Not too long ago I had an Instagram Live with the Masterclass Initiative. For context: this is an African initiative that invites experts to speak on a topic, via a range of mediums: it can be via Zoom, Facebook Live, Instagram Live etc. They broadcast those presentations or interviews with those experts to enlarge knowledge sharing. I’ve worked with them before and have given presentations (masterclasses) on the psychology of money and the effect of different payment methods (that is the topic of my dissertation after all). In our last interaction, through Insta, I was set up to do an interview rather than teach a masterclass, with someone who’d read into my work. However, one of the very first questions I got, with regards to managing personal finances, was how I could improve living standards in South Africa (nationality of the interviewer), given that living wages are incredibly low and the cost of living was really quite high. I was slightly confused by the question. I do have a slight background in economics thanks to my interdisciplinary education, but I am, by trade, a behavioural scientist. So problems of systemic inequality, poverty and corruption do not tend to be presented to me. That is not to say they are not important, relevant or should be looked at, but it is rather something I don’t think a behavioural scientist, or behavioural science as a discipline, is adept to handle.
Behavioural science actively studies behavioural patterns. That is not to say the behaviours focused on are only those of the individual. A lot of behavioural science is grounded in social psychology, which focuses on the group, and interpersonal dynamics. This aspect is equally important when deciding to implement macro-level interventions, such as policy changes. However, not all policy changes are equal: not all of them are grounded in behavioural science. There was policy before behavioural science, as many people are (or at least should be) aware. Let me give some examples: The choice to implement a policy where tax reductions are done on a monthly basis rather than an annual basis is grounded in behavioural science. Chambers and Spencer (2008) found that a refund delivered in monthly amounts (for example, by changing the federal income tax withholding tables) stimulated current spending more than if the same yearly total tax reduction was delivered in one lump-sum. The findings also suggest that the lump-sum distribution conversely will stimulate private saving significantly more than the monthly distribution. Their argument for this finding is based on mental accounting, where a small amount per month is judged to make no real impact and integrated into regular spending, whereas a large additional annual amount is too large to integrate into the already existing spending “pots” and gets assigned a pot of its own, warranting conscious thought as to its purpose, which actually increases the likelihood of saving, and debt repayment. Most policies that leverage the timing or amount of a policy tool are grounded in behavioural science, because behavioural science is grounded in small tweaks to the context to obtain a better outcome for the individual, society as a whole, “the greater good” or all of the above. From the country’s perspective, if the economy is doing “not so great”, it can therefore be beneficial to work with a monthly system, because a larger part of the reduction actually ends up being spent, stimulating the economy. From the consumer’s perspective however, there is more of an argument to be made on both sides: are they better off in the monthly system, assuming their spending (and the general increased spending of the population) will help out the economy; or, are they better off in the yearly system where they are more likely to save parts of the tax reduction, where they can now pay down debt/build savings, during a period of economic regression, potentially elongating the regression? These are questions that do need to be asked, and answered, as most behavioural policies are grounded in libertarian paternalism (nudge), which makes some assumptions about general welfare. Btw, this is also not limited to tax reductions, this also works for tax rebates (Shapiro and Slemrod, 2009). When looking at taxes as a whole, the policy of having a progressive tax system (those with higher wages should pay higher percentages in taxes over (certain parts of) their income) is not a behavioural scientific policy. It’s grounded in theories of distributive fairness and executed through the power of state (try evading taxes, it’s quite hard). This is not a behavioural science policy, whatsoever. Now when looking at these policies, one behavioural, one not, you can also see a clear difference in what they are aiming to do. The behavioural policy is trying to find a way to both help its people and economy, by implementing a tax reduction, of which they are debating the timing. In the second, there is a progressive tax system in place. If you want a more dynamic policy example for the second one, imagine that the government is debating to increase the percentage on the higher tax bracket. That is not a behavioural policy, but it could also end up stimulating the economy (more taxes paid, more money for the government to help out, this is overtly simplified but bear with me).
Behavioural science-based policies can most definitely help out with regards to the economic climate, but they cannot restructure it. The debate on the first policy (monthly or annually reductions or rebates?) is not a debate that makes much sense in a non-democratic country. It’s just unlikely that debate will be held without the threat of a mass revolution. Additionally, in an environment of extreme structural inequality, or corruption, or just a straight up malevolent dictatorship, the systems are not really in place for a lot of behavioural science (policy) interventions to work. I don’t think the COM-B behavioural change wheel works in turning dictators into nice, pro-democracy people, who actively care about the well-being of their population. From my perspective, and it might be mine alone, a couple of things need to be in place for behavioural science to thrive, or work. I would like to emphasize that I’m not saying you cannot run a single intervention anywhere that’s not the West. That is taking it a bit far, and the West is also still rampant with structural inequality. Very successful interventions have been run by the BIT and the Busara Centre, to just name two sources of research in the non-West, that have improved people’s lives, with regards to hygiene, safety and economic circumstance. Several academics have research in these areas as well, working with social norms (Cristina Bicchieri) and with several forms of nudging (Christina Gravert), to just name a few examples. But those interventions aren’t reducing the structural inequality that caused this situation in the first place, nor are they claiming to do so. And that’s the difference.
Chambers, V., & Spencer, M. (2008). Does changing the timing of a yearly individual tax refund change the amount spent vs. saved?. Journal of Economic Psychology, 29(6), 856-862. Shapiro, M. D., & Slemrod, J. (2009). Did the 2008 tax rebates stimulate spending?. American Economic Review, 99(2), 374-79.