler, has been picking holes in this received wisdom. Man is not Homos Economicus after all; he remains a Homo Sapien.

 Therefore, his economic choices need not follow the theory of utility or benefit. Better still, man can be ‘nudged’ to make choices that are not entirely rational. For instance, in a restaurant, if the choice of the available menu is displayed in a certain order, it is quite likely that customers will go for the top three or four items though the last two may be better options. This ‘choice architecture’ (the way a slew of options is arranged) can affect decision-making profoundly.

 Cleanliness drive

If this is true, then it also follows that man may be made to decide on ‘desired’ lines even in a democratic open system by ‘nudging’ his behaviour. The Economic Survey 2019 highlights the huge success of the ‘Swachh Bharat Abhiyaan’ as a case in point.


 One need not be an economist to see this point. Till the Prime Minister himself took the broom and made it a political statement, cleanliness, at least in the public sphere, was not on the agenda. Mahatma Gandhi had famously said that ‘Cleanliness is next only to Godliness’ and for decades, public money had been spent, but it was not until Modi’s entry that ‘Swachchata’ became a movement. Even his detractors concede as much.

 I have witnessed the tremendous changes in some of the North Indian/Middle Indian cities in the last four to five years. Indore, adjudged as the cleanest city in India, is a case in point. A city with its own urban poor and people living in shanty houses with wayside vending and all, it is an unlikely candidate for this fame. But ‘nudge’ did it. On a recent visit, one could see pigs eating grass because there is no filth to feed on. The presence of pigs in the city, very near the airport -a common scene in Indore a few years ago - is a relic of the past.

 The Survey harps on the Swachch Bharat Mission as a nation-wide cleanliness drive as an example of ‘nudge’ for public policy with economic consequences. “The symbol used for SBM invokes Gandhiji’s ideas. Behavioural economics emphasises the role of context in influencing choices and decisions, which has been effectively adopted by the SBM campaign. To initiate behavioural change in usage of toilets, more than five lakh swachchagrahis, foot soldiers of the SBM, were recruited (the similarity with satyagrahis is intentional to reinforce the message). As each village has at least one swachcchagrahi, who is a local, these swachhagrahis were able to leverage their social ties within their villages to effect change.

 Local ambassadors of change


“People are more likely to listen to and emulate someone they know, which is why local ambassadors of change are more effective in getting through to people than mass media campaigns. SBM used yet another behavioural insight - that people internalize messages better when these messages make them feel a certain way.

 

Arcane concerns about hygiene and disease appeal to few; it is natural that those who have defecated in the open all their lives without consequence would fail to absorb the message that open defecation can have deleterious effects. On the other hand, appealing to people’s emotions, for example by attaching a sense of disgust to open defecation, has a better chance of moving people to change. Many swachhagrahis delivered the message that “open defecation is tantamount to eating one’s own excreta, as flies sit on excreta left in open spaces and then sit on food.”

 Two fascinating books, Nudge by Richard Thaler and Sunstein and MISbehaving by Thaler are must reads for contemporary students of Economics because it features the future of this science. In an increasingly digitised world, where data analytics, machine learning and Artificial Intelligence will definitely alter peoples’ lives, the way public policy is being made will also undergo a drastic change.


 It may be unwise to think that nudges will hold all the answers to economic issues. But it has to be admitted that man/woman is not a rational being given to choices which are optimal. Rather, there is always a possibility that without your knowing, you may be induced to ‘behave’ (in an economic sense) in a particular way. If policy makers have the greatest common good at their heart, this may lead to better lives for all of us.

 There is also the lurking fear that it could be misused with disastrous results for all of us and future generations.


ADIKESAVAN.S

( The writer is a Senior banker.The views expressed are personal )



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