United Kingdom tests behavioural economics on taxpayers

How David Cameron’s plan to ‘nudge’ could save billions

Nudge of character

Justin Tallis/Eyevine/Redux

Nudge of character
Justin Tallis/Eyevine/Redux

A British man is found guilty of some minor offence—and slapped with a small fine. Several months later, he still hasn’t paid. Indeed, Britain boasts some $789 million in unpaid fines. After a while, the man is mailed a reminder letter, which he promptly tosses aside. According to a 2012 study of southeast England, such letters work about five per cent of the time.

What if, instead, our liable lad was sent a text message? Turns out, he’d be far more likely to cough up. If that text message had his name in it, the likelihood of him responding would rise to 33 per cent. Applied across the country, this practice could save Britain up to $47 million annually in bailiff interventions.

And that is what British Prime Minister David Cameron calls a “nudge.”

It started in 2008 with the smash release of Nudge: Improving Decisions about Health, Wealth, and Happiness—a pop economics book by economist Richard Thaler and legal scholar Cass Sunstein. The book popularized “nudging”: the idea that we can engineer small tweaks in the environment, which will “nudge” (but not “shove” or “legally require”) people to make better decisions.

Then-Opposition leader David Cameron read the book, and liked it—so much that he included it in a 38-book “required” summer reading list for his Tory MPs (who later fussed, publicly, that all that book reading would eat up their vacation time.) In 2010, Cameron won the national election, and quickly set up a small “behavioural insights team” (BIT or, as more commonly known, “nudge unit”) within the cabinet office: the first of its kind in the world.

Three years later, the 14-strong team claims to have saved Britain hundreds of millions—with, perhaps, billions more to come. Other countries are now paying heed.

Richard Thaler, one of the authors of the book, first met Cameron in 2010; later, when Cameron’s coalition government took power, Thaler (an American) was asked to be one of BIT’s advisers. Three years later, Thaler tells Maclean’s that BIT “has exceeded my expectations. An astonishingly high percentage of ideas has worked.”

The guiding tenet of nudging is that people often act against their best interests and intentions—but that they can be ever-so-gently steered in the right direction by skilled “choice architects.”

Nudging takes its cues from behavioural economics—which is itself rooted in psychology. Human behaviour, we know, is shaped by two systems: one that is reflective (controlled and self-aware decision-making) and one that is automatic (gut feelings and instinct). Traditionally, government policy has appealed to our reflective selves: pumping us with information that might alter our beliefs and behaviours (i.e., healthy eating campaigns). In many cases, those efforts have met with modest success, at best.

Nudging appeals to our automatic processes, by predicting the ways we tend to err and then correcting for them. The idea is that we are “prompted” to do better, but not forced to do anything—and thus nudging is consistent with the broader theory of “libertarian paternalism.”

Sometimes the change is ever-so-slight. In one experiment, BIT turned to tax collection. When Brits are late paying their taxes, they are sent a reminder from Her Majesty’s Revenue and Customs office. What BIT discovered was that if a single line is added to that letter—informing late payers that most people in their town had already paid—repayment rates rose by 15 per cent.

Nudging also focuses on default settings. Humans suffer from “status quo bias”—we’re a species prone to inertia. That explains why so many of us fail to sign up for retirement savings plans, even if we recognize the need to save. What if, BIT wondered, we changed the default option: so that Brits were automatically enrolled in pension plans—with the option to opt out? The U.K.’s 2012 National Pension Savings Scheme is a step in this direction.

The potential application seems limitless. In an interview with Maclean’s, BIT’s leader David Halpern fires off questions: “Should police officers walk separately or together?” “What is the best way to run a business support scheme?” “If you bring a signature to the beginning of a form [instead of requiring it at the end], will people be more honest in their responses?” Let’s find out, Halpern says—then nudge.

But this line of inquiry exposes a key point: much of what BIT advocates is not the nudge, per se—but the rigorous analysis that determines which nudges work best.

For decades, health care professionals have advocated empiricism. New drugs, for instance, have to pass randomized control trials before they can be prescribed by doctors. But government policies—applied to a variety of social and economic maladies—are rarely given such scrutiny.

Of course, Cameron’s BIT has its share of critics. Some of the detractors are philosophically repelled; they read “libertarian paternalism” as “nanny statism.” Others worry about the “choice architects” themselves. What if they are incompetent? Or malevolent? BIT has even found resistance from inside; a 2011 National Audit Office report noted that many Westminster departments were less than eager to adopt the nudge unit’s insights.

And some behaviours are simply hard to nudge—particularly those in the field of health. Obesity is a much harder topic to tackle than, say, retirement savings, Thaler admits. “[Savings] is pretty easy because if you get people putting money into a retirement account then they kind of forget about it. Whereas with obesity, every time you get hungry it’s a new problem.”

Theresa Marteau, director of the University of Cambridge’s behavioural and health research unit, warns that we need to implement health care nudges with some caution. For one, she said, “we need to make sure that our nudges don’t inspire “paradoxical substitution effects.” It’s one thing to take pop out of schools. But what if that makes students more likely to buy a Coke on the way home? Labelling foods as “healthy” can also have adverse effects—causing people to underestimate their energy content, and thus over-consume. Marteau also cautions that some unhealthy behaviours are commercially reinforced: “In that case, one may need legislation to implement the nudge.”

That said, BIT pushes forward in its national anti-obesity campaign. This year, the team hopes to install signs at supermarket checkouts informing people how much fruit and vegetables the average shopper purchases. (Social norm feedback is an important nudging tool.)

Recently, Britain’s BIT has been fielding calls from other countries. One team member has already been seconded to Australia to give a year of nudging tutorials. Danes have embraced nudging through iNudgeYou, which pairs nudging government departments and NGOs. Thaler also reveals that there is “lots of interest” in Washington.

Last year, Halpern was invited to Policy Horizons Canada, a federal civil service “foresight” agency, to talk about his work. “There has been interest [from Canada],” confirms BIT’s tight-lipped chief. “We’re always happy to interact with our Canadian cousins.”

Policy Horizons declined an interview request, but emailed Maclean’s a statement affirming: “We have conducted research on behavioural economics and how its principles could be applied in the policy context.” Indeed, the office has already published a handful of related policy papers—including the improbably titled “Nudge me baby one more time?”

Soon, the structure of the behavioural insights team will change. As part of Cameron’s small-government drive, BIT will be spun-off as a “mutual joint venture”: part public, part private. Thaler insists that the “mutualization” is a response to increased demand for the department’s services.

As interest in nudging—and the payoffs—grows, governments might be more likely to expand their expert Rolodexes, Thaler muses, to include more non-economists. In other words, bring in the psychologists.