It is said humans make rational decisions. We chart our course based on an analysis of pros and cons, benefits and harms, advantages and disadvantages. That complex thinking differentiates us from the other inhabitants of our planet. That’s true. In part.
The decisions we make are not always rational or emotion-free. Nor are they always impartial, intelligent or visionary. Humans can be self-defeating or choose ephemeral satisfaction over long-term benefit – and even if they aren’t consciously aware of it, marketing firms certainly are.
But what about policymakers? How can behavioral science – why, when, where and how we make decisions – affect our economies? How do they influence our public policies?
"We economists have realized that we must go beyond rationality,” says Carlos Scartascini, principal economist in the Research Department of the IDB. “Every day, we find ourselves saying, 'I'm going to lower my salt intake', 'I'm going to eat less sugar', 'I'm going to exercise more' – and the truth is that it costs us."
"Economic models assume that we can grasp this complex reality that is the world and make decisions about consumption, investment and saving. But unfortunately, human beings are wrong. We don’t do it. We all save less than we should, or we go to the doctor less than we should," he says.
Facebook Live: President Moreno on behavioral economics
En vivo: el Presidente del BID sobre economía del comportamiento¿Qué tiene que ver la psicología con políticas públicas para manejar desafíos como la corrupción, el ahorro, la congestión urbana o la obesidad? Entérate en esta conversación sobre la economía del comportamiento entre el Presidente del BID, Luis Alberto Moreno; Carlos Scartascini, economista principal del Departamento de Investigación del Banco; y Florencia López Boo, especialista senior de la División de Salud y Protección Social. ¡Deja tus comentarios y preguntas! Para más información sobre la economia del comportamiento visita nuestro blog en http://Iad.bg/SFob30lTkyJ
Posted by Banco Interamericano de Desarrollo on Friday, September 21, 2018
BEHAVIOR VS. PENSION
Admit it. Surely, you have succumbed to the impulse to buy that new phone or take that cruise instead of adding to your savings account. The tendency is particularly relevant to Latin America and the Caribbean, a region with a rapidly aging population and a very low rate of pension contributions.
How we fix this situation? The answer, at least in part, is in changing behavior. Some parts of the region have addressed the problem by implementing automatic savings, or the automatic deduction of a portion of workers’ salaries for their pensions. Under this new default – and given the preference of many Latin Americans for the status quo – the likelihood that they will voluntarily waive that deduction drops considerably.
How can we make behavior change stick in the long term? How can policymakers apply lessons from behavioral science? In what policy areas can behavioral science have an impact? https://t.co/HbLd73BUdH
— Inter-American Development Bank (@the_IDB) January 28, 2019
"If policies do not take into account this human behavior, not only will they not generate an effect, but they generate undesirable effects," says Florencia López Bóo, a lead economist in the IDB's Division of Health and Social Protection.
THE CASE OF TEENAGE PREGNANCY
The social sector is an area that clearly demonstrates the importance of an approach that encompasses the economy of behavior – in policies related to health, education, work and diversity, among others.
Among the world’s regions, UN data shows that Latin America and the Caribbean has the second-highest rate of teenage pregnancy in the world. (There are 62 births per 1,000 girls between the ages 15 and 19, while in Africa, the figure rises to 103.5 births per 1,000 girls in the same age range).
While reasonable suggestions include distributing condoms in schools or expanding sex education, looking at this phenomenon through a behavioral economics lens is key.
"About 30 years ago, in New York, Connecticut and California, it was decided to deliver condoms in schools. Not only did it not reduce adolescent pregnancy, but it increased it by 10%... Was someone thinking about the behavior of teenagers who become pregnant?” asks López Bóo.
Interactive: teen pregnancy rates in Latin America and the Caribbean
An answer emerged in Zimbabwe. The key was not to allocate more resources or encourage abstinence, but to focus on where, when and how prevention policies were implemented.
"[The authorities] made focus groups with adolescent women and they changed two things: the time and place where the condoms were distributed. The moment was before going to the clubs, and the place was hair salons. Why? Nobody could judge the girls. There was no figure like a teacher, parents, or a doctor – and it worked. In that country, adolescent pregnancy fell by one third," says López Bóo.
Nobel-Prize-winning economist Richard Thaler said, "A choice architect has the responsibility for organizing the context in which people make decisions." Indeed, the development of public policies should not only be defined by numbers, but also by the decisions that lead people to choose A or B.
