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A nudge, as we will use the term, is any aspect of the choice architecture (Choice architecture is the design of different ways in which choices can be presented to consumers, and the impact of that presentation on consumer decision-making.) that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives. To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not mandates. Putting fruit at eye level counts as a nudge. Banning junk food does not.
Renowned for his use of data to observe and predict how people behave in the real world, Thaler’s career has been a lifelong war on Homo economicus, that mythical species of purely rational hominids who dwell exclusively in the models of classical economic theory.
In studies that borrowed from psychology, sociology, and plain-old curiosity, Thaler demonstrated that mankind was afflicted by emotion and irrationality, which influences their decision making on everything from retirement savings, to health-care policy, to professional sports.
But Thaler didn’t contend that humans were randomly irrational. More importantly, he observed that people are predictably irrational. Some of Thaler’s most interesting work studied the predictably irrational effects of ownership, confidence, and a sense of fairness.
- Ownership: According to classic economic theory, a product’s value shouldn’t depend on ownership. In one of his most famous experiments (which he conducted with the Nobel-winning psychologist Daniel Kahneman), Thaler gave mugs to half the students in a classroom and asked the students to assign a value to the mugs. Students who already had a mug considered it twice as valuable those who did not. People place a higher value on what they already own—a so-called “endowment effect.”
- Confidence: More information should lead to better decision-making—in theory. But in a study, Thaler found that professional teams place too much value on early picks, in large part because smart scouts delude themselves into thinking that they can forecast the next superstar. “The more information teams acquire about players, the more overconfident they will feel about their ability to make fine distinctions,” Thaler wrote. This suggests that a downside of “Moneyball” strategies and advanced analytics is that it makes sports teams overconfident about their forecasting abilities.
- Fairness: Thaler’s research has shown that people have firm standards of fairness. Since most consumers don’t know what goods are actually worth, they determine value based on what seems fair. Perhaps $5 for an umbrella is fair—but what if the price was raised from $1 during a downpour? That familiar feeling that one is being gouged might discourage sales in ways that have nothing to do with the utility of the umbrella. In recessions, employers tend to fire workers rather than cut their wages, perhaps out of a sense that workers will consider pay cuts to be unfair.
If irrational human behavior can be predicted, then it can be incited, or nudged. Thaler coined the term “nudging” to describe cheap and easy interventions that change people’s decision-making. The term can apply to both weighty and trivial causes, from encouraging savings by auto-enrolling employees in retirement plans to putting a housefly sticker in a men’s urinal to “improve aim.”
Like any academic concept that breaks into the mainstream, nudging has its doubters. Libertarians say nudges can be tricky and infantalizing. Liberals have claimed they sometimes sacrifice effectiveness for cleverness. (For example, if a government wants to increase saving, it might be more efficient to force savings through a program like Social Security than to rely on companies to nudge their employees toward 401(k) plans.) To his credit, Thaler has acknowledged that nudging is a weapon that can used both for good and bad.
Three principles should guide the use of nudges:
■ All nudging should be transparent and never misleading.
■ It should be as easy as possible to opt out of the nudge, preferably with as little as one mouse click.
■ There should be good reason to believe that the behavior being encouraged will improve the welfare of those being nudged.
In 2013, Robert Shiller won the Nobel in Economics for his work showing that markets are not rational and that their short-term gyrations are often driven by “animal spirits” that are more emotional than logical. Thaler did more than perhaps any other economists to devise a vocabulary for these animal spirits. While he is famous for exploding the myth of rational decision-making, the irony is that insisting that human beings are not rational is by far the more rational approach to studying their behavior.
When The New York Times asked how he would spend the prize money, Thaler said: “This is quite a funny question. I will try to spend it as irrationally as possible.”
Food For Thought :- Can we use NUDGE for making India a less-cash economy ?
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- In the Large States category (overall), Chhattisgarh ranks 1st, followed by Odisha and Telangana, whereas, towards the bottom are Maharashtra at 16th, Assam at 17th and Gujarat at 18th. Gujarat is one State that has seen startling performance ranking 5th in the PAI 2021 Index outperforming traditionally good performing States like Andhra Pradesh and Karnataka, but ranks last in terms of Delta
- In the Small States category (overall), Nagaland tops, followed by Mizoram and Tripura. Towards the tail end of the overall Delta ranking is Uttarakhand (9th), Arunachal Pradesh (10th) and Meghalaya (11th). Nagaland despite being a poor performer in the PAI 2021 Index has come out to be the top performer in Delta, similarly, Mizoram’s performance in Delta is also reflected in it’s ranking in the PAI 2021 Index
- In terms of Equity, in the Large States category, Chhattisgarh has the best Delta rate on Equity indicators, this is also reflected in the performance of Chhattisgarh in the Equity Pillar where it ranks 4th. Following Chhattisgarh is Odisha ranking 2nd in Delta-Equity ranking, but ranks 17th in the Equity Pillar of PAI 2021. Telangana ranks 3rd in Delta-Equity ranking even though it is not a top performer in this Pillar in the overall PAI 2021 Index. Jharkhand (16th), Uttar Pradesh (17th) and Assam (18th) rank at the bottom with Uttar Pradesh’s performance in line with the PAI 2021 Index
- Odisha and Nagaland have shown the best year-on-year improvement under 12 Key Development indicators.
