Abu Dhabi, UAEWednesday 5 August 2020

Economics 101: Should GCC states nudge their citizens?

Nudging is defined as changing a person’s decision-making environment without removing options, and without significantly altering the economic incentives associated with any given option.
Nudging is content specific. What works in Bahrain might not work in the UAE. Sarah Dea / The National
Nudging is content specific. What works in Bahrain might not work in the UAE. Sarah Dea / The National

In 2008, the University of Chicago economist Richard Thaler and the Harvard scholar Cass Sunstein coauthored a book title Nudge, wherein they described novel research on changing people’s behaviour. The book’s success has led to the establishment of governmental behavioural science units in many leading economies, such as the United States and the United Kingdom, as well the GCC. What is nudging, and should GCC countries embrace it?

Nudging is defined as changing a person’s decision-making environment without removing options, and without significantly altering the economic incentives associated with any given option. It is supposed to be cheap and non-intrusive, and rules out interventions such as imposing a tax on cigarettes, or banning the sale of alcohol. Instead, a “nudger” tasked with making people eat more healthily at restaurants might present calorie information, and put healthy choices at eye level, accompanied by bright, colourful pictures, while relegating unhealthy choices to the small print at the end of the menu.

The scientific basis for nudging is the laundry list of cognitive biases that people suffer from. These are limitations to the human brain that result in seemingly irrational actions, such as the tendency to overvalue items that have been in your physical possession (the endowment effect), or the tendency to procrastinate (hyperbolic discounting). Nudging tries to turn the table on these biases, by making them a force for sensible behaviour.

Practical nudging pre-dates 2008 by decades if not centuries, as it constitutes a cornerstone of marketing science. When jewellery companies show you pictures of Hollywood starts bearing their product, or supermarkets place chocolate bars near the cash register, they are nudging you toward their products. What Thaler and Sunstein have done is try to convince governments of the need to deploy such methods responsibly in the pursuit of socially desirable outcomes – such as healthier populations, or safer driving – in a manner that is both cheap and ethical.

This latter point on ethics – which has spawned the phrase “libertarian paternalism” – deserves emphasis. Most ordinary citizens dislike legal restrictions on personal behaviour, such as speed limits or “DO NOT ENTER” signs on a door, sometimes leading to the restrictions backfiring: think of youngsters watching inappropriate films due to the “forbidden fruit” mentality. Nudges seek to combat defiance by modifying the environment in a way that is both subtle and fundamentally unrestrictive.

The low cost is also highly attractive. For example, around 73,000 unnecessary prescriptions of antibiotics in the UK were eliminated simply by notifying doctors who tend to prescribe them a lot compared to their peers about this fact.

All governments, including the GCC, have been informally nudging before the establishment of behavioural units. For example, municipalities will often display pictures of grisly injuries at highway intersections where many dangerous traffic accidents have happened, in an attempt to nudge people into driving more responsibly.

Should the GCC give nudging a larger role in the policy portfolio? Perhaps the biggest benefit of behavioural units is not in the nudges that they propose, but in the scientific method that they espouse. A key maxim among nudging practitioners is that the success of an intervention is highly context-specific, meaning that simple changes in the environment can have large impacts upon a nudge’s effectiveness – what works in Bahrain might not work in the UAE. Accordingly, nudges must be accompanied by rigorous evaluation, to ensure cost-effective policies.

Like their western counterparts, civil servants in the GCC are well-intentioned and competent people untrained in the ways of scientific policy evaluation. Infusing work teams with nudge specialists can serve the dual purpose of generating cheap, new policy ideas (the nudges), as well as equipping traditional policy specialists with the latest statistical techniques for assessing their policies.

In the words of Benjamin Franklin: “Tell me and I forget, teach me and I may remember, involve me and I learn.”

We welcome economics questions from our readers via email (omar@omar.ec) or tweet (@omareconomics).

Omar Al Ubaydli is programme director for international and geopolitical studies at the Bahrain Center for Strategic, International and Energy Studies, and an affiliated associate professor of economics at George Mason University. He welcomes economics questions from readers via email (omar@omar.ec) or tweet (@omareconomics).

business@thenational.ae

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Updated: April 29, 2017 04:00 AM

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