1. An Introduction to Behavioural Economics and Behavioural Insights
Human beings are far from rational. A painful realisation perhaps, but true.
Research suggests that we make up an eye-popping 35,000 (remotely conscious) decisions each day. How many are good decisions? Are you making the right choices? Thousands of public and private organisations around the world are fascinated with this question ‘How can we influence decision-making?’ How about you?
Take something as basic as coffee or tea. We are overloaded with choices. With milk or without? Skim milk? Soy? Almond? With sugar? No sugar? Less sugar? Iced? Hot? And that’s just coffee or tea. Why do Singaporeans decide to queue, even without knowing what for they lining up for. Is that rational behaviour? It suggests that other factors are at play.
Behavioural Economics is the study of the effect that psychological factors have on the economic decision-making process of individuals, exploring question like “How do we make decisions? How do we behave?
Behavioural Science, and Behavioural Economics specifically, has clearly come of age in recent years. Insights from Behavioural Economics are helping public and private organisations deliver better policies for improving lives in Singapore and beyond. Particularly popular is the concept of ‘nudging’, which proposes subtle positive reinforcements and indirect suggestions as ways to influence behaviour and decision-making. More on nudging later.
Behavioural insights (BI) is an inductive approach to policy making that combines insights from psychology, cognitive science and social science with empirically-tested results to discover how humans actually make choices. By understanding people’s decision-making process, policymakers and marketeers are able to develop value propositions that really fit the public and consumers’ needs. BI has been applied to various domains including finance, health, energy, public choice, and consumer marketing.
It is not a trend, BI is here to stay.
In short, what Behavioural Economics has taught us is that we tend to act irrationally but in a predictable way. Most of the time we make decisions emotionally: ‘conscious brain’ vs ‘subconscious brain’.
2. Understanding human decision-making in reality
Policy makers and marketeers tend to think that if they can change the conscious brain, they can change behaviour. In reality, the subconscious brain needs to be in line too. Reasoning is not enough for action. Complementary feeling is needed to drive a change in behaviour as well.
Arguably the most famous theory in Behavioural Science was popularised by Nobel Laureate Daniel Kahneman in his 2011 bestselling book “Thinking, Fast and Slow” in which he describes System 1 and System 2 thinking. This two-system model has been widely adopted due to its simplicity and intuitive nature. Let’s have a closer look.
2.1. System 1 – Fast Thinking
System 1 is the brain’s fast, automatic, intuitive approach. Instantaneous or even involuntarily, driven by instinct and prior learning. Effortless, so to speak. For the brain to process the vast amount of information or impulses and process, we use System 1 98% of the time. We use System 1’s shortcuts is also known as heuristics.
A heuristic is a mental shortcut that allows people to solve problems and make judgments quickly and efficiently. These rule-of-thumb strategies shorten decision-making time and allow people to function without constantly stopping to think about their next course of action yet keeping us on the safe path. It is great for species survival, but not so great for innovation.
While heuristics can speed up our problem and the decision-making process, they can introduce errors or cognitive biases, drawing a false conclusion based on prior data.
2.2. System 2 – Slow Thinking
System 2 is the mind’s slower, analytical mode, where reason dominates. It is reflective and deliberate. Usually System 2 is activated when we do something that does not come naturally and requires some conscious mental exertion. According to Kahneman, System 2 is used 2% of the time in our daily activities which means we are on ‘auto pilot’ most of the time.
Even when we believe we are making decisions based on rational considerations, our System 1 beliefs, biases and intuition drive many of our choices.
So what does this really mean? In short, it is very hard to read the public or consumers’ mind. However, the use of BI can help us understand users’ needs and motivations and has the potential to help improve public policies or customer value propositions where needed.
Richard Thaler and Cass Sunstein’s 2008 ground-breaking book “Nudge: Improving Decisions about Health, Wealth and Happiness” put a global spotlight on applying behavioural insights to public policy issue. Faced with tight fiscal situations, policymakers worldwide were excited by the potential of ‘nudges’: small, low-cost changes that could make a big difference to the effectiveness of government interventions.