- In the 60:40 division States, the top three performers are Kerala, Goa and Tamil Nadu and, the bottom three performers are Uttar Pradesh, Jharkhand and Bihar.
- In the 90:10 division States, the top three performers were Himachal Pradesh, Sikkim and Mizoram; and, the bottom three performers are Manipur, Assam and Meghalaya.
- Among the 60:40 division States, Orissa, Chhattisgarh and Madhya Pradesh are the top three performers and Tamil Nadu, Telangana and Delhi appear as the bottom three performers.
- Among the 90:10 division States, the top three performers are Manipur, Arunachal Pradesh and Nagaland; and, the bottom three performers are Jammu and Kashmir, Uttarakhand and Himachal Pradesh
- Among the 60:40 division States, Goa, West Bengal and Delhi appear as the top three performers and Andhra Pradesh, Telangana and Bihar appear as the bottom three performers.
- Among the 90:10 division States, Mizoram, Himachal Pradesh and Tripura were the top three performers and Jammu & Kashmir, Nagaland and Arunachal Pradesh were the bottom three performers
- West Bengal, Bihar and Tamil Nadu were the top three States amongst the 60:40 division States; while Haryana, Punjab and Rajasthan appeared as the bottom three performers
- In the case of 90:10 division States, Mizoram, Assam and Tripura were the top three performers and Nagaland, Jammu & Kashmir and Uttarakhand featured as the bottom three
- Among the 60:40 division States, the top three performers are Kerala, Andhra Pradesh and Orissa and the bottom three performers are Madhya Pradesh, Jharkhand and Goa
- In the 90:10 division States, the top three performers are Mizoram, Sikkim and Nagaland and the bottom three performers are Manipur and Assam
In a diverse country like India, where each State is socially, culturally, economically, and politically distinct, measuring Governance becomes increasingly tricky. The Public Affairs Index (PAI 2021) is a scientifically rigorous, data-based framework that measures the quality of governance at the Sub-national level and ranks the States and Union Territories (UTs) of India on a Composite Index (CI).
States are classified into two categories – Large and Small – using population as the criteria.
In PAI 2021, PAC defined three significant pillars that embody Governance – Growth, Equity, and Sustainability. Each of the three Pillars is circumscribed by five governance praxis Themes.
The themes include – Voice and Accountability, Government Effectiveness, Rule of Law, Regulatory Quality and Control of Corruption.
At the bottom of the pyramid, 43 component indicators are mapped to 14 Sustainable Development Goals (SDGs) that are relevant to the States and UTs.
This forms the foundation of the conceptual framework of PAI 2021. The choice of the 43 indicators that go into the calculation of the CI were dictated by the objective of uncovering the complexity and multidimensional character of development governance
The Equity Principle
The Equity Pillar of the PAI 2021 Index analyses the inclusiveness impact at the Sub-national level in the country; inclusiveness in terms of the welfare of a society that depends primarily on establishing that all people feel that they have a say in the governance and are not excluded from the mainstream policy framework.
This requires all individuals and communities, but particularly the most vulnerable, to have an opportunity to improve or maintain their wellbeing. This chapter of PAI 2021 reflects the performance of States and UTs during the pandemic and questions the governance infrastructure in the country, analysing the effectiveness of schemes and the general livelihood of the people in terms of Equity.
Growth and its Discontents
Growth in its multidimensional form encompasses the essence of access to and the availability and optimal utilisation of resources. By resources, PAI 2021 refer to human resources, infrastructure and the budgetary allocations. Capacity building of an economy cannot take place if all the key players of growth do not drive development. The multiplier effects of better health care, improved educational outcomes, increased capital accumulation and lower unemployment levels contribute magnificently in the growth and development of the States.
The Pursuit Of Sustainability
The Sustainability Pillar analyses the access to and usage of resources that has an impact on environment, economy and humankind. The Pillar subsumes two themes and uses seven indicators to measure the effectiveness of government efforts with regards to Sustainability.
The Curious Case Of The Delta
The Delta Analysis presents the results on the State performance on year-on-year improvement. The rankings are measured as the Delta value over the last five to 10 years of data available for 12 Key Development Indicators (KDI). In PAI 2021, 12 indicators across the three Pillars of Equity (five indicators), Growth (five indicators) and Sustainability (two indicators). These KDIs are the outcome indicators crucial to assess Human Development. The Performance in the Delta Analysis is then compared to the Overall PAI 2021 Index.
Key Findings:-
In the Scheme of Things
The Scheme Analysis adds an additional dimension to ranking of the States on their governance. It attempts to complement the Governance Model by trying to understand the developmental activities undertaken by State Governments in the form of schemes. It also tries to understand whether better performance of States in schemes reflect in better governance.
The Centrally Sponsored schemes that were analysed are National Health Mission (NHM), Umbrella Integrated Child Development Services scheme (ICDS), Mahatma Gandh National Rural Employment Guarantee Scheme (MGNREGS), Samagra Shiksha Abhiyan (SmSA) and MidDay Meal Scheme (MDMS).
National Health Mission (NHM)
INTEGRATED CHILD DEVELOPMENT SERVICES (ICDS)
MID- DAY MEAL SCHEME (MDMS)
SAMAGRA SHIKSHA ABHIYAN (SMSA)
MAHATMA GANDHI NATIONAL RURAL EMPLOYMENT GUARANTEE SCHEME (MGNREGS)