Wednesday, December 17, 2014

In Praise of Small Miracles (and Small Nudges)

Most of us don’t save enough. When governments try to encourage saving, they usually enact big policies to increase the incentives. But, in Kenya, people were given a lockable metal box — a simple place to put their money. After one year, the people with metal boxes increased savings by so much that they had 66 percent more money available to pay for health emergencies. It would have taken a giant tax reform to produce a shift in behavior that large. Too many people die in auto accidents. When governments try to reduce highway deaths, they generally increase safety regulations. But, also in Kenya, stickers were placed inside buses and vans urging passengers to scream at automobile drivers they saw driving dangerously. The heckling discouraged dangerous driving by an awesome amount. Insurance claims involving injury or death fell to half of their previous levels. These are examples of a new kind of policy-making that is sweeping the world. The old style was based on the notion that human beings are rational actors who respond in straightforward ways to incentives. The new style, which supplements but does not replace the old style, is based on the obvious point that human beings are not always rational actors. Sometimes we’re mentally lazy, or stressed, or we’re influenced by social pressure and unconscious biases. It’s possible to take advantage of these features to enact change. more

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