Once a fad, behavioural insights have become an entrenched tool to improve the effectiveness of public policy.
Research from OECD shows strong support for behavioural insights among senior governmental leaders who see the tool as a means for supporting better regulatory design and delivery and broader reform agendas.
Currently, behavioural insights are used at a relatively late stage in the policy process for the purpose of fine-tuning and improving implementation and compliance.
However, OECD observes, more can be done to integrate findings from behavioural insights and digital technology into the ex ante appraisal and ex post evaluation stages of regulatory policy making.
BI can be used to:
- Better define the problem at hand
- Identify the behavioural barriers to policy solutions
- Provide a powerful tool for collecting data
- Establish a user perspective when evaluating implementation
- Support informed stakeholder engagement
As the use of BI continues to expand, so too do new possibilities for solutions to complex policy problems.
An experiment in Ontario, Canada, tested the provision of real-time feedback on energy consumption through in-home displays.
Smart meters are replacing analogue electricity meters in many parts of the world. THey have two features that can impact both behavioural and market-based avenues. The digital meters record electricity consumption at a fine-grained interval, enabling households to see the fluctuations in energy prices over the course of the day.
In the study, the introduction of an in-home energy display reduced total energy consumption by 3 per cent. This suggests either households underestimated their expenditure on electricity prior to receiving the unit, or the unit enabled electricity consumption to become more visible to households.
Ultimately, the report concluded that real-time feedback is likely to cause consumers to alter their behaviour and, in this case, reduce electricity consumption.
Cartels (an association of manufacturers or suppliers with the purpose of maintaining prices at a high level and restricting competition) are possibly the most worrisome competition law infringement in the United States and Europe.
A study by OECD evaluated deterrence mechanisms and examined the related effectiveness of individual fines as compared to corporate fines to deter cartels.
OECD developed a framework to analyse managers’ incentives to form and sustain cartels, as well as to determine firm shareholders’ ideal contract choices. Different antitrust regimes induce different optimal contract choices by firms’ shareholders.
In particular, shareholders choose fixed wage contracts under an antitrust regime with corporate fines. When fines are individual in nature, however, the optimal contract may contain a variable component or, in some cases, be purely variable.
The study found that both individual and corporate fines have some success in deterring cartels, manager heterogeneity, both in characteristics and behaviour, were one of the main explanatory factors in forming and sustaining cartels.
Protecting digital consumers
Behavioural insights can help understand and address the impact of online advertising on consumers.
A study by CCP examined consumer biases and their implications. Such information is valuable to policy makers because the origins of a problem can sometimes lie in consumers’ behavioural biases.
Now the dominant form of advertising in many OECD countries, online advertising has the ability to reach consumers in previously impossible ways. This presents both benefits and risks for consumers.
Online advertising can take advantage of consumer biases and has the potential to mislead consumers into buying full cost products or disclose personal information.
Applying behavioural insights and behavioural economics has the potential to enhance policy outcomes, including diagnosing critical behavioural issues and developing behavioural interventions.
The Strengthening Evidence-Based Policy & Programs conference, being held in Canberra from 20 – 21 May, explores innovative ideas to overcome challenges in data availability and evidence collection. Attendees will gain strategies and action plans to determine the effectiveness of public programs and bridge the gaps in systems for improvement.