Research has revealed that small details in policy implementation can influence a person’s decisions. The Social and Behavioral Sciences Team, a governmental agency that uses behavioral insights to formulate public policy for the United States, found that simply moving a signature box certifying that the taxpayer is being truthful on a self-report form to the top of the page instead of the end of the form increased collected fees by $1.59 million. Having somewhat commit to truthfulness in advance makes them more likely to report all of the taxes they owe. Small changes like this one are low cost and make a difference but changes found in these types of policies are often not large. One policy implemented by Oklahoma to increase renewal of benefits for childcare did so by a modest 3%. Although a small effect, the change still means 1,000 families do not have to go through the process of re-registering for benefits for their child, which typically occurs only after a child is already sick. With the low cost of implementation, the question proponents of these kinds of policies ask is “why not?”
IPPSR has compiled a list of policy interventions here. Take a look and see if you can apply any to Michigan government.
Most public policy is implemented based on traditional (or neoclassical) economic theory, which assumes a rational consumer that processes all the information they are given to make calculated decisions that maximize their utility. As it turns out, human behavior is a bit more complicated. The emerging field that seeks to understand behavioral anomalies, at least with respect to rational choice theory, is call behavioral economics. Not everybody has the time or energy to calculate their best option in every decision they make.
Think about how many decisions you make every single day: When should I get up? What alarm sound should I use? Should I put my alarm clock on my bedside table or across the room? Should I set multiple alarms, or just one? How long should I set my snooze? That’s all for the simple action of setting your alarm. In a culture where we aim to make everything as convenient as possible but give as many choices as possible, many decisions are made based off of convenience. Chances are, if you have an iPhone and use it as your alarm, your alarm tone is “radar,” it’s labeled as “alarm,” and the snooze is on. Why? These are all the default options. Like Apple, governments often have the power to choose these defaults and control how we make decisions. Making policies assuming that everyone will evaluate every option and make the best decision for themselves means government programs can be less efficient or helpful.
Behavioral economists aren’t calling for a complete policy reform. They just suggest subtle changes that can “nudge” people in the right direction. Richard H. Thaler and Cass R. Sunstein wrote a book on this very subject, appropriately titled Nudge. They discuss small policy changes that can be made across a breadth of policy areas, from retirement savings to education to health. One popular option that companies are adopting is an “opt-out” 401k program. This automatically enrolls people in their employer’s retirement savings program, but still allows them the freedom to remove themselves with a form. In a rational world, automatically enrolling people or requiring they enroll themselves shouldn’t make a difference. But enrollment rates dramatically increased with the opt-out policy implying that the default option is a strong decision-making factor and can increase welfare. The value of such changes has gained national recognition, as both the United States and the United Kingdom both have agencies that research and suggest such policies.
Nudges are helpful at any level of management, and state governments are beginning to pick up on it. Oklahoma and Indiana have used them to encourage better choices about childcare. Oklahoma increased renewal rates of subsidies for child care by sending color-coded reminders, by urgency, to child-care providers to talk with their clients about renewing. Indiana sent mailings and called people who were off the waitlist for childcare vouchers encouraging them to use a state-approved childcare provider and were able to increase enrollment. MDRC, an organization dedicated to conducting research and suggesting public policy specifically aimed at helping the poor, is taking the lead on related projects. One is a guide for guidance counselors, teachers, or any other authority figure to help children from low-income families or those that are the first to go to college find better matches.
To help guide policymakers, IPPSR is compiling applications of behavioral economics in government policy and related research. Let us know if you run across other initiatives.