Nudging is nothing more than a gentle push towards an intended direction. All options are still open, so the person who is nudged can make the decision he/she wants. The ‘less-preferred’ options can be discouraged with disincentives such as extra fee or extra effort. A nudge is simply a small change in the surroundings that makes it more likely for a desired option to be chosen. It is an alteration of choice architecture.
As society is not homogenous, we cannot assume that people will respond uniformly to an incentive. The application of BI, along with the use of randomised controlled trials (RCTs) can help tackle such complexities, by facilitating an evidence-based approach to policymaking without overgeneralising how we expect the “average Singaporean” to behave. Trialling nudges or behavioural interventions, can make a big difference and have a huge impact.
3.1. EAST Framework
For BI interventions, Facilitators Network Singapore (FNS) works with the EAST framework (developed in 2012 in the UK by the Behavioural Insights Team, the world’s first Government institution dedicated to the application of behavioural sciences).
This proven framework enables focus and benefit to policies and marketing efforts through communication and engagement efforts.
The EAST framework captures approaches according to the sequence of making a decision/action Easy, Attractive, Social and Timely and states that to change behaviour the intervention must be:
EASY – If a decision requires minimal effort, it’s more likely to be the one that’s chosen.
- Harness the power of defaults – making the desired action the default option makes it more likely to be selected.
- Reduce the hassle factor of taking up a service.
- Simplify messages – making messages clear and concise can increase response rates and engagement.
ATTRACTIVE – If something is attractive, we will be drawn to it.
- Use bold and striking colours and professional imagery.
- If a choice has a financial reward or other incentives, we’ll be drawn to that too – and if it captures our attention we’ll be more likely to engage.
SOCIAL – We are social beings, we care about what our peers are doing and what they think of us.
- Show that most people perform the desired behaviour – use social proof to highlight and reinforce participation.
- Use the power of networks – peer relationships are very important to us, both in person and online.
- Encourage people to make a commitment to others – commitment devices voluntarily ‘lock ourselves’ into doing something in advance.
TIMELY – The time that you choose to prompt or ‘nudge’ someone towards a desired behaviour is vitally important.
- Prompt people when they’re most likely to be receptive – behaviour is easier to change when habits are already disrupted.
- Consider the immediate costs and benefits – we’re more influenced by costs and benefits that take effect immediately.
- Help people plan their response to events – identify the barriers to action and develop a plan to address them.
Finally, BI methodology only works if trials are designed and conducted to determine the efficacy of interventions and nudges. More specific, trials designed in a way that facilitates scaling up.
- TESTING an intervention means putting in place robust measures that enable is to evaluate the effectiveness or otherwise of the intervention.
- LEARNING is about analysing the outcome of the intervention, so that we can identify ʻwhat worksʼ and whether or not the effect size is great enough to offer good value for money.
- ADAPTING means using this learning to modify the intervention (if necessary), and continually refine the way in which policies or propositions are designed and implemented.
Randomised controlled trials (RCTs) are the best way to determine whether a policy is working. Extensively used in international development, medicine and business to identify which policy, drug or sales method is most effective, RCT’s are also at the heart of the Behavioural Insights methodology.
Note: while nudges and interventions are useful, not every policy outcome or value proposition is “nudge-able”. If cognitive biases are not one of the key factors holding back the desired behavioural change, then BI would not be applicable or would have very limited use. While BI is not a silver bullet, the power of behavioural insights is undeniable nevertheless.
4. Next Steps
If you are keen to explore behavioural insights and learn more about how to apply BI for your policies, products or services, FNS has a highly creative team of facilitators, consultants and trainers to help you understand the power of BI or brainstorm and design interventions and nudges.
Our diverse team includes individuals with different backgrounds such as Media, Marketing, Public Service, Education, Service Design, Design Thinking, Organizational Development and Organizational Learning.
FNS is committed to help change how Singaporeans access (public) services or products by bringing innovation and a human-centred approach to behavioural interventions and apply our vast insights into real-world context.
Please contact us at firstname.lastname@example.org for more information.