Few people can claim that their work has been used routinely to inform or improve fundraising, reproductive health, the governance of African countries or road safety, or to help people to get jobs or quit smoking; but the US economist Richard Thaler can. He has the rare distinction of having revolutionised a major discipline, and in his new book, Misbehaving: the Making of Behavioral Economics, he recounts how he did it.
Thaler realised that much of what economics says about how people behave conflicts with how we actually behave. Predictions which collide with observation are bad news in science. He suspected that economics would make better predictions if it absorbed insights from experimental psychology. This resulted in the new discipline of behavioural economics, which has since become mainstream.
Behavioural insights become rocket fuel when they are applied to social and development problems, and to public policy. They are useful to charities in at least three ways.
First, in programmes. For example, Kenyan farmers could grow more if they put fertiliser on their fields. So why don’t they? Researchers concluded that it was because the fertiliser is needed several months after last year’s harvest has been sold. By then, the money from selling the harvest has largely been spent. Researchers concluded that it was because the fertiliser was needed several months after the previous year’s harvest had been sold, by which time the income from the harvest had mostly been spent. NGOs have responded by selling fertiliser to the farmers at a discount at planting time.
Obviously, this is expensive for the NGOs and might be unsustainable. By contrast, behavioural insights suggested fertiliser should be sold at full price just after the harvest, when farmers felt flush. This turned out to be highly effective. ‘Rationally’, there should be no effect from simply switching the month when fertiliser was sold; but people are bad at foreseeing what their ‘future self’ will want.
Second, in fundraising. For example, having observed that people often shy away from making decisions, Thaler invented a scheme to encourage retirement savings called Save More Tomorrow. Unlike a conventional scheme in which someone committed to saving, say, $100 each month, in Save More Tomorrow, they commit to save, say, $100 a month this year, $120 a month the next year, $140 a month in the third year, and so on. Researchers have tested similar ‘Give More Tomorrow’ schemes, which did indeed get people to give more than if they were asked each year to change the amount.
Third, in influencing policy. The behaviouralists discovered how bad people are at absorbing complex information and using it in decisions. Thaler’s stated view is that ‘if you want to encourage activity, make it easy’. That includes asking policy-makers to use the evidence: it is our job as campaigners to make it easy for them. The toolkits from the Education Endowment Foundation summarising the evidence on education interventions are illustrations of that.
Perhaps for those of us who work in social change, the strangest twist here is that Richard wasn’t trying to help anybody: he was, he says, just trying to get tenure. But as the economist Adam Smith wrote in The Wealth of Nations in 1776: “Every individual, by pursuing his own interest, frequently promotes that of the society more effectually than when he really intends to promote it”.
Misbehaving releases in the UK in June 2015. Disclosure: Richard & Caroline are pals.
This article first published in Third Sector.